Policy paper

Extension to the Income Tax and National Insurance contributions exemption for employer provided and employer-reimbursed coronavirus antigen tests

Published 3 March 2021

Who is likely to be affected

Employers who choose to provide their staff with, or reimburse them for the cost of, a relevant coronavirus antigen test, and employees who receive or are reimbursed for the cost of a relevant test from their employer.

General description of the measure

This provides for an extension to existing Income Tax exemptions and National Insurance contributions disregards that were introduced during the 2020 to 2021 tax year, to ensure that employees who are provided with, or reimbursed for the cost of, a relevant coronavirus antigen test by their employer will not be liable to an Income Tax or National Insurance contributions charge.

The extension means that the exemptions and disregards will apply to any coronavirus antigen test provided by an employer, for the tax year 2020 to 2021 and 2021 to 2022. They will also apply to any reimbursement to an employee for a coronavirus antigen test for the tax years 2020 to 2021 and 2021 to 2022.

Policy objective

This measure is designed to minimise the financial burdens on employees, and the Class 1 National Insurance contributions and reporting requirements on employers who provide, or reimburse employees 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, and this measure aims to ensure the use of relevant antigen testing procedures by employers are not subject to a tax or National Insurance contributions charge.

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

Detailed proposal

Operative date

This measure will have effect from 6 April 2021 until 5 April 2022.

Current law

For the purposes of the exemption and disregard for both employer provided and employer reimbursed coronavirus antigen tests, “coronavirus antigen test” is defined as a test which detects 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.

Employer provided coronavirus antigen tests

For the purpose of employment-related benefits, a benefit is defined in section 201(2) of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA03) as “a benefit or facility of any kind”. When a benefit is provided to an employee (or to any member of his/her family or household) by reason of the employment, it is defined as an “employment-related benefit”. The amount of a benefit which is chargeable as earnings is the “cash equivalent” of the benefit less any amount made good by the employee.

The definition of what is a benefit is thus very wide and, prior to the temporary exemption introduced via S.I.2020/1293, employer provided coronavirus antigen tests were not covered by existing tax exemptions for particular benefits.

Therefore, on 9 July 2020 the government announced via a written ministerial statement that the provision of coronavirus antigen tests to employees by employers would not attract tax and National Insurance contributions liabilities for the tax year 2020 to 2021.

The tax position was given effect, between 8 December 2020 and 5 April 2021, by Income Tax (Exemption of Minor Benefits) (Coronavirus) Regulations 2020 (SI 2020/1293). This instrument was made under the powers in s210 to exempt minor benefits caught by the residual liability to charge in Chapter 10 of Part 3 ITEPA03.

The exemption from tax created by S.I. 2020/1293 also meant that there was no corresponding Class 1A National Insurance contributions liability which arose on the provision of the test, so there was no need to separately legislate to cover the liability to National Insurance contributions (see section 10(1) of the Social Security Contributions and Benefits Act 1992).

The Commissioners of HMRC have also agreed to exercise collection and management powers to not collect the tax and National Insurance contributions due on antigen tests provided between 6 April 2020 and 7 December 2020. The combination of the S.I and collection and management powers will ensure that no liabilities will be collected for the tax year 2020 to 2021.

Employer reimbursed coronavirus antigen tests

The reimbursement of the cost of a relevant coronavirus antigen test to an employee is not covered by any existing income tax exemptions or tax reliefs. This means that, without this measure, the reimbursement to the employee would be treated as earnings derived from employment, and a liability would arise for both the employer and employee.

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 them, then this would ordinarily be captured by section 72 in Chapter 3 Part 3 of ITEPA03, 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 a National Insurance contributions charge on the employer and employee, unless a relevant exemption/disregard 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”. 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 tax 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.

On 17 December 2020 the government announced, via a written ministerial statement, a second Income Tax exemption and National Insurance contributions disregard, to ensure that employees who purchase their own coronavirus antigen test and are reimbursed by their employer, will not attract tax and National Insurance contributions liabilities for the tax year 2020/21.

The Income Tax exemption will be introduced through Finance Bill 2021, to remove the tax charge retrospectively for the reimbursement to employees by employers of the costs incurred where an employee has been reimbursed for a coronavirus antigen test during the tax year 2020 to 2021. Finance Bill 2021 will also introduce an Income Tax exemption to remove the tax charge prospectively for employer reimbursed coronavirus antigen tests in the 2021 to 2022 tax year.

For National Insurance contributions disregard this was given effect via the Social Security Contributions (Disregarded Payments) (Coronavirus) (No. 2) Regulations 2020 (SI 2020/1523), which came into force on 25 January 2021 and have effect in relation to payments made on or after that date, but before the end of the tax year 2020 to 2021. An extension to this disregard will be introduced under sections 3 and 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA) for the 2021-2022 tax year.

HMRC Commissioners have agreed to exercise collection and management powers not to collect tax on all payments made during the tax year 2020 to 2021 (until HMRC are able to legislate in a Finance Bill); and all National Insurance contributions due on payments made between 6 April 2020 and 24 January 2021.

Proposed revisions

The temporary exemption for employer provided coronavirus antigen tests (S.I.2020/1293), will be extended through the Finance Bill 2021, to cover the tax year 2021 to 2022 and also include a Treasury Order making power to extend the exemption to future years if required.

The Finance Bill 2021 will also retrospectively introduce a new Income Tax exemption for employer reimbursed coronavirus antigen tests, and this measure will extend it to the tax year 2021 to 2022. A Treasury Order making power will also be included to extend the exemption future years if required.

To minimise the financial and reporting burdens, the temporary National Insurance contributions disregard for Class 1 National Insurance contributions will be extended to cover the tax year 2021 to 2022. This disregard will be introduced under sections 3 and 10 of the Social Security Contributions and Benefits Act 1992 (SSCBA). The disregard will ensure that where an employer reimburses an employee for the cost of a coronavirus test there will be no National Insurance contributions liability.

Summary of impacts

Exchequer impact (£m)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
-	-105	-5	negligible	negligible	negligible

These figures are set out in Table 2.1 of Budget 2021 as a package of measures called “COVID-19: HMRC exemptions” and have been certified by the Office for Budget Responsibility.

Economic impact

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

Impact on individuals, households and families

This proposal is expected to have a positive impact on employees who receive or are reimbursed for a relevant coronavirus antigen test from their employer. This proposal ensures that employees will not be liable to an Income Tax charge on employer provided antigen tests or reimbursements for the cost of an antigen test.

This proposal also ensures that employers and employees are not liable to National Insurance contributions on these tests. 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 in general. This proposal will have a positive impact by ensuring employers no longer need to report the provision or reimbursement of a benefit. There will be a one-off cost in the form of familiarisation with the change. There are not expected to be continuing costs. There will be a one-off saving from not having to report information on the provision of or a reimbursement of a relevant test for this year.

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 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 employment income policy team by email: employmentincome.policy@hmrc.gov.uk.