Professional September 2021


Welfare counselling tax exemption

Beverley Gibbs, employment taxes consultant for PSTAX, discusses the issues for employers

T he Coronavirus pandemic has wellbeing of employees if they are to have happy and effective workforces. The social isolation for many while working from home, together with the anxiety caused by the pandemic, has meant that the mental health services within the NHS (National Health Service) have been put under increasing strain. Employers have long-recognised highlighted the need for employers to look after the mental health and the importance of providing help and assistance to their employees through a confidential employee helpline that offers welfare counselling and advice. This is generally provided to employees through an employee assistance programme (EAP). Many of us know about these programmes and the services they offer but may not be aware of the tax and National Insurance contributions (NICs) implications. Although the provision of counselling is a chargeable benefit under general principles when provided by an employer, there is an exemption that covers certain welfare counselling services. The exemption does not cover all types of welfare counselling and the counselling services that are included make it easy to stray outside of the exemption as it is tightly drawn. The exemption is conditional on the benefit being made available to the employer’s employees generally on similar terms.

advises that the types of counselling that the exemption is intended to cover include the following: stress; problems at work; debt problems; alcohol and other drug dependency; career concerns; bereavement; equal opportunities’; ill- health; sexual abuse; harassment and bullying; conduct and discipline; personal relationship difficulties. HMRC then goes on to explain that, for the purposes of the exemption, welfare counselling is counselling of any kind except: ● advice on finance, other than advice on

of an employer’s EAP. It should be noted that these are very specific treatments and most medical treatment would not be exempt.

Practical issues The issue for employers providing

counselling services, from a tax and NICs perspective, is that some EAPs provide a wide range of services, some of which are exempt and some which are not. This would be manageable if the chargeable services could be apportioned against the exempt services. However, the exemption does not give any basis for apportionment, which results in the whole EAP being a chargeable benefit if it includes any services not covered by the exemption. To prevent this from happening, HMRC advises that employers could consider separating out the two types of service into totally different schemes where possible. Where this is not possible, HMRC guidance suggests that ‘common sense should be applied’ where a minor part of the service is outside of the exemption in relation to all the other services provided. However, applying such an approach does come with a few difficulties when the problem that is presented by an employee when contacting the EAP service crosses into territory that is excluded from the exemption. From a tax perspective, it is important that the main reason for contacting the service is one of mental health and welfare. An example of this would be where an employee contacts the service in distress and anxiety over a breakup with a partner, but during the

debt problems ● advice on tax ● advice on leisure or recreation ● legal advice.

Previously, the exemption excluded all types of medical treatment, but from 6 April 2020 some counselling services that are also classed as medical treatments have been included in the exemption. The exemption now includes treatments such as cognitive behavioral therapy and interpersonal therapy where they are part ...from 6 April 2020 some counselling services that are also classed as medical treatments have been included in the exemption.

What is included HM Revenue & Customs (HMRC)

| Professional in Payroll, Pensions and Reward | September 2021 | Issue 73 30

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