As many trade and professional bodies operate to a December or March year end, this is the time of year when employees with professional qualifications are either renewing their subscriptions or are preparing to do so. In this article, we take a look at the tax consequences of paying your employees’ subscription costs - and how they can get tax relief if you opt not to pay for all their subscriptions.

Subscriptions paid by the employer

As a general rule, annual membership subscriptions paid by the employer are benefits in kind. However, no taxable benefit arises if the membership relates to a body included on either:

1. A statutory list of professional bodies (set out in the legislation), or
2. HMRC’s List 3 of approved organisations (set out in HMRC manuals).

Statutory list: fees required to practice

The statutory list covers professional bodies where membership is legally required for individuals to practice in their profession. Examples include lawyers, vets, health professionals, architects, teachers and driving instructors.

If the employee works in one of these professions and payment of the subscription is required in order to practice, the employer may either reimburse the employee for the cost or pay the fee directly on behalf of the employee without creating a benefit in kind. This treatment applies automatically, and no entries are needed on the employee’s Form P11D.

The cost of the subscription will also be a tax-deductible cost for the employer.

HMRC’s approved professional bodies

HMRC has a list of approved professional bodies (List 3) which includes professional bodies where membership is not legally required but is considered relevant to the employee’s work.

If the professional body’s activities directly benefit, or concern the profession practiced by the employee, the employer may either reimburse the employee for the cost or pay the fee directly on behalf of the employee without creating a benefit in kind. The cost of the subscription will also be a tax-deductible cost for the employer.

However, if the professional body’s activities are directed towards other objectives, HMRC may allow only a proportion of the annual subscription. The allowable amount will correspond to the extent to which the body’s activities directly benefit, or concern the profession practiced by the employee.

Both the ATT and CIOT appear in List 3 under “T” for tax.

Subscriptions paid by the employee

If the employer does not reimburse professional fees, the employee may seek tax relief if their annual subscription relates to their work and is included on one of the two lists above.

Relief can be claimed:

• Online via HMRC’s new online service for claiming tax relief for employment related expenses
• Via the individual’s self-assessment return, by entering the fee or subscription in the Professional fees and subscriptions box on the Employment supplementary pages, if the individual is in self-assessment.
• By contacting HMRC and requesting an adjustment to the individual’s PAYE code.

Exclusions from relief

It’s important to note that the rules above only apply to annual fees. Even if the body is listed in legislation or on List 3, entrance fees and life-membership payments do not qualify for tax relief. If the employer reimburses (or pays directly) entrance fees or life-membership fees, then a benefit in kind will arise or the employer could enter into a PAYE Settlement Agreement with HMRC to pay the tax and National Insurance Contributions (NICs) on the employee’s behalf. If the employee pays for entrance or life-membership fees, tax relief is not available.

A taxable benefit in kind will also arise if the employer chooses to pay for any professional fees which are ‘unapproved’ (so not on the lists above), unless the fee is deductible under the general expense rule. This rule requires that fees are incurred wholly, exclusively, and necessarily in the performance of employment duties. In practice, this is difficult to prove, as the employee must demonstrate that the job could not be performed without the subscription. Therefore, most unapproved professional subscriptions do not qualify for tax relief.

When unapproved fees are paid or reimbursed by the employer, they must either be reported on a Form P11D, or taxed via payroll, creating an income tax cost for the employee. The employer will also have to pay NIC;

• If the fees are invoiced and paid by the employee, and then reimbursed by the employer, the benefit is reported on section N of the P11D (reimbursed expenses) and Class 1 NIC is payable by both the employee and employer.
• If the fees are invoiced to the employee and paid by the employer (directly to the professional body), the benefit is reported in section B of the P11D (payments made on behalf of the employee) and Class 1 NIC is payable by the employee and employer.
• If the fees are invoiced and paid for by the employer (directly to the professional body), the benefit is reported in section M of the P11D (other items), and Class 1A NIC are payable. 

If the employee pays for unapproved subscriptions themselves, no tax relief is available.

This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since. 

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