Policy paper

Income Tax exemption and National Insurance contributions disregard for employer-provided and employer-reimbursed COVID-19 diagnostic tests (measure number 2239)

Published 17 March 2022

Who is likely to be affected

Employers who either provide their staff with a coronavirus (COVID-19) diagnostic test or reimburse their staff for the cost of a coronavirus diagnostic test, and employees who receive or are reimbursed for a coronavirus diagnostic test.

General description of the measure

This measure extends the current Income Tax exemption and National Insurance contributions disregard on both employer-provided, and employer-reimbursed coronavirus diagnostic tests for one year to make sure that employees and employers will not be liable to either National Insurance contributions or an Income Tax charge (or both). The Income Tax exemptions and National Insurance contributions disregards will have effect for the 2022 to 2023 tax year.

Policy objective

This measure is designed to minimise financial burdens on employees, and National Insurance contributions and reporting requirements on employers who either provide their staff with a coronavirus diagnostic test or reimburse their staff for the cost of a coronavirus diagnostic test.

Background to the measure

This measure aims to make sure the use of relevant diagnostic testing procedures by employers are not subject to an Income Tax charge or National Insurance contributions.

Detailed proposal

Operative date

This measure will have effect from 6 April 2022 to 5 April 2023.

Current law

Under general rules, employer-provided coronavirus diagnostic tests are taxable as a Benefit In Kind (BiK). This means that employees are subject to Income Tax on the cash equivalent of the employer-provided coronavirus test, and employers are subject to Class 1A National Insurance contributions.

Employer-reimbursed coronavirus diagnostic tests are subject to Income Tax for employees and Class 1 National Insurance contributions for both employers and employees.

On 8 December 2020, the government introduced an Income Tax exemption and National Insurance contributions disregard for employer-provided coronavirus diagnostic tests for the 2020 to 2021 tax year.

The exemption was done by way of regulations (The Income Tax (Exemption of Minor Benefits) (Coronavirus) Regulations 2020 (SI 2020/1293)) under the powers in section 210 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003) to exempt minor benefits from a charge to Income Tax. As the National Insurance contributions position follows the Income Tax position, the Income Tax regulations were effective in disregarding the Class 1A National Insurance contributions liability on employers.

On 25 January 2021, the Government introduced an Income Tax exemption and National Insurance contributions disregard for employer-reimbursed coronavirus diagnostic tests for the 2020 to 2021 tax year.

The Income Tax exemption on employer-reimbursed coronavirus diagnostic tests was introduced via section 26 of the Finance Act 2021. Separate regulations (the Social Security Contributions (Disregarded Payments) (Coronavirus) (No. 2) Regulations 2020 (SI 2020/1523)) were introduced to disregard the National Insurance contributions liability on employers and employees.

Section 26(5) of FA 2021 conferred on the Treasury a power to extend the exemption for both employer-provided, and employer-reimbursed coronavirus diagnostic tests for subsequent tax years by regulations.

On 10 June 2021, the Income Tax exemption for both employer-provided, and employer-reimbursed coronavirus diagnostic tests were then extended into the 2021 to 2022 tax year. On 6 April 2021, the National Insurance contributions disregard for employer-reimbursed coronavirus diagnostic tests for the 2021 to 2022 tax year was introduced through The Social Security Contributions (Disregarded Payments) (Coronavirus) Regulations 2021 (SI 2021/242).

Proposed revisions

The current Income Tax exemptions and National Insurance contributions disregards on employer-provided, and employer-reimbursed coronavirus diagnostic (due to expire on 5 April 2022) are being extended into the 2022 to 2023 tax year.

To be eligible for the exemptions and disregards, a relevant coronavirus diagnostic test is defined as a test which can detect the presence of a viral antigen or viral ribonucleic acid specific to severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2) and does not include antibody tests.

Summary of impacts

Exchequer impact (£million)

2021 to 2022 2022 to 2023 2023 to 2024 2024 to 2025 2025 to 2026 2026 to 2027
empty empty empty empty empty empty

The final costing will be subject to scrutiny by the Office for Budget Responsibility and will be set out at the next fiscal event.

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 a coronavirus diagnostic test from either their employer or employees (or both) who purchase a coronavirus diagnostic test and are reimbursed by their employer. This proposal ensures that those who receive a coronavirus diagnostic test from their employer will not be liable to an Income Tax BiKs charge, and those who are reimbursed for the cost of a coronavirus diagnostic test are not liable to an Income Tax charge or Class 1 National Insurance contributions.

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

Customer experience is expected to stay broadly the same as this proposal does not significantly change how employees interact with HMRC.

Equalities impacts

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

Impact on business including civil society organisations

This measure is expected to have a positive impact on employers by making sure that they no longer need to pay National Insurance contributions when they provide or reimburse their staff for a relevant coronavirus diagnostic test.

As this is an extension of the current Income Tax exemption and National Insurance contributions disregard on employer-provided, and employer-reimbursed coronavirus diagnostic tests, there will be no one-off costs in the form of familiarisation with the change. There are not expected to be any further one-off 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 are no operational impact costs to extending these policies for this submission.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

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

Further advice

If you have any questions about this change, contact Nicholl Lynch on Telephone: 03000 583032 or email: employmentincome.policy@hmrc.gov.uk team mailbox.

Declaration

The Rt Hon Lucy Frazer QC 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 the likely costs, benefits and impacts of the measure.