HMRC view of reimbursed ‘exempt’ benefits

In line with previous changes to the Employment Income Manual, HMRC have recently adjusted their view of eye tests and glasses/contact lenses (see Employment Income Manual 21765 and recent discussion board thread here). HMRC now state that where employees are reimbursed the cost of eye tests/glasses/lenses, the exemption for eye tests, et al (see reference to legislative sections here) will not be met and should be reported through the payroll for PAYE/NIC deductions as a cash payment. Only where eye tests/glasses/lenses are paid directly by the employer will the exemption be met.

This aligns with HMRC’s changes on trivial benefits and meals in the workplace, where reimbursement of a personal cost is considered falling outside of the exemption.

EIM21866 covering trivial benefits includes the following statement “Where an employer reimburses an employee in respect of an expense that would not otherwise be deductible, any reimbursement cannot be covered by section 323A ITEPA 2003. The reimbursement is not exempt from tax under this section as this fails condition A. This is a cash payment that is taxable as earnings within section 70 ITEPA 2003 (see EIM20603), subject to any deduction that might otherwise be due (see EIM31620).”

There is a similar provision in EIM21672a which states, “Where an employee brings in food purchased from an outside provider to a workplace, for example, because they are working late, any reimbursement of the cost of the food is not covered by section 317 ITEPA 2003. The reimbursement is not exempt from tax under this section. This is a cash payment that is taxable as earnings within section 70 ITEPA 2003 (see EIM20603), subject to any deduction that might otherwise be due (see EIM31620).

Where an employee contracts for a meal and the employer pays the provider of the meal on the employee’s behalf, the exemption under section 317 does not apply. The payment represents the employer meeting the employee’s pecuniary liability and is taxable under s62 ITEPA 2003.”

We understand that the Chartered Institute of Taxation has made representations to HMRC on the basis that the payment method shouldn’t affect the fundamental purpose of the expense. Given that HMRC continues to scour it’s manuals to make cash reimbursements taxable, it doesn’t appear that HMRC agree.

Universities should be revisiting their policies and procedures to ensure that these types of benefits are met directly by the university (via accounts payable). Payments could be made from a university credit card, but it would have to be made clear to the provider, that the purchase was being made by the university.