On 11 March 2020, Chancellor Rishi Sunak presented his UK Budget. At point 2.180, the Red Book contained the subject ‘Tax treatment of welfare counselling provided by employers’.
In general, welfare counselling when paid by the employer constitutes a benefit-in-kind. However, section 154 of the Income and Corporation Taxes Act 1988 (derived as Section 210 in the Income Tax (Earnings and Pensions) Act 2003) gives the power for tax relief to be given on ‘minor benefits’.
The Income Tax (Benefits in Kind) (Exemption for Welfare Counselling) Regulations 2000 state that welfare counselling will be exempt from a tax charge where it is not provided for:
- Medical treatment of any kind, or
- Advice on finance, tax, leisure or recreation and legal matters
HMRC have interpreted this in the Employment Status Manual (page 21845).
Budget 2020 announced that the scope of non-taxable counselling services would be expanded from April 2020 to include ‘related medical treatment’, giving an example as cognitive behavioural therapy, when provided to an employee as part of an employer’s welfare counselling services.
HMRC’s Policy Paper dated 16 March 2020 says that the welfare counselling regulations will be amended so they no longer exclude the provision of counselling services which are also medical treatments, where they are provided to the employee as part of the employer’s welfare counselling services.
The Income Tax (Benefits in Kind) (Exemption for Welfare Counselling) (Amendment) Regulations 2020 were laid on 16 March 2020, coming into force on 06 April 2020 for tax year 2020/21 and subsequent years. They amend the 2000 Regulations and the Explanatory Memorandum indicates that the tax exemptions now available ‘no longer exclude the provision of specialist counselling services which are also medical treatments, where these services are provided to the employee as part of the employer’s welfare counselling services’.
Look out for HMRC’s updating of their Employment Status Manual to see their interpretation of how far this extension