Tax-breaks on medical treatments…

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I refer to my post of last week ( ), in which I raised an important question about the tax-breaks for medical cover/ treatments which are proposed in The Sickness Absence Review.

I was fortunate to be a delegate yesterday at a small event organised by Corporate Adviser Magazine.  The principle speaker at the event was David Frost CBE, who was the co-author of the above report.

As you would expect, I raised this topic early in the discussion, as it is of such key importance to the success of tackling sickness absence in the UK.  The question I asked was broadly this:

‘Does the report suggest a tax-break for the employee, the employer, or both?’

The direct answer from David Frost was ‘both’, which was reassuring given that the actual wording within the report was very much biased towards the employee tax-break.

As per my post last week, an additional tax incentive to encourage employers to fund such cover/ treatments for their employees is almost certainly required (in fact it’s key in my view) to encourage the corporate market to extend cover to employees who have not previously benefited from this.

However, it was evident that no real thought has yet been given to exactly how such an employer tax break would work.  To be fair to the report’s authors, this is probably outside of their remit, but will be key if this is going to embed in the UK.

Another interesting, and frankly a little surprising, factor is that the tax breaks are intended to be targetted at basic-rate taxpayers only, with no tax relief for higher-rate taxpayers expected.

The rationale for this is that lower-paid workers have traditionally not been the recipients of such benefits, so this will encourage employers to offer medical support more widely.  This holds water to a point, but on a practical level this could be a bit of an own-goal.

For a start, there is the practicality of an employee moving from paying tax at the basic-rate, to paying tax at the higher-rate.  In this transition the employee would completely lose their tax relief on this benefit.  This could be a bit of a shock to the employee’s take home pay, and would be a swine for the employer to communicate as well.

But, and more importantly, what would this limitation of tax relief do to the ideal of embeding such cover across the UK? 

Decision makers at each employer are likely to be higher-rate taxpayers.   If such individuals will not personally benefit from a tax break (even if this is basic-rate relief only), then they are probably going to be less inclined to introduce the benefit for others.  This could reduce the employer take-up of such offerings very significantly.

So, food for thought for the reports authors and the government perhaps? 

There is lots more that I want to write on this subject, but time is against me, so that will have to wait for another day.

Best regards

Steve Herbert

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About the author

Steve Herbert is an award-winning thought leader on Pensions and Employee Benefit issues. His principal aim is better communicating the value and usage of employee benefits to employers. This he has achieved through many (highly successful) seminar series over the last decade, and his regular and widely read blog posts on the subject.
He also acts as a judge in HR and Employee Benefits industry awards, article writer, and product innovator. Steve is a regular contributor to DWP forums and compulsive responder to formal Government Consultations on pension and employee benefit issues. He is occasionally accused of making employee benefits interesting.