HMRC drops benefit in kind charge on Covid-19 tests

HMRC has been forced into a rapid U-turn after publishing guidance indicating that employees would face a taxable benefit in kind when their employer pays for coronavirus testing, following an outcry from MPs

Updated guidance on how to treat certain expenses and benefits provided to employees during the Covid-19 crisis which HMRC put out on 6 July included the information that if an employer paid for a coronavirus test, their employee would be required to pay income tax on that benefit.

The Treasury select committee, among others, points out that as many employers will require these tests on a regular basis, the tax bills could soon mount up.

The committee’s chair, Mel Stride, wrote to the Chancellor of the Exchequer Rishi Sunak asking him to look into the matter as soon as possible.

Stride said: ‘Many employees, especially healthcare and hospitality workers, are required to undergo regular coronavirus testing. This new guidance is unclear and will worry a large number of workers.

‘Many of our key workers could be faced with the perverse incentive of avoiding employer-sponsored tests in order to reduce their tax bill.

‘This cannot be right.’

Following the intervention, on 7 July HMRC published revised guidance which shows the information about 'Coronavirus (COVID-19) tests' has been removed. 

The guidance had said: ‘Coronavirus (Covid-19) testing kits or tests carried out by a third party which have been purchased by you to provide to your employees, are treated as a taxable benefit in kind on the employee.’

As some frontline workers are tested as frequently as once a week, and tests can cost £150 each, private testing for one employee could cost up to £7,800 a year. This would result in a tax charge of £1,560 for a basic rate taxpayer, rising to £3,120 for a higher-rate earner, according to calculations.

However, many workers will be entitled to free NHS tests.

A Treasury spokesman said: ‘Given the importance of widespread testing, we want to ensure that all employers who wish to provide third-party testing to their employees can do so without increasing their tax liability.

‘So, we will introduce a new income tax exemption for Covid-19 antigen tests provided by employers. HMRC will amend its guidance as soon as possible to reflect this change.’

Guidance How to treat certain expenses and benefits provided to employees during coronavirus (COVID-19) is here.

Mel Stride’s letter to the Chancellor is here.

By Pat Sweet

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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