Employees' medical expenses: an exemption too far?

Employees Medical Expenses: an exemption too far? by Trevor Johnson

Employees' medical expenses: an exemption too far?

If an employee is absent from work he may qualify for Statutory Sick Pay (‘SSP’) paid by his employer. Prior to 6 April this year, the socalled Percentage Threshold Scheme provided a measure of compensation for employers faced with high levels of sick absence. An employer was entitled to recover some of the SSP from HMRC, by set-off against their PAYE/NIC liabilities, if the total amount paid in a tax month was greater than a set percentage of their gross Class 1 NIC (employers’ and employees’) liability for that tax month (13% for 2013/2014). That right of recovery was abolished on 5 April 2014. Employers have until 5 April 2016 to recover SSP paid in respect of periods up to abolition. Repayment will be by way of payable order, not set-off. Despite having no right of recovery, employers still have to pay and record SSP.

The justification put forward for this abolition was that it had not ‘encouraged active management of sickness absence by employers’. This claim implied that employers were content to simply reclaim the SSP and wait for the employee to return to work in their own good time. It also implied that, by withdrawing the refund, employers would now have a financial incentive to ensure that employees returned to work as soon as possible. The finger was clearly being pointed at the smaller employer; it was noted that in 2009-10 over 90 per centof the claims were from smaller firms and, on average, those claims were for less that £500. The accusation that smaller firms are not managing sick absences is unfair; they have neither the resources nor the expertise to do so. Were they supposed to go round to a suspected malingerer’s house and drag them kicking and screaming back to the workplace? Or were they justified in relying on the employee’s GP and other healthcare professionals to monitor his condition and decide when he was fit to return to work?

Whilst the abolition of SSP recovery might be thought to be merely another means of the Government cutting public spending (£50 million annually), a report published in November 2011 claimed that it would save employers some £40 million in administrative costs, (which of course means that they are still £10 million worse off). An impact assessment produced by the Department of Work and Pensions came up with a net benefit to employers of £70 million which suggests that you are better off by not getting refunds from the Government! We are however told that the savings made by the Exchequer will be ploughed into a new ‘Health and Work Service’ which is expected to begin functioning by the end of this year.

The aim of this scheme is to provide a ‘supportive occupational health assessment’ and advice on how the individual could return to work. Employees who have been absent from work for four weeks will be referred by their GPs to the new service which will conduct a telephone assessment with the individual, looking at all the issues preventing him from returning to work. The service will then provide the employee with a ‘return to work plan’ containing ‘recommendations to help them return to work more quickly and information on how to access appropriate interventions’. If the employee consents, the plan can be shared with the employer. The service may recommend a particular course of treatment and may also make recommendations for ‘workplace adaptations’ which would facilitate the employee’s return to work. (Quite how these recommendations can be arrived at on the basis of a single telephone conversation with the employee, is not explained.)

If the employer agrees to pay for the course of treatment, the employee will benefit from a new exemption from income tax (ITEPA 2003, s. 320C) which will apply for costs up to an annual limit of £500, subject to various conditions;

  • It is in respect of treatment provided to the employee in accordance with a recommendation by the Health and Work Service (or an occupational health arrangement set up by the employer),
  • that recommendation is made for the purpose of assisting the employee to return to work after a period of absence due to an accident or ill-health, and
  • conditions to be imposed by Treasury regulations.

A draft of those regulations has recently been published for consultation. Essentially, these would impose a condition that the recommendation for medical treatment must be given by a healthcare professional (as defined), in writing, after the employee has been assessed as unfit for work for at least 28 days. An ‘unfit for work’ assessment also includes an assessment that the employee may be fit for work if the employer makes workplace adaptations to enable him to return to work, providing he does not return to work before the recommendation for medical treatment is made.

The consultation document makes the point that the exemption is meant to apply in respect of treatment that is ‘for the purpose of assisting the employee to return to work after a period of absence’. HMRC accept that there may be a short delay between the making of the recommendation and the start of the treatment, during which the employee may be able to start work again, albeit with special provision being made for him. In such a situation they will apply the exemption where the treatment begins shortly after the return to work (14 days is the suggested limit) or where it begins before the return to work and continues afterwards. It would be churlish not to welcome this exemption, but is it really worth the candle? To begin with, there is no compulsion on an employer to pay for the recommended medical treatment. In the case of small employers, they are already incurring the full cost of the SSP and are no doubt incurring other costs in paying overtime or drafting in temporary staff to cover for the employee’s absence, so would they also be willing to incur the costs of the recommended treatment?

We may also ask whether the treatment to be recommended by the Health and Work Service is likely to be any different from that recommended by the GP who has been seeing the employee during the previous 28 days. Surely, also, the GP would normally have referred the employee to the local NHS Trust for treatment?

It is perhaps important to make it clear that the exemption only applies to the cost of the recommended treatment. It does not apply, for example, to any reimbursed travelling costs incurred in attending for the treatment, which would remain taxable as not being incurred in the performance of the employee’s duties. To conclude, it seems that the resources being deployed in the design, consultation and implementation of an exemption which might save a relatively small group of employees £100 to £200 in tax, could be better directed elsewhere.


By Trevor Johnson

Trevor was President of the Association in 2001-02 and served for 14 years on Council. He currently sits on the Association’s Business Development Steering Group.