Employee wellbeing | Don't let tax come between you and good mental health

By Tracey Ward, Head of Busines Development and Marketing at Generali UK Employee Benefits

While employers, insurers and wellbeing providers alike welcomed recent government recognition of the ‘crucial’ role of employers in supporting their people to stay mentally well this winter¹, it seems that HM Revenue & Customs (HMRC) might not have got the memo!

Because while Employee Assistance Programmes (EAPs) are widely available to employees in the UK - and can generally be extended by providers at no extra cost to the household families of employees - seemingly strict rules regarding the tax implications of family usage might be deterring many employers from even considering this option. It needn’t be so.

Considering there simply are no boundaries now between home and work life thanks to this year’s mass shift to homeworking, not to mention the added pressure on families where furloughing is a factor, perhaps now is the time to take a fresh look at this issue.

After all, when it comes to employee mental health, EAPs have a vital role in supporting the mental health of the UK, says Eugene Farrell, Chair of the Employee Assistance Programme Association (EAPA).

“Problems and issues exist within families and supporting the family member can be beneficial to help support the employee. Excluding family members because of a tax liability just doesn't seem sensible,” he adds.

“We know that usage by family members is very low and does not adversely affect the price, hence the tax gained for HMRC is small, but this acts as a barrier to supporting mental health at work. That cannot be in the best interest of the UK's mental health. EAPA UK would support the inclusion of families into the tax exemption granted to EAPs.”

What can you do today?

The key message to employers right now? Don’t immediately disregard family access. After all, in some markets - Canada for example - EAP usage is promoted heavily, to the point where the service is referred to as an Employee and Family Assistance Program (EFAP).

There might well be ways to do this in the UK too, without flouting current HMRC rules of course. In this article, we investigate where and when tax implications apply, plus outline the options for employers.

First, it’s worthy of note that HMRC has listened to employers during the pandemic, as evidenced by recent changes to some tax rules.

For example, in respect of the annual functions exemption, HMRC now accepts that this covers virtual events. Plus, employer reimbursement for the provision of homeworking equipment was previously taxable. This has now been exempted until 5 April 2021.

Another employment tax exemption has also been introduced this year: the provision of antigen tests – where made available to all employees generally, effectively for the 2020/21 tax year. However, the rather old £50 ceiling applied to the trivial benefits exemption remains.

Why is the trivial benefits exemption relevant to this article? Well, an EAP service provided to employees is not – on the whole – taxable. It is there to support employee wellbeing, so it falls within HMRC’s exemption for welfare counselling (although this exemption currently does not apply to dependants to the same extent as employees). There are also some services excluded from the exemption, for example, financial and legal support aspects.

The extension of an EAP to family and these excluded services has the ability to be considered a taxable benefit where they are deemed to be providing ‘advice’ as opposed to ‘signposting’. But if the employer is clear on exactly what the service provides and the nature of the advice provided, then a taxable liability might not apply here either.

If a liability does apply, the EAP might be placed in the trivial benefits exemption, as long as the following conditions are met:

• the VAT inclusive cost is £50 or less per employee per year to provide;

• it isn’t cash or a cash voucher;

• it isn’t a reward for work or performance; and

• it isn’t in the terms of the employment contract and nor is there a legitimate expectation that it will be provided.

Obviously, £50 per head a year isn’t much, but provided the average cost of the provision per employee is up to £50, the excluded services could be covered by the trivial benefits exemption (subject to meeting the other required conditions).

What’s the provider stance?

All of this might explain why, when it comes to extending EAP benefits to the families of employees, many employers are reluctant to go there; in spite of the fact that extended services are there for the taking, where certain conditions are met, as far as insurers and standalone EAP providers are concerned.

The reality is that whether providing an EAP on a standalone basis or embedded within an insurance product - such as group income protection - there is generally no extra cost to rolling out the services to family. This includes appointment-based short-term and solution focused counselling as well as online or phone-based support and information.

In short, if the employer can prove that no additional costs are incurred by extending EAP services to families, it cannot be classed as a benefit in kind. Therefore, there should be no implication in terms of tax liability for the employer or the employee (financial and legal aspects aside, as already discussed).

Cost to employers is primarily based on usage. In theory, by extending the service to families, the potential for extra volume of calls, for example, could give rise to an additional cost to / from the provider. “Although based on existing usage patterns it would take quite an increase in the volume of calls from family members to make a substantial impact,” says Phil Mullen, Managing Director UK & Europe for LifeWorks by Morneau Shepell.

Therefore, it would be advisable for an employer to work in partnership with their insurer and / or standalone EAP provider to assess their unique circumstances and seek professional tax advice in the event that the extension to family does in fact have an impact on cost. Although any actual liability is likely to be small, especially in comparison to the cost of poor employee mental health.

3 top tips for extending EAP access to employees’ families:

• Work with your group income protection insurer / standalone EAP provider to assess whether any additional costs are actually incurred through extending access. If not, access may potentially be extended without any liabilities (bar the considerations that should be applied to services such as financial and legal support – see earlier).

• If additional costs apply, consider whether the cost of the EAP could be put in the trivial benefit exemption.

• If the EAP falls foul of the trivial benefit exemption, work with your provider and/or tax adviser to calculate the potential tax liability, which could be met on a grossed-up basis - so that employees do not meet the tax cost - under what is known as a PAYE Settlement Agreement. This puts you in an informed position to decide whether or not it’s worth paying that liability in order to extend mental health support more widely.

Find out more about Generali

1 - Department of Health & Social Care, Policy Paper: Staying mentally well this winter, 23 Nov 2020, https://www.gov.uk/government/publications/staying-mentally-well-winter-plan-2020-to-2021/staying-mentally-well-this-winter