Government tightens tax on health screens and possibly EAPs

Government reviews tax position on perks such as health screening and employee assistance schemes

A SPATE of moves by the government to tighten up, or clarify, tax rules around key benefits has hit the benefits industry in recent weeks.

Health screening is one perk that employers could be forced to review following a move to axe the tax exemption where employers only provide the benefit for a select number of staff, contained in an amendment to the Income Tax (Exemption of Minor Benefits) Regulations 2002. In a statement issued to Employee Benefits, HM Revenue & Customs (HMRC) said: “All employees must have the opportunity of health screening or a medical check-up provided (that is to say paid for) by their employer if the exemption is to apply.”.

However Axa PPP Healthcare has requested further clarification from HMRC. Dudley Lusted, its head of corporate healthcare development, said it is not clear whether all employees have to receive the same level of health screening to guarantee tax exemptions. If not, employers could continue to offer senior staff more expensive provision and limit the wider workforce to a more basic offering. However, he added: “I think [HMRC] will say it’s got to be the same for everybody, but it doesn’t say that in the legislation.”

Subject to further clarification from HMRC, Lesley Fidler, director at financial services firm Baker Tilly, said employers who restrict such perks to senior employees will have to either extend the benefit across the entire workforce, or report it under P11D or a Pay-As-You-Earn settlement agreement to deal with the tax position in future. She added that this could result in some disgruntled employees who were not expecting to be taxed on health screening.

In a separate move, the government is considering the status of employee assistance programmes (EAPs) which are tax free if they provide ‘welfare counselling’. However, many products now offer financial and legal advice that falls outside the tax-free services traditionally offered under an EAP.

The government has indicated it may start taxing schemes, possibly in a move to prevent abuse of the tax-free status of an EAP by those that offer extra advice services. New guidelines are expected to be published by the end of the year.

Inez Anderson, tax director at financial services firm Smith & Williamson, said that because EAPs are usually offered to all employees the government is examining their use more closely. She added: “There is a bit of a push within the government that if something isn’t being provided to all employees it’s more likely to be regarded as being taxable.”

HMRC has also recently taken steps to clarify the tax rules around employer-paid travel from work to home.