COVID testing - now potentially a benefit in kind

Since 6 April 2023, unless employees are entitled to access free COVID tests from the NHS, employer provided COVID testing kits will be a taxable benefit.

During the pandemic, HMRC initially took the view that the cost to employers of providing their employees with COVID antigen tests was a benefit in kind which would need reporting on forms P11D or via a PAYE Settlement Agreement. However, common sense prevailed and a COVID testing easement was introduced to allow employers to provide employees with covid antigen tests without a benefit in kind arising. This initially applied for 2020/21 and 2021/22 with the option to extend for future tax years.

Whilst the easement was extended for the 2022/23 tax year, it has not been extended further and therefore the easement quietly ended on 5 April 2023. From 6 April 2023, where employers are providing employees with COVID antigen tests, a taxable benefit will arise unless it can be covered by an exemption or is required during the course of business travel.

Where COVID tests are provided on an ad hoc basis, perhaps for an occasional visit to a vulnerable client, it may be possible for the test kit to be covered by the trivial benefits exemption. However, if the tests are provided regularly, HMRC could argue this represents a connected series of benefits meaning that the combined costs across the tax year exceeds the £50 limit. Alternatively, where there is a requirement for regular testing, that the provision of the tests is linked to the services performed by the employee. Given the limited scope of the exemption, it is likely that the trivial benefits exemption may not cover the provision of the tests.

As a reminder, the conditions for trivial benefits are as follows:

• The cost of the benefit including vat does not exceed £50 per employee
• The benefit is not cash or a cash voucher (HMRC also interpret this to include reimbursements)
• The benefit is not provided under a salary sacrifice arrangement or contractual obligation
• The benefit is not provided in recognition of services performed by the employee.
   

So how should the provision of tests be reported?

The easiest option to report the taxable provision of covid tests would be via a PAYE Settlement Agreement (PSA). A PSA allows employers to report minor, irregular or impracticable benefits and typically covers benefits such as staff entertaining or staff gifts where it would not be appropriate/difficult to report on the individual's P11D - read more here.

If a PSA is already in place, employers could ask HMRC to extend the PSA to include covid testing. Whilst HMRC would likely accept this addition on the grounds that the provision of COVID tests is minor, HMRC could argue that where the tests are provided regularly, it would not be appropriate.

Where a PSA is not in place, this could be an opportunity to apply for a PSA and consider if other categories of benefit should be included. Alternatively, the tests should be reported on forms P11D, or where reimbursed via an employee’s expense claim, included in the payroll and subject to PAYE tax and Class 1 NIC.

If you have any questions on this or any other employer provide benefit, please get in touch with your usual BDO contact.