The timing of this extension is particularly relevant, as the universal provision of free lateral flow and PCR testing in England ended on 1 April 2022. Free testing now only remains in place for some NHS, social care and hospice staff and hospital patients. (Some free testing will also continue in Scotland until the end of April, and in Wales until the end of June.) With many employers reported to be looking to fund employee testing, the issue of the tax treatment remains relevant.

The extended exemption follows on from temporary exemptions introduced by the Government in tax years 2020/21 and 2021/22 permitting employers to treat the provision of covid testing as a tax-free benefit.

A specific exemption for covid testing is necessary as otherwise, HMRC’s view is that paying for or reimbursing the cost of testing for an employee creates a benefit in kind for that employee. Although tests costing less than £50 might be covered by the trivial benefits rules, the cost of many PCR tests still exceed this limit. As a result, without the exemption, both employees and employers could have found themselves facing unwelcome tax costs - plus all the associated administrative hassle of calculating and reporting any tax due.

The Treasury have made the extension to the exemption under new powers granted to them in the Autumn Budget last year. These new regulations give the Treasury wider powers to take steps to provide income tax and NICs relief on specific expenses or benefits in kind in the event of a disaster or emergency of national significance. The ATT previously called for a wider tax relief not just for employer-funded covid testing, but also testing for future infectious diseases and so we welcome the new regulations and the use of the new powers in this way.