Income Tax and National Insurance contributions exemption for employer-reimbursed coronavirus antigen tests
Updated 25 March 2021
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Who is likely to be affected
Employers who choose to reimburse an employee for the cost of a relevant coronavirus (COVID-19) antigen test, and employees who are reimbursed for the cost of a relevant test from their employer.
General description of the measure
This measure disregards payments that an employer makes to an employee to reimburse for the cost of a relevant coronavirus antigen test from National Insurance contributions. There will be no National Insurance contributions liability for the employee or employer.
To be eligible for the disregard, 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).
The disregard will apply to any advance payments or reimbursements made to an employee for the cost of a relevant coronavirus antigen test made on or after 25 January 2021, until 5 April 2021. For any relevant advance payments or reimbursements which have been made during the 2020 to 2021 tax year, but before this measure comes into force, HMRC will exercise its Collection and Management powers and will refrain from collecting any National Insurance contributions or Income Tax due on the reimbursement of a relevant coronavirus antigen test.
The intention is to legislate a corresponding Income Tax exemption in the next Finance Bill to prevent an equivalent tax charge on the payments.
This measure is designed to minimise the financial burdens on employees, and the National Insurance contributions 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 National Insurance contributions 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 encounter any income tax or National Insurance contributions consequences resulting from either provision of a relevant coronavirus antigen test or reimbursement of the cost of a test to an employee.
No consultation has been held as this is a minor and temporary change which is wholly relieving.
This measure will have effect from 25 January 2021 until 5 April 2021.
HMRC will exercise its collection and management powers and will not collect any National Insurance contributions or Income Tax due on the advance payment or reimbursement of the cost of a relevant coronavirus antigen test from 6 April 2020 until the regulations take effect, provided the conditions set out in the legislation are met.
The reimbursement of the cost of a relevant coronavirus antigen test to an employee is not covered by any existing National Insurance contributions disregards under Schedule 3 to the Social Security (Contributions) Regulations 2001 (SI 2001/1004) or elsewhere. This means that, without this measure, the payment to the employee would be treated as earnings derived from employment and a Class 1 National Insurance contributions liability would arise for both employer and employee where an employer reimburses their employee for the cost of a relevant coronavirus antigen test.
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 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, 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 National Insurance contributions 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 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.
To minimise the financial and reporting burdens, a new National Insurance contributions disregard for both Class 1 and Class 1A National Insurance contributions 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 relevant coronavirus antigen test there will be no National Insurance contributions liability. The government intends to legislate for an Income Tax exemption for employer reimbursements of the cost of relevant coronavirus antigen tests in the next Finance Bill.
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 (£million)
|2020 to 2021||2021 to 2022||2022 to 2023||2023 to 2024||2024 to 2025||2025 to 2026|
The Office for Budget Responsibility has included the impact of this measure in its forecast at Budget 2021.
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 makes sure that they (and their employer) will not be liable to National Insurance contributions or Income Tax 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.
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 National Insurance contributions 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 (£million) (HMRC or other)
There will be a negligible operational impact to HMRC for this change.
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.
If you have any questions about this change, contact the National Insurance contributions policy team by email: firstname.lastname@example.org
The Right Honourable Jesse Norman MP, Financial Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of