Category: Employee Benefits

Tax Implications Of COVID Related Employee Benefits

HMRC has provided detailed guidance on tax implications of COVID-related employee benefits. The major of these are coronavirus tests and the provision of Personal Protective Equipment (PPE) to employees.

The guidance explains how employers should proceed where they are providing coronavirus testing kits or Personal Protective Equipment (PPE) to their employees.

https://www.gov.uk/guidance/how-to-treat-certain-expenses-and-benefits-provided-to-employees-during-coronavirus-covid-19

Coronavirus testing kits

HMRC confirms that coronavirus tests provided by the government to healthcare workers and other eligible front-line as part of its national testing scheme are not treated as a benefit in kind for tax purposes. There is no tax due and you do not need to report a benefit to HMRC.

Further, where an employer separately provides antigen testing kits to their employees or provides tests completed by a third party then no Income Tax or Class 1A National Insurance contributions will be due.

Personal Protective Equipment 

Where employees are working in scenarios where the likelihood of the transmission of coronavirus is very high and a risk assessment determines that PPE is required, then the necessary equipment must be provided to employees free of charge. The PPE must fit correctly. The provision of this PPE to employees is non-taxable.

If an employee requires PPE to complete their job and the employer is unable to provide this, then employers must reimburse the actual expenses of employees purchasing PPE themselves. This is non-taxable and employees cannot claim tax relief on these expenses from HMRC.

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To ease the financial burden on their employees, some employers may look at paying or refunding travelling costs from work to home for their employees when they return to work. There are tax implications that should be examined. As a general rule, where an employer pays or refunds an employee the cost of transport from work to home, this is considered to be a benefit as it is classified as a private journey.

In some circumstances, there is an exemption from paying tax on this benefit. For this to happen, all of the following 4 conditions must be met:

• the employee has to work later than usual and until at least 9 pm
• this happens irregularly
• by the time the employee finishes work, either: public transport has stopped, or it would not be reasonable to expect them to use public transport
• the transport is by taxi or similar road transport

Travelling Costs employees may also regularly travel to work in a car with one or more other employees using a car-sharing arrangement. If this arrangement stopped because of unforeseen and exceptional circumstances, which are coronavirus related, and the employer provides transport or reimbursement of the expense of transport from their employee’s home to workplace, this may also be exempt.

HMRC’s guidance is clear that if these requirements are not met, free or subsidised transport is taxable and should be reported through a PAYE Settlement Agreement as a coronavirus related benefit.

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PAYE Settlement Agreements (PSA) provide a measure of simplification for employers dealing with certain taxable benefits. A PAYE Settlement Agreement (PSA) allows employers to make one annual payment to cover all the tax and National Insurance due on small or irregular taxable expenses or benefits for your employees. https://www.gov.uk/paye-settlement-agreements

The expenses or benefits included in a PSA must be defined as one of the following;

• minor – e.g. a small birthday present
• irregular – e.g. one-off relocation expenses over £8,000 (these are tax-free below £8,000)
• impracticable (difficult to work out the value of or divide up between individual employees) – e.g. shared cars or taxi journeys

The employer can enter into a PSA with HMRC.  Examples of benefits that could be included in a PSA are:

• prizes, incentives or awards
• staff entertaining e.g. a ticket to an event or an event not otherwise covered by exemption
• gym subscriptions
• small gifts not otherwise covered by an exemption
• telephone bills   
• benefits that have been shared between a number of employees

Employers that are required to notify HMRC of the value of items included in a PAYE settlement agreement (PSA) should do so using form PSA1. The deadline for applying for a PSA for 2019-20 expired on 5 July 2020.

However, any tax or National Insurance due for 2019-20 under a PSA must be paid electronically to clear into HMRC’s bank account by 22 October 2020. Employers that pay by cheque must ensure that the payment reaches HMRC by 19 October 2020. There may be interest and / or a late payment penalty due where the payment is made late.

Temporary changes to EMI working time arrangements will ensure that individuals who are furloughed or who have their working hours reduced below the current statutory working time requirement for EMI as a result of coronavirus (COVID-19) will retain the tax advantages of the scheme. These changes will apply for a limited period and will have effect from 19 March 2020 until 5 April 2021.

The use of the EMI can help small growing companies to attract and retain sought after employees. The EMI allows employees to buy shares free of Income Tax and NICs on the difference between the amount paid for shares when an option is used and the actual value at the time.

The value of shares over which options may be held by an employee under the EMI scheme is currently £250,000 in a 3-year period. In addition, the shares must be in an independent trading company that has gross assets not exceeding £30 million, has fewer than 250 employees and operates a ‘qualifying’ trade.

Companies that work in ‘excluded activities’ aren’t allowed to offer EMIs. Excluded activities include:

• banking
• farming
• property development
• provision of legal services
• ship building

Advisory fuel rates are intended to reflect actual average fuel costs and are updated quarterly. The rates can be used by employers who reimburse employees for business travel in their company cars or where employees are required to repay the cost of fuel used for private travel. HMRC accepts there is no taxable profit and no Class 1A National Insurance on reimbursed travel expenses where employers pay a rate per mile for business travel no higher than the published advisory fuel rates.

Employees can also use the advisory fuel rate to repay the cost of fuel used for private travel. In this case, HMRC will accept there’s no fuel benefit charge. The advisory rates are not binding if you the employer can demonstrate that employees cover the full cost of private fuel by repaying at a lower rate per mile.

The latest advisory fuel rates became effective on 1 September 2020. Fuel rates are reviewed four times a year with changes taking effect on 1 March, 1 June, 1 September and 1 December. You can use the previous rates for up to 1 month from the date the new rates apply.

The new rates are as follows:

Hybrid cars are treated as either petrol or diesel cars for this purpose.

Advisory Electricity Rate

HMRC accepts that if you pay up to 4p per mile when reimbursing your employees for business travel in a fully electric company car there is no profit. While electricity is not considered a fuel for tax and NICs purposes, the Advisory Electricity Rate is now published quarterly alongside the other advisory fuel rates.