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HMRC internal manual

Employment Income Manual

Particular benefits: trust funds set up by employers to pay for medical expenses

An employer may set up a trust or similar fund out of which employees’ medical expenses are met.

If the fund is simply the vehicle through which the employer meets employees’ medical expenses, the chargeable benefit is the cost of the medical treatment paid for less anything the employee makes good (see EIM21761). In cases where an employer makes annual contributions to a trust to provide medical treatment and:

  • the arrangements confer on each employee an absolute right to have the cost of specified medical treatment paid for from funds contributed by the employer and
  • the employer’s annual contribution paid in respect of the arrangements for each employee is identifiable (if the trustees have any discretion about what benefits to provide this test will not be met) and
  • once paid the contributions are completely and irrevocably alienated from the employer and
  • the arrangements are not capable of termination before all claims for treatment for periods for which contributions have been made by the employer have been met and
  • it is a term of the arrangements that no variation is permissible such that one or more of these conditions would cease to be satisfied

the benefit to the employee is of the nature of a right (akin to insurance cover) to have whatever medical costs arise paid for them, rather than the medical treatment itself. The cash equivalent of the benefit to each employee will then be measured by the contribution, in respect of that employee, made by the employer to the trust. This is similar to the situation set out at EIM21762.

Even if the contract for the provision of healthcare is made between the healthcare provider and the employee as patient, and the trust meets the costs of the treatment, this is a benefit to the employee. Under such an arrangement the employer settles the employee’s debt (EIM00580), but there is no payment of earnings chargeable under Section 62 ITEPA 2003, as the employer’s payment of the costs derives not from the employment (EIM00600), but from the rights under the medical scheme. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)