EIM21845 - Particular benefits: exemption for welfare counselling
Section 210 ITEPA 2003 and S.I. 2000 No. 2080
The provision by an employer of counselling facilities to an employee represents a chargeable benefit, but in certain circumstances welfare counselling provided by an employer for its employees is exempt from tax.
The exemption is tightly drawn and there is no intention that all conceivable types of welfare counselling should be exempted from tax. The type of subjects the exemption is intended to cover includes:
- problems at work
- debt problems
- alcohol and other drug dependency
- career concerns
- equal opportunities
- sexual abuse
- harassment and bullying
- conduct and discipline
- personal relationship difficulties
For the purposes of this exemption welfare counselling is counselling of any kind except:
- advice on finance, other than advice on debt problems, or
- advice on tax, or
- advice on leisure or recreation, or
- legal advice
Previously, the provision of all forms of medical treatment were excluded from this exemption. From 6 April 2020 this is no longer the case. From 6 April 2020, employer provision of counselling services which are also medical treatments, such as Cognitive Behavioural Therapy or Interpersonal Therapy, are no longer a taxable benefit where these services are provided to the employee as part of the employer’s welfare counselling services.
Employee Assistance Programmes (EAP)
Where welfare counselling services - sometimes called Employee Assistance Programmes - include a range facilities or treatment, some of which fall outside the scope of the exemption, strictly the exemption does not apply to any of the services provided because the exemption does not include any basis for an apportionment of the benefit. Consequently all the component parts of the programme need to be covered by the exemption in order for it to be exempt from tax and NICs.
It follows that if there are some services provided under an EAP which clearly satisfy the terms of the exemption, and others that clearly do not, it makes sense for the two sets of services to be separated - if possible into entirely separate schemes - so that one is exempt from charge, whilst the other represents a benefit to the employees who avail themselves of the facility.
However, if it is not possible to separate the services in this way, common sense should be applied where the welfare counselling provided by an employer consists substantially of facilities that satisfy the terms of the exemption but also to a not significant proportion of the services provided which do not satisfy the exemption. This applies particularly on occasions where it is difficult to determine where to draw the line between counselling which falls within the exemption and counselling which is outside of the exemption.
Legal information and advice
One area where it can be difficult to determine where to draw the line is in connection with legal information and advice provided in connection with an issue that is causing an employee anxiety or distress.
Whilst legal advice is excluded from the exemption, it may be that because of an alcohol or drug dependency problem, an employee is short of money and has defaulted on mortgage payments due on his home. Consequently he is threatened by his mortgage provider with eviction from his home.
The employee’s fundamental problem is caused by the dependency, on which he seeks advice from his employer’s EAP. But as a consequence he also has a legal problem on which he seeks advice from the EAP regarding his rights and obligations to the mortgage provider.
It may be difficult to distinguish how and at what point the advice from the EAP relating to the dependency changes into advice on the legal issues,
especially if both issues are covered in one telephone call or in one face to face meeting. Common sense should be applied in these circumstances, where the fundamental problem is covered by the terms of the exemption.
On the other hand, if the employee contacts the EAP specifically to request legal advice, the counselling provided is clearly not within the exemption. Sometimes an initial call to an EAP may result in general advice on dependency and associated legal issues (which, depending on circumstances, may be accepted as meeting the terms of the exemption) but this initial contact may lead to a referral for specific and bespoke legal advice, either from the employer’s in-house lawyers or by referral to an outside legal practice. The bespoke legal advice is clearly not within the exemption.
Consequently each welfare counselling programme needs to be considered on its own merits so that due consideration could be given to the correct tax treatment.
HMRC has agreed with the UK Employee Assistance Professionals Association (EAPA) that legal information provided within the context of welfare counselling for employees will not prevent the exemption from applying as long as it remains within agreed guidelines. The EAPA has summarised these guidelines for its members:
The principles set out in these guidelines are not restricted to members of the EAPA and can be applied to any welfare counselling programme provided for employees.
HMRC has seen some EAPs which provide welfare counselling to dependants and/or family or household members of employees. The exemption does not extend beyond the employee concerned. Consequently any EAP which is made directly available to dependants and others, as well as to employees, does not satisfy the terms of the exemption.
However, in recognition of the fact that employees may sometimes be affected by family and relationship difficulties, limited services can be provided to an employee’s dependents by employee assistance services and still remain within the welfare counselling exemption provided the guidelines below are followed:
- there must not be a separate helpline number for spouse/partner/dependents
- couple or family counselling will not prevent the exemption from applying but a spouse/partner/dependent must not be offered face to face counselling on their own
- spouse/partner/dependents will not be given access to the legal information component of the service