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No tax exemption for flu vaccine reimbursements

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Published: 15 Dec 2021 Update History

Employers may want to ensure that their workforce is protected from seasonal flu, but as ICAEW’s Tax Faculty explains, they should be aware that the various methods of provision can have differing tax consequences.

There has been a lot of encouragement for people to get a flu vaccination this winter as fewer people will have built up natural immunity to it during the COVID-19 pandemic. The NHS website also states that if you get flu and COVID-19 at the same time, research shows you are more likely to be seriously ill.

The vaccine is free on the NHS to certain qualifying individuals (for example to people aged 50 and over, those with certain health conditions, pregnant women, etc). However, employers may also want to meet the cost of protecting their workforce.

If the employer arranges for vaccinations in the workplace or provides a voucher for staff to obtain a vaccine at a pharmacy, the cost would be tax exempt as it would fall under the trivial benefit rules.

However, during the pandemic, it has been less practical for workplace provision (particularly if employees have been working from home) and voucher providers could not meet demand. Therefore, many employers have resorted to encouraging their staff to arrange their own vaccine and have offered to reimburse the cost.

Reimbursing the cost does not fall within the trivial benefit rules meaning that employers should strictly deduct income tax (under PAYE) and class 1 national insurance contributions (NIC), leaving the employee out of pocket. 

To avoid the hassle of grossing up the cost via payroll, the employer can use a PAYE settlement agreement (PSA) to meet the tax and NIC costs, although this does not normally extend to cash reimbursements. HMRC has confirmed that where voucher schemes are not available, employers can use a PSA to meet the tax and NIC liability for their employees. 

During the pandemic, the government introduced a temporary exemption for employer reimbursement of COVID tests. However, HMRC has stated that it is not looking to make any policy changes at present to extend the tax exemption to flu vaccine reimbursements.

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