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Exemption for employer reimbursement of COVID tests

16 December 2020: HMRC confirms that employer-reimbursed coronavirus antigen tests are exempt from income tax and NICs.

In July, ICAEW’s Tax Faculty expressed concerns that guidance concerning the tax treatment of the provision of coronavirus test kits to employees was silent on the tax treatment when the employee sourced the test and the employer reimbursed the cost.

More recently, the faculty reported on the exemption for the provision of COVID antigen tests by employers, but not antibody tests.

Finally, HMRC has issued clarification that it will introduce a temporary income tax exemption and NICs disregard, to ensure that when employees purchase their own coronavirus swab tests, and are reimbursed by their employer, the payment will not attract income tax and NICs liabilities in the current tax year.

It is understood that the test must be purchased for business reasons. An example could include where an employee needs a negative test result to travel abroad for business.

The measure will be legislated for in the next Finance Bill to have effect from 25 January 2021 until 5 April 2021. However, HMRC will exercise its collection and management powers and will not collect any income tax or NIC due on the advance payment or reimbursement of the cost of a relevant coronavirus antigen test from 6 April 2020.