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Occupational health tax incentives under review

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Can changing the tax rules around the cost of medical interventions for employees help the long-term sick get back to work, or to stay in employment? The government wants your views.

28th Jul 2023
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Back in March 2023, I presented three ideas for the Chancellor to tweak the tax system in order to boost growth.

None of these ideas made it into Hunt’s Spring Budget, but I am delighted to see that my suggestion of changing the tax exemption for employer-supported health interventions for employees, is now the subject of a serious consultation: Tax incentives for occupational health.

Chancellor Hunt was the longest-serving Health Secretary in British political history (2012 to 2018), so must understand how waiting for NHS treatment affects employees’ ability to work. In the foreword to this consultation he notes: “The number of people not working in the UK due to long-term sickness specifically has reached a record high. Typically, for every 13 people currently working, one person is long-term sick.”

Current position

The current tax treatment for health support at work is a patchwork of reliefs and exemptions that have built up over many years. The following are exempt from tax when provided by the employer as benefit in kind for employees:

  • up to £500 of medical treatment per year per employee
  • welfare counselling – no monetary cap
  • eye test, glasses or contact lenses – no monetary cap 
  • annual health screening and medical check-ups – no monetary cap.

There are conditions attached to all of the above exemptions. 

For example, the benefit of medical treatment is only tax exempt if a healthcare professional has assessed the employee as unfit for work, or expected to be unfit for work, due to injury or ill health for at least 28 consecutive days. The treatment must be provided to assist the employee to return to work.

The above health support costs are tax deductible for the business if:

  • those expenses are of a revenue, not capital nature, and 
  • the sole purpose is for the employer’s trade.

Although it is difficult to prove that a health intervention for an employee doesn’t have dual use, as it will also improve their personal life, this point rarely raised by HMRC.

What does the consultation ask?

The tax consultation focused on expanding the benefit in kind exemptions, but no monetary limits are suggested. It does ask (in question 4) whether the £500 cap on medical treatment influences the amount that employees are likely to spend on occupational health (OH) services.

My view is, yes of course it does. If an employee needs a knee operation that costs £14,500, the employer is not going to pay for that treatment if the employee then receives a tax bill of £4,480 (£14,000 x 32%) as a result.

As I suggested in March, I feel the annual cap on the cost of medical treatment should be raised significantly or removed completely. 

Other ideas 

The government is also seeking views on whether alternative tax approaches would encourage smaller employers to provide OH, such as making the OH costs eligible for a super deduction for the employer. 

My suggestion is to allow the full cost of health insurance to be exempt from tax and national insurance (NI) for the employee and fully tax deductible for the employer. A sufficiently broad health insurance scheme should cover most medical interventions an employee may require, but the employer should be able to pay for (and claim a tax deduction for) any other medical treatments or OH services provided.

The government could underwrite a nationwide health insurance scheme for small employers to ensure they get the same sort of deal as larger employers. 

Employee health strategies 

The HMRC consultation on tax reforms for occupational health is partnered with a Department of Work and Pensions (DWP)/ Department of Health and Social Care (DHSC) consultation: Occupational Health: Working Better, which seeks views on how employers (especially small and medium-sized enterprises) can be encouraged to make more use of OH to help their employees. 

That DWP/ DHSC consultation concentrates on developing health at work standards for employers, and how employers can access advice to provide OH to workers. However, as health is a devolved matter, the changes to support OH schemes can only apply for employers in England, where as the tax changes can apply across the UK.

Two-tier society

If these tax changes materialise and employers do spend more on occupational health (as insurance or treatments), would this undermine or support the NHS? 

Some may argue that we would end up with a two-tier society, a bit like the USA. Those employed by generous employers would be able to access whatever health care they need when they need it, while those outside employment, or who had less bargaining power at work, would have to rely on the NHS and wait months, if not years, for the treatment they need. 

Perhaps the NHS waiting lists may shorten if large numbers of people opt to have treatment through private health providers, either paid for by their employer, or from their own savings. This is already happening to some extent, with little obvious reduction in NHS waiting lists.

Replies (1)

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By Hugo Fair
28th Jul 2023 20:00

"If an employee needs a knee operation that costs £14,500, the employer is not going to pay for that treatment if the employee then receives a tax bill of £4,480 (£14,000 x 32%) as a result."

True ... but which (or rather how many) employers are prepared to stump up the £14,500 in the first place (assuming the need is merely an option rather than work-induced)?

And the elephant in the room, which political party is going to promote a policy which will swiftly be interpreted (by the media as well as by their opponents) as an attack on 'our NHS'?

As you admit: "Perhaps the NHS waiting lists may shorten if large numbers of people opt to have treatment through private health providers, either paid for by their employer, or from their own savings. This is already happening to some extent, with little obvious reduction in NHS waiting lists."
There's not so much a lack of evidence of reduction in NHS waiting lists, as there is credible evidence that it lengthens them - since many of the resources, and not just the human ones, are shared between private medicine and the NHS (so growth in the former reduces availability in the latter).

Also, “the number of people not working in the UK due to long-term sickness specifically (is now)
.. typically, for every 13 people currently working, one person is long-term sick.”
Whilst a terrifying statistic, how recent is the data (and in particular does it include sufferers from long-covid)?

AND does 'not working' indicate employed-but-off-sick or unemployed-due-to-sickness?
The latter are hardly going to be helped by assistance for employers (who may be getting desperate but are not generally fishing in the pond of the longterm-sick.

There are undoubtedly intrinsic (structural and financial) problems with both the health of the nation and the various sources of medical services ... but tinkering with fairly minor tax issues (that are bound to favour some group over another) is unlikely to truly benefit anyone other than the providers of said medical services (generally the privately owned ones)!

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