This is where the Exemption for Welfare Counselling comes in — an exemption that acknowledges the importance of mental and emotional support for employees.
In this article we provide a zero jargon breakdown of what it is, how it works and how you can claim it. Let's jump in.
The Exemption for Welfare Counselling is an exemption within HMRC's Employment Manual, which outlines the rules for employers for when the provision of counselling isn't classed as a chargeable benefit (see EIM21845).
Effectively, if the welfare counselling satisfies the conditions of this manual, it means the costs of the counselling would be deductible for corporation tax and do not give rise to any benefit in kind or personal income tax charges.
HMRC's own manual states that "the exemption is tightly drawn and there is no intention that all conceivable types of welfare counselling should be exempted from tax". Therefore, it's important to take careful consideration when deciding whether to pay for any counselling through the business to avoid any tax charges on the benefit.
To be eligible for this exemption, the welfare counselling services must be made available to all your employees and should not discriminate in any way. Whilst HMRC's manual is quite vague, the exemption covers the provision of counselling by an employer for it's employees. Therefore, it would be advisable that the counselling costs are directly paid for by the employer and the invoices are addressed to the employer. In turn, this would also make it difficult to justify any previously incurred counselling costs arranged by and paid for by the employee.
Here are the types of counselling covered:
It’s important to note that this exemption does not extend to financial (other than debt counselling) or tax advice, leisure or recreation guidance, and legal advice. Previously, medical treatment was also excluded, but from 6th April 2020, if the counselling services also includes elements of medical treatments, such as Cognitive Behavioural Therapy or Interpersonal Therapy, this would be included within the exemption.
It's worth noting that if the counselling services include a mix of both exempt and non-exempt services, then the entire cost would be classed as a benefit. When this is the case, it's common that the services will be split into separate schemes so that one is covered by this exemption and not classed as a taxable benefit.
If the whole cost or part of the cost is not exempt, then the benefit value will need to be reported on a P11D form. The director/employee would then be required to pay tax on the benefit (at their income tax rate) and the employer would pay tax (13.8%) also. It is possible to instead payroll this benefit.
Claiming this tax saving with Mighty is straightforward. Simply categorise these payments to 'Miscellaneous business expenses' when completing your bookkeeping.
If you're not with Mighty, keep detailed records of these transactions and inform your accountant about the specific expenditure and the exemption you intend to utilise.
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Navigating accounting and tax doesn’t have to be complicated or stressful. Mighty is everything you need to manage your books - ensuring you stay HMRC compliant while optimising taxes every step of the way.Being a business owner, freelancer or company director can be incredibly stressful, and everyone could benefit from counselling at some point to manage work-related issues, or personal challenges.
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