BENEFITS - 31.08.2017

Tax and workplace injury or illness

One of your employees has injured themselves at work. There’s no question of liability for your firm, but as a goodwill gesture you want to pay for physiotherapy to aid their recovery. Will it count as a taxable benefit?

Tax treatment

As a general rule if you pay for goods or services for an employee or director it counts as a taxable perk. Or, where you reimburse an employee the cost of goods or services they’ve paid for, it counts as additional pay liable to PAYE tax and NI. Of course, there are exceptions and exemptions, including one or two for health screening and some types of counselling, but generally these don’t apply to medical treatment ( (read more about this) , see The next step ).

Medical treatment

Usually, if you pay for medical treatment for an employee it will result in a tax and NI bill for them. Assuming you don’t want the employee to have to pay this, you’ll have to meet the cost, which increases the cost significantly.

Example. One of Acom Ltd’s employees, John, injured his shoulder by falling off a ladder at home and it wants to pay for a course of physiotherapy to help him recover. It’s not only for his benefit - it should mean that John can resume full duties at work sooner. It costs John £600, which Acom reimburses. Acom doesn’t want him to face a tax or NI bill for this. John is a 40% taxpayer.

Because Acom reimbursed John it counts as additional pay. To cover the treatment plus the resulting tax and NI will cost Acom £1,177, i.e. gross pay of £1,034, less tax at 40% (£413) and NI at 2% (£21) to leave £600. Acom must also pay employers’ NI of £143 (£1,034 x 13.8%).

Tip. Acom could have reduced the cost slightly by arranging and paying for the treatment direct with the supplier. That would have made the payment a perk instead of extra pay. John would have had no NI liability and Acom’s NI would be a couple of pounds less and not payable until the July following the end of the tax year.

Conditional tax and NI exemption

Had John’s injury occurred at work a tax and NI exemption would have applied to the cost of the medical treatment where Acom:

  • could show that the injury was because of the employee’s occupation
  • could reasonably be attributed to the nature of the employee’s job; and
  • it wasn’t a risk common to everybody, for example, a bad back caused by the general nature of the work, say lifting.

Medical insurance

The cost of insuring an employee for medical treatment is subject to tax and NI in the same way as a direct cost of treatment. Therefore, if the injury or illness meets the conditions of the tax and NI exemption then the cost of insuring against treatment in that situation is also exempt. However, if the insurance covers any element of treatment for non-work related injury or illness, the full cost of the premium is a taxable perk.

Tip. A separate and wider exemption covers the cost of treatment for work and non-work related injury or illness for employees while they are working abroad.

The cost of treatment for a non-work related injury or illness is a taxable perk. However, if it arises directly from an employee’s job and is not a general condition, e.g an aching back caused by lifting, treatment you pay for isn’t a taxable benefit. If the employee is working abroad, non-work related treatment is also exempt.

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