Policy paper

Income Tax exemption for employer-reimbursed coronavirus antigen tests

Published 3 March 2021

Who is likely to be affected

Employers who choose to reimburse an employee for the cost of a relevant coronavirus antigen test, and employees who are reimbursed for the cost of a relevant test from their employer.

General description of the measure

This measure will introduce an income tax exemption for payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen. There will be no Income Tax liability for the employee or employer.

To be eligible for the exemption, a relevant coronavirus antigen test is defined as a test which can detect the presence of a viral antigen or viral ribonucleic acid (RNA) specific to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2).

This includes any variants that are identified via a coronavirus antigen test.

The Income Tax exemption will retrospectively apply to any advance payments or reimbursements made to an employee for the cost of a relevant coronavirus antigen test made for the tax year 2020 to 2021.

Corresponding National Insurance contributions (NICs) regulations have been laid to prevent an equivalent NICs charge on the payment. Further details can be found in the separate NICs tax impact and information note published on 15 December 2020.

For any relevant advance payments or reimbursements which have been made during the 2020 to 2021 tax year, but before the Income Tax (or NICs) measures come into force, HMRC will exercise its Collection and Management (C&M) powers and will refrain from collecting any Income Tax (or NICs) due on the reimbursement of a relevant coronavirus antigen test.

Policy objective

This measure is designed to minimise the financial burdens on employees, and the Income Tax liability and reporting requirements on employers who reimburse an employee for the cost of a relevant coronavirus antigen test.

Background to the measure

The government is committed to supporting businesses and individuals through the coronavirus pandemic. This measure aims to ensure that there is no Income Tax liability where an employer reimburses an employee for the cost of a relevant coronavirus antigen test.

This measure, alongside the existing tax exemption for employer-provided coronavirus antigen tests, means employers and their employees will not have any Income Tax liabilities resulting from either provision of a relevant coronavirus antigen test or reimbursement of the cost of a test to an employee for the 2020 to 2021 tax year (there is a separate measure to remove prospectively the tax charge for employer reimbursed coronavirus antigen tests in the 2021 to 2022 tax year).

No consultation has been held as this is a minor and temporary change which is wholly relieving.

Detailed proposal

Operative date

The income tax measure will have effect after the date of Royal Assent to Finance Bill 2021 and will retrospectively apply to the 2020 to 2021 tax year.

For any relevant advance payments or reimbursements which have been made during the 2020 to 2021 tax year, but before the Income Tax measure comes into force HMRC will exercise its collection and management discretion and will not collect tax and NICs due on any amounts, provided the conditions set out in the legislation are met.

Current law

For tax purposes, where an amount is reimbursed to an employee in respect of expenses incurred by the employee or paid in advance to the employee to meet expenses incurred by the employee, then this would ordinarily be captured by section 72 (Chapter 3 Part 3 of Income Tax (Earning and Pensions) Act 03 (ITPEA03) where the sum is to be treated as earnings from the employment for the tax year in which it is paid or paid away.

This would normally give rise to an Income Tax liability for the employee and NICs charge on the employer and employee, unless a relevant exemption applies.

Tax relief is generally available under section 336 ITEPA03 where an employee incurs a cost that is “wholly, exclusively and necessarily in the performance of the duties of their employment”. The corresponding NICs disregard is contained within schedule 3 of the Social Security (Contributions) Regulations 2001.

However, the current rules mean that where an employee buys their own coronavirus test and is reimbursed by their employer, they will currently not be entitled to any Income Tax or NICs relief.

This is because the expense incurred puts the employee in a position to perform their duties and is therefore not incurred in performance of their duties.

To minimise the financial and reporting burdens, a new NICs disregard for both Class 1 and Class 1A NICs was introduced under sections 3 and 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA).

The disregard ensures that where an employer reimburses an employee for the cost of a relevant coronavirus antigen test there will be no NICs liability.

Proposed revisions

A new Income tax exemption will be introduced to ensure that where an employer reimburses an employee for the cost of a relevant coronavirus antigen test there will be no Income Tax liability.

The government will legislate for an Income Tax exemption within ITEPA03 for employer reimbursements of the cost of relevant coronavirus antigen tests in Finance Bill 2021. The disregard specifically applies to relevant coronavirus antigen tests only and does not extend to coronavirus antibody tests.

This is because antibody tests only provide a historic view of whether an individual has previously contracted the coronavirus, and unlike the antigen test, it does not inform whether the individual is currently affected by the coronavirus and needs to self-isolate to prevent spreading the virus to other people.

Summary of impacts

Exchequer impact

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
Empty	Empty	Empty	Empty	Empty	Empty

The Office for Budget Responsibility has included the impact of this measure in its forecast at Budget 2021.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This proposal is expected to have a positive impact on employees who are reimbursed the cost of a relevant coronavirus test by their employer as it ensures that they (and their employer) will not be liable to Income Tax or NICs on the payment.

Customer experience is expected to remain broadly the same as it does not change how individuals interact with HMRC.

This measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts for those in groups sharing protected characteristics.

Impact on business including civil society organisations

This proposal is expected to have a positive impact on employers by ensuring they no longer need to pay Income Tax or NICs when they reimburse an employee the cost of a relevant coronavirus antigen test.

There will be a one-off cost in the form of familiarisation with the change.

There are not expected to be continuing costs. Customer experience is expected to stay broadly the same as this proposal does not significantly change how employers interact with HMRC.

There is expected to be no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

There will be a negligible operational impact to HMRC for this change.

Other impacts

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups.

Further advice

If you have any questions about this change, please contact the Income Tax Policy team by email: employmentincome.policy@hmrc.gov.uk.