Tax Treatment of Counselling Services to Employees
Amidst the current cost of living crisis whereby households have seen mortgage interest rates alongside the price of energy and utilities skyrocket-and with the UK facing its highest tax burden since the end of the second world war-it is completely normal for your employees to be feeling stressed. This may be regarding their job security given predictions of a prolonged recession or their ability to meet their bills and provide for their family. In such instances, employers arranging for staff wellness and other counselling services may stand apart and win the talent war.
However, how does one determine what counselling services are tax exempt and which are taxable and therefore require a P11D filing to be made with HMRC. In this article, we’ll cover the basics of this topic to give you a better understanding of what your responsibilities might be as an employer if the services aren’t deemed to be tax-exempt.
Counselling services are considered exempt where they’re made available to all employees and relate to matters such as poor health, bereavement, anxiety and stress, work-related issues such as harassment or equality in terms of offered opportunities and even personal relationship problems. To remain exempt, the service must not cover any tax or legal advice, financial advice other than debt problems faced by the employee, advice relating to leisure or recreation. It is also important to note that any counselling services which are provided as part of a salary sacrifice arrangement. In this case, a P11D filing will be required with the taxable benefit being the higher of the cost of the service and the salary forgone.
The bifurcation of services permissible as exempt and taxable can create hurdles as grey areas should become apparent relatively easily. Say an employee is going through marital issues and may face a divorce. In reaching out to the counsellor, she receives advice regarding her current state of affairs, but the conversation also transcends into the legal implications of a divorce such as split of assets or entitlement to any compensation from the employee’s spouse. Judgement would be required in this situation since the root cause of accessing the service is marital issues, but the conversation has also covered legal and financial advice relating to a divorce. If this occurred over a single phone call or face-to-face chat, it can be quite difficult to determine what the service should be classified as.
HMRC doesn’t permit apportionment of the service as part exempt and part taxable. Hence, to be exempt from tax, the entirety of the service must be exempt and avoid covering any topics which are taxable.
Do you have or plan to provide a counselling service for your employees? Are you concerned of being unaware of what the tax treatment might be and your responsibilities as an employer? Why note reach out to Cheylesmore Accountants for robust advice and guiding information on counselling services as well as other benefits-in-kind, we will walk you through all your accounting responsibilities but more importantly seamlessly execute these on your behalf to put and your employees at ease over their tax affairs. That’s one less tax and financial matter which you have to worry about.
