Are tax breaks for employees’ occupational health services on the way?

HMT and HMRC are consulting on tax incentives for employer provided occupational health services – here’s your chance to shape the debate

BIK changes for occupational health?

The Treasury and HMRC have issued a consultation on tax incentives for employer provided occupational health services. Broadly, these are services, benefits, and support that employers provide to help employees remain healthy and productive in the workplace. The consultation looks at whether employers could be encouraged to provide more occupational health support if the current range of income tax and NIC exemptions for health-related Benefits in Kind (BIKs) is expanded. Alternative tax incentives, such as a ‘super deduction’ for certain occupational health costs when calculating the employer’s taxable profits, are also considered. This consultation will interest employers who currently provide health-related BIKs, those thinking about introducing health benefits to their Employee Value Proposition (EVP), and employers who are considering whether to expand their current offering – perhaps in support of their Environmental, Social and Governance (ESG) strategy. This article summarises the consultation’s key points and how employers can contribute their views.

What are the current exemptions for health-related benefits?

In summary, under current rules the following employer provided benefits are exempt from income tax and NIC:

  • Eye and eyesight tests required under Health and Safety regulations and any corrective glasses or contact lenses those tests show are required;
  • One annual health-screening assessment to identify employees at particular risk of ill health and/or one annual medical check-up to assess employees’ actual health;
  • Subject to certain conditions, medical treatment costing up to £500 per tax year which is recommended to assist an employee to return to work; and
  • Certain welfare counselling.

The consultation does not suggest any changes to these current exemptions for employer provided health-related benefits.

What does the consultation propose?

The consultation proposes introducing income tax and NIC exemptions for the following benefits with the aim of improving employees’ health and retaining them within the workforce:
  • Health-screenings and medical check-ups within a pre-defined limit (which we presume is a financial limit on the total cost rather than, as at present, a limit on the frequency of assessments);
  • Treatments (including preventative treatments) that aim to reduce absences from work or improve employees’ performance; and
  • The cost of ‘flu’ vaccinations reimbursed by the employer (HMRC usually accepts that, subject to certain conditions, an employer provided ‘flu’ vaccination is exempt from tax and NIC as a trivial benefit, but if an employer reimburses the cost of an employee obtaining a vaccination this is currently taxable). 

The consultation provisionally rejects introducing income tax and NIC reliefs for some specified health-related benefits but asks whether a case could be made for tax exemptions to encourage their provision. These include private medical insurance, non-clinical treatments (such as gym memberships and fitness classes), and health benefits provided to employees’ family members and other non-employees. 

The consultation also asks whether alternative tax incentives (i.e. other than widening the availability of income tax and NIC reliefs) would be more effective in increasing employer provided occupational health support, particularly by small and medium sized enterprises. The consultation gives a ‘super deduction’ for the employer’s cost of providing occupational health services as an example and asks for further suggestions and justifications of alternative tax incentives.

What should employers do?

This consultation gives employers an opportunity to share their views with key policy makers on how the tax rules could be improved to support the provision of occupational health services. We also welcome the indication (concerning ‘flu’ vaccinations) that policy makers might be willing to look at the confusing differences between the tax treatment of BIKs and reimbursed expenses that can cause compliance issues for many employers.

When considering how they might respond to this consultation, employers should review the health-related benefits they currently provide, whether the applicable tax and NIC rules offer support or create barriers, and how that support might be improved, or those barriers removed.

Employers should also consider what additional health and wellbeing benefits they might offer to enhance their EVP and demonstrate their ESG agenda to attract and retain employees in a competitive market. This consultation offers the chance to make submissions on how those plans might be hindered by the current tax regime and what changes could help.

The consultation closes on 12 October 2023. Please contact Caroline Laffey, Scott Cullen, Chris Verri or your usual KPMG in the UK contact, if you’d like to talk through what its proposals might mean for your business and its employees, or how health and wellbeing benefits could enhance your EVP or support your ESG strategy, or if you have any points on the consultation that you’d like us to consider including in any submissions we make. Employers can also respond to the consultation directly by completing this survey.

The Government encourages respondents to consider this consultation together with the related Department for Work and Pensions and Department of Health and Social Care consultation on non-fiscal levers to support greater occupational health provision.

The Treasury and HMRC will publish the consultation outcome in due course.