HMRC declares Tax & NI Exemption to Employer for Corona Virus Antigen Test Fees in UK
Earlier, many authorities in the UK, such as the ICAEW, had shared concerns with the government authorities regarding the matter of tax treatment in the cases where the employers reimburse their workers for the costs of Coronavirus test kits. The HMRC (HM Revenue and Customs) has now recently issued a clarification related to the matter of reimbursement made by an employer for the cost of undertaking the relevant COVID-19 antigen test to an employee from the National Insurance Contributions (NIC). It means that if an employee gets reimbursement for the cost of the COVID-19 test, that money will be free from income tax and NIC liabilities in the current tax year.
How will this announcement affect you and your company?
Two class of taxpayers will be affected by the tax and NI exemption in the UK:
- Firstly, Employers who shall or already have reimbursed or repaid their employees for the cost of a relevant coronavirus antigen test
- Secondly, Employees who will get reimbursed for the cost of a relevant coronavirus antigen test
What is the connotation of a relevant coronavirus antigen test?
The term relevant coronavirus antigen test refers to a medical examination that can successfully detect the presence of a viral antigen or viral RNA, aka ribonucleic acid. In this case, the viral antigen must be specific to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).
How will this system work?
According to the usual tax systems, when an employer pays or reimburses an employee in advance the expenses made by the employee, it counts as a part of the employee’s usual earnings under section 72 (Chapter 3 Part 3 of ITEPA03). Thus, reimbursements are ordinarily liable to taxes and NI.
Tax relief bills are ordinarily under section 336 ITEPA03, in which the employees are subject to the costs that are exclusively and completely based on their performance and obligation of their jobs. On the other hand, one can find the aspect of disregard of National insurance contribution in schedule 3 of the Social Security (Contributions) Regulations 2001.
However, this time if the employers reimburse or pay for the relevant COVID-19 test, neither the employer nor the employee will be liable to income tax and National Insurance Contribution.
Things to keep in mind concerning the tax exemption and National Insurance Contribution disregard
- The relevant employee must undertake the test for business/professional reasons. It means that only when someone gets the test done due to some requirements in their job/profession it will be included for the temporary exemption purpose.
- The tax and NI exemption only applies to the relevant COVID-19 antigen tests and does not include coronavirus antibody tests. It is so because antibody tests only give a historical view of whether an individual has previously contracted the coronavirus. Unlike the antigen test, it does not inform whether the individual is currently affected by the coronavirus and if he/she needs to self-isolate to prevent spreading the virus.
What will be the impacts of the temporary tax and NI exemption in the UK?
- It is important to note that this exemption of income tax and NI is a minor change and is not going to have any significant impact on the UK’s economy.
- Due to the temporary measure, there shall be a one-off cost. It indicates a charge that is paid once and not repeated in the form of familiarization with the change. Continuing costs are not expected. Taxpayer experience will stay very much the same as this exemption does not make any significant changes in the way employers interact with HMRC. Most expect no impact on civil society organizations to take place as a result of this measure.
What are the benefits?
The UK government is trying to support individual employees as well as businesses by issuing the temporary exemption of NIC and income tax for the cost of a relevant COVID-19 test. The following are the benefits of this exemption:
- The main objective behind this tax and NI exemption is to lessen the financial burdens on employees.
- This disregard policy will also make the employers free of the responsibility of filing National Insurance Contributions and reporting requirements after reimbursing an employee for the cost of COVID-19 antigen.
- This exemption of taxes is also applied with the pre-existing tax exemption for employers’ coronavirus antigen tests. It means the employer and employee will not face any income tax or national insurance contributions from any provision of a relevant coronavirus test or reimbursement of an antigen test’s cost.
For what period will the exemption be applicable?
The income tax and NI exemption will apply to the advance payment or reimbursement made by an employer to the employee for the cost of a relevant COVID-19 antigen test from 25 January 2021 to 5 April 2021. It is important to note that the exemption will cover the Coronavirus antigen tests that employees undergo during the period initiating from 8 December 2020 to 5 April 2021.
Suppose an employer had made a relevant advance reimbursement during the 2020/21 tax year (commenced on 6 April 2020) before issuing this tax exemption. In that case, HMRC will exercise its collection and management powers and will not collect any income tax or national contributions. It means that the reimbursements made for the cost of a relevant COVID-19 antigen test after 6 April 2020 are not liable to the income tax and NIC.
Beware of scams related to the scheme!
As the government introduces any new policies and schemes, many instances of some scammers are likely to pop up. Your task is to stay alert from such parties with fraudulent intent.
If you receive texts, calls, or emails from some anonymous phone number and email ID, respectively, it is probably a scam claiming to be from HMRC. Such scammers try to persuade you by offering financial help or tax refund. They ask you to click open some anonymous link and fill in your personal information. If you get any such calls, texts, or emails, then do not reciprocate, for it is a scam. HMRC does not ask for your information in such fishy ways. It is in your best interests to stay vigilant about such perpetrators.
A Measure of Enhanced Support for Both Employees and Employers!
The past year has proved to be quite excruciating for most people due to the outbreak of COVID-19. The introduction of this measure in the UK for tax exemption and NIC disregard will act as a means to lower the obligations of NIC liability and reporting for employers. It will also offer considerable relief to many employees who are going under financial strain.
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