Employment-related coronavirus tax reliefs

In this article we look at a few of the key measures which may be helpful for employers and their employees, and highlight those with a limited shelf-life.

Employer-provided coronavirus tests

The position for coronavirus tests has flip-flopped, with HMRC originally saying in July 2020 that employer-provided tests outside the national testing programme were a taxable benefit in kind for the employee as such tests were not ‘wholly, exclusively and necessarily’ for the purpose of the employee’s duties.

This position was widely criticised at the time, with the Treasury Committee in particular wading in to describe this approach as unhelpful, so the Chancellor rapidly agreed to reverse the position.

It has taken a little while though for the changes to work through into legislation, with tax policy papers in November and December 2020 confirming that there will be no tax consequences for employer-provided testing for ‘active’ cases in the 2020/21 year – ie antigen tests which look for current cases of coronavirus. The exemption does not, however, extend to employer-provided antibody testing which is intended to see if the employee has previously had the virus. Normal benefit-in-kind rules continue to apply to them.

Each policy paper has been followed by a new statutory instrument to give effect to these rules. The first statutory instrument ensures that income tax is not chargeable on employer-provided tests for ‘active’ cases of coronavirus from December 8, 2020 to April 5, 2021. The accompanying policy paper confirms that HMRC will exercise their discretion under their collection and management powers and not collect either income tax or national insurance contributions (NICs) on tests carried out earlier in the 2020/21 tax year.

The second related statutory instrument (due in early January) exempts from NICs any employer who opts to either reimburse or provide funds in advance for an employee’s coronavirus test. This will apply from 25 January to April 5, 2021, but again the policy paper confirms that HMRC will use their statutory discretion to refrain from collecting both NICs and Income tax for employer-reimbursed tests for the earlier part of 2020/21. The corresponding income tax exemption is due to be included in the next Finance Bill.

Employers should be aware that, as HMRC’s view of the underlying position has not changed, unless further exemptions are granted, when these antigen-test exemptions expire on April 5, 2021, the costs will revert to being a taxable benefit in kind. Since employers could well still be paying for tests beyond that date, the ATT is raising concerns with HMRC and asking for these antigen-test measures to be extended.

Office equipment

Early on in the pandemic when mass homeworking was first advised, many employees will have found themselves in need of extra equipment – from laptops to monitors, keyboards and printers and even office furniture. In general, as long as there is no significant private use, employers can provide these items without tax consequences.

However, where employers allowed employees to purchase the required items themselves and then agreed to reimburse those costs at a later date, such a reimbursement is taxable under the usual rules. Thankfully a temporary exemption from these rules will apply to reimbursements made between 16 March and April 5, 2021 inclusive. During this period, provided that the equipment was purchased for the sole purpose of enabling homeworking as a result of coronavirus – and it would have been tax exempt if the employer had provided it directly – employers will be able to reimburse their employees for purchases of office equipment without tax or NIC consequences.

Cycle to work

Under the cycle to work scheme an employee can hire a bike, plus associated safety equipment, from their employer and pay for that hire out of their pre-tax earnings. The scheme effectively allows employees to obtain a bike in a tax-efficient manner, provided that the employee uses the bike at least 50 percent of the time for qualifying journeys, which generally means commuting to work.

Employees who have benefited from these schemes but are now working from home may well struggle to meet this condition. HMRC guidance has now been updated to confirm that anyone who joined an employer-provided cycle scheme before 20 December 2020 will not have to meet the 50 percent qualifying journeys requirement. This easement will apply until April 5, 2022.

The easement will not apply to employees who joined a scheme on or after December 21, 2020 as they will have been expected to factor in the impact of the pandemic on their use of the bike.

Virtual parties

On November 20, HMRC acknowledged that a virtual party would fall within the current exemptions for an annual function. This meant that employers who wanted to provide some sort of festive fun wouldn’t land their employees with a tax bill provided that they followed the usual rules requiring the event being annual (i.e. not a one-off celebration), open to all staff and that the total cost of the event (including VAT, food, drink or party favours in a ‘party box’) was no more than £150/head.

While Christmas is past, the pandemic is still very much with us, so employers with other annual events coming up might be pleased to learn that the relaxation was not just in respect of Christmas parties, but any such annual function – provided that the total cost per head of the events combined is less than £150 in any given tax year. This means that provided all the other conditions are met, an employer can move comparable regular events online and still benefit from the usual rules for annual functions.

While all these exemptions are helpful, most of them are time limited and employers who miss the relevant windows could still create a benefit-in-kind charge for themselves and their employees.

Helen Thornley is an ATT technical officer