Tax incentives for occupational health: consultation

The government has published a consultation seeking views on expanding the scope of tax incentives to incentivise employers to provide access to occupational health (OH) services for their employees. The document, Tax incentives for occupational health: consultation, puts forward a number of proposals to extend existing exemptions from the benefit in kind (BiK) rules, in particular. However, it also recognises that there may be alternative views and support for different tax policy options that could help to deliver on the objective of increasing the provision of OH and therefore welcomes views on whether there are alternative tax incentives that would be more effective.

Background

The consultation notes that while unemployment is low by historical standards, there has been a significant increase in the number of economically inactive people following the COVID-19 pandemic. The number of people not working in the UK due to long-term sickness specifically has reached a record high.

The consultation also notes that sustained economic growth, driven by increasing labour market participation and productivity, is key to improving living standards. Encouraging good health and productivity in the workplace is therefore in everyone's economic interest. The inactivity caused by long-term sickness negatively impacts UK employers, who experience reduced productivity and high staff turnover. This in turn has a broader impact on the economy, reducing both productivity and the overall levels of employment.

Employer-led occupational health services play an important part by helping to address the impacts of an individual's health conditions in the workplace, and supporting employees to remain healthy in work. The consultation therefore discusses the case for tax incentives and specifically seeks views on providing further support through expanding the Benefit in Kind exemption for medical benefits, to encourage greater employer provision of occupational health services.

Current tax incentives

Any expenses incurred by an employer on OH services will normally be eligible for a deduction when the business is calculating its taxable profits, provided that (i) those expenses are of a revenue, not capital nature, and (ii) the sole purpose is for the employer's trade. It is expected that the vast majority of expenses incurred on OH services will satisfy both of these requirements.

Income tax and NICs are normally paid on benefits received by employees from their employer, and employers will also pay employer NICs. However, there are a number of exemptions from the requirements to account for tax on BiKs, including the following:

• Recommended medical treatment funded by an employer to help employees return to work: Provided that, before the recommendation for medical treatment has been made, the employee has been assessed by a healthcare professional as unfit for work, or expected to be unfit for work, due to injury or ill health for at least 28 consecutive days and the recommendation is provided for the purposes of assisting the employee to return to work. If the conditions are met, the value of the treatment (up to £500 per year) is not regarded as a taxable benefit.
• Cost of annual health screening and medical check-ups: One health screening assessment per employee, which is an assessment to identify employees who might be at particular risk of ill-health; and one medical check-up, which is a physical examination of the employee by a health professional solely for determining the employee's state of health.
• Welfare counselling: Welfare counselling is not regarded as a taxable benefit where it does not relate to tax; leisure and recreation; legal; or financial (although can relate to debt management) counselling. Where counselling services are also medical treatment, for example Cognitive Behavioural Therapy or Interpersonal Therapy, they are also not regarded as taxable benefits so long as they are part of a welfare counselling service.
• Eye tests and glasses or contact lenses. Eye tests where required by health and safety legislation for employees who use a computer monitor or other screen, and glasses or contact lenses where required for monitor or screen work.

In addition, where an injury occurs outside the workplace and meets certain conditions, spending by an employer on OH services can be wholly or partially exempted from Income Tax and National Insurance contributions.

Proposals

In addition to the current BiK exemptions, the government suggests the following additional areas might be covered by the exemption.

• Health screenings for employees, within a specific pre-defined limit
• Medical check-ups for employees, within a specific pre-defined limit
• Treatments that aim to reduce workplace absence or enable employees to perform better, including preventative treatments
• Flu vaccinations, where paid for by the employee and later reimbursed by the employer.

The government's initial assessment is that expenditure in these areas may aid the health of employees and ultimately help to prevent people from leaving the workforce. However, there are also likely to be drawbacks associated with expanding BiK reliefs, including cost to the Exchequer, deadweight loss (providing a tax benefit where OH provision would have been offered anyway), limited behavioural impacts, and subsidising costs which do not relate to OH.

The consultation document notes that there are no plans to expand the exemptions to areas such as:

• Private medical insurance for employees
• Non-clinical treatments, such as wellness retreats, fitness classes, or gym memberships
• Wages for OH staff employed by the business
• Consulting costs, for example relating to the development of a business' OH strategy
• Costs relating to family members of employees
• Costs relating to persons that are not employees.

If the government decides that there is a strong case to further support OH investment by making changes to the tax system, the expectation is that it would be in the form of an expansion of the existing BiK exemption, as using this existing lever would limit complexity for businesses.

However, the government recognises that there may be different views and therefore welcomes views on whether alternative tax incentives, beyond changes to the existing BiK exemption, would be more effective in achieving the government's objective of increasing employer provision of OH, particularly amongst SMEs.

The consultation notes that the tax system could be adapted in different ways in order to provide a financial benefit to employers. For example, the government could provide businesses with a super-deduction on certain OH costs, which would mean that the more money a business spent on OH, the less tax it would have to pay.

Comments

The consultation is open for responses until 23 October 2023, which should be sent via the SmartSurvey link or to OHtax@hmtreasury.gov.uk.

This consultation should be considered together with the DWP and DHSC consultation assessing a range of policy levers for employers including a national voluntary standard and best practice sharing and also developing a longer-term, multi-disciplinary workforce to provide OH services. That consultation is available at this link: https://www.gov.uk/government/consultations/occupational-health-working-better