Not all employer-provided COVID-19 tests will qualify for the new benefit-in-kind exemption – this is what you need to know.
The Chancellor announced in July 2020 that a temporary income tax and Class 1A NIC exemption would be introduced for employer-provided COVID-19 tests in 2020/21. Regulations that set out details of the new exemption were recently laid. Employers should confirm whether any COVID-19 tests they intend to provide for employees, and the terms on which they will be provided, will fall within the new exemption. Employers should also confirm whether the new exemption will apply to any COVID-19 tests they provided earlier in the year. This article discusses the qualifying conditions.
How does the new exemption work?
Provided certain conditions are met, employers can provide COVID-19 tests for employees in 2020/21 without these being subject to income tax and Class 1A NIC as benefits-in-kind.
Strictly, the new exemption applies only to qualifying COVID-19 tests provided by or on behalf of employers on or after 8 December 2020.
However, HMRC have confirmed that, provided the relevant conditions are met, income tax and Class 1A NIC will not be collected on qualifying COVID-19 tests provided during 2020/21 before the new regulations take effect.
What conditions need to be met?
It’s important to note that not all COVID-19 tests will qualify for the new exemption. Tests that detect relevant coronavirus antigens or viral RNA – both factors that indicate a current infection and the need to self-isolate – are within the scope of the exemption.
However, tests that detect antibodies which indicate an individual has previously had COVID-19 are not covered.
Additionally, availability of the new exemption is conditional on the employer making the qualifying tests available for employees on similar terms.
What should employers do now?
Employers who intend offering COVID-19 tests for their employees should confirm whether these would be qualifying tests for the purposes of the new exemption.
If so, it would be advisable to develop and document a policy for providing those tests to ensure the requirement that they are provided on similar terms to employees generally, is met.
Where employers have previously offered tests for employees, they should confirm whether they were qualifying COVID-19 tests and, if so, whether they were offered to employees generally on similar terms.
Where the new exemption does not apply, employers could consider whether the provision of COVID-19 tests qualifies for exemption from tax as a trivial benefit. However, HMRC have said that where repeated tests are provided for an employee and the aggregate cost exceeds £50, then the trivial benefit exemption will not apply. In these circumstances it should nevertheless be possible for the employer to include taxable COVID-19 tests in a PAYE Settlement Agreement.
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