Personal troubles can detrimentally affect an employee’s work. As their employer you might be the first to spot a problem and want to help them, but will any costs you incur in doing so count as a taxable benefit?

Tax and perks

Unless the rules specifically exempt a job-related perk, the employee (or director) who receives it must pay tax on it and, as the employer, you’re liable to Class 1A NI at 13.8% of the taxable amount. There can be circumstances where you don’t want the employee to have to pay the tax, for example if you make a personal gift to them. In this case there’s a special arrangement which allows you to pay it for them.

Tip. HMRC has a system, known as a PAYE settlement agreement (PSA), which allows you to account for the tax on benefits normally payable by employees. The trouble is this can prove expensive. For example, a benefit worth £100 would cost you £190 if you use a PSA.

Paying for advice and help

Subject to a couple of specific exceptions, paying for an employee to receive advice about personal matters counts as a taxable perk. This type of perk might well be one of those where, despite the cost, you would consider that a PSA is appropriate. However, there’s a little known tax and NI exemption which could apply in this situation.

Tip. The tax rules contain an exemption for minor benefits. Don’t confuse this with the exemption which applies for trivial benefits – that’s something entirely different.

What the law says

The exemption can apply to any type of perk that the government considers minor. It can add and remove perks from the exemption without having to change the main legislation, which means it’s easy to overlook when changes occur.

Tip. Meeting the cost of most types of counselling for your employees’ welfare is a tax-exempt benefit. The exemption also applies to the Class 1A NI charge.

Trap. The exemption only applies where the offer to pay for counselling is open for any of your employees (including directors) who might need it, on broadly similar terms.

Specific exclusions

The exemption can be applied to welfare counselling except where it consists of:

  • medical treatment (but only prior to 6 April 2020, since then the cost of counselling or therapy treatment that constitutes medical treatment is also exempt); or
  • advice on finance or legal problems (unless where it involves debt problems); or
  • advice about leisure or recreation.

Where there’s an overlap between exempt and non-exempt counselling say, for debt counselling and legal advice, HMRC instructs its inspectors to take a sensible approach and allow the exemption where the non-exempt element is minimal and integral to the main purpose of the counselling.

No limit. The good news is that there is no monetary limit on the value of the perk that can be covered by the exemption.

This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit or call 01233 653500.