The government’s decision to tax health screening where it is not paid for by the employer for all staff may end up being short lived depending on the outcome of a consultation, asks Jenny Keefe
The requirement for employers to fund health screening for all employees in order for it continue to be exempt from benefit-in-kind tax was introduced with the minimum of fanfare. Likewise, medical check-ups will only be exempt if they are made available and paid for for all staff; or all workers who are identified as needing a medical check up after a health screening. The first most HR managers heard of it was when it was presented in Parliament on 24 July.
However, once it was widely in the public domain, the ruling did not go unnoticed and was met with much criticism and debate. So much so that, after the relevant amendment to the Income Tax (Exemption of Minor Benefits) Regulations 2002 came into force in August 2007, the government backtracked over its decision tighten up the exemption just two months later.
HM Revenue & Customs (HMRC) has now said that it will not collect the tax and national insurance contributions on health screening and medical check-ups where this would not have been necessary under the legislation prior to the introduction of the new rules in August. It has also published plans to consult on concerns raised around the new tax rules, as some existing health schemes may have been affected in ways that were not envisaged when the new regulations were made. As a result, it is writing to employers and their representatives who have expressed concerns about the changes and is inviting comments via email by 4 January 2008.
The move has bought employers who still limit the perk to certain groups of employees a little bit more time. If the new rules ultimately do go ahead, however, this could lead to a drop in the popularity of health screening. Chris Harrison, managing director of HSA, says: “While these changes take positive steps towards encouraging companies to apply benefits to all, it’s possible they could act as a deterrent for both the implementation of and uptake of benefits.”
The popularity of health screening is currently booming. HSA’s Annual market survey 2007 found that 70% of companies are very and fairly likely to invest more in health screening in the future. Yet Harrison warns staff may be less likely to take it up if they have to pay benefit-in-kind tax on it.
However, for employers wishing to plan ahead for all possible outcomes of the HMRC consultation, there are still ways to cut the cost without ditching the benefit completely. One option is to consider budget health screening; most providers offer basic packages or provide different levels of health screening to different members of staff.
Bruce Robinson, director of operations at Bupa Wellness, says: “Provided that all employees are offered a health screening, [under the new rules] the exemption [would] still apply even if the type of benefit [differed] between groups of employees.”
Another possible quick fix would be to make health screening available through a flexible benefits scheme, claims Matthew Lawrence, head of risk and healthcare practice at Aon Consulting. “As the legislation is about employees having access to health screenings and medical check-ups, our understanding is that this approach [would be] compliant,” he says.
But, with the current uncertainty, employers should always take advice to ensure tax exemptions apply.
If you read nothing else read this…
- Under new tax rules that came into force in August 2007, health screening was only exempt from benefit-in-kind tax if it was made available and funded for all employees.
- HM Revenue & Customs back-tracked on the decision in October. It will not tax schemes for 2007/2008 and is to consult on the new rules with email responses invited until January next year.
- If the new rules do go ahead, they could prompt employers to withdraw the benefit. Employees may also be less likely to take it up if they have to pay benefit-in-kind tax.