Do you see eye tests as an employee benefit?
A company eye test is increasingly being seen as part of an employee’s compensation. Tax Associate Shaun McGown takes a look at how it can fit into a company’s benefits package, and when it becomes taxable.
Living in a digital world means that many of us stare at display screens all day long and so, it’s no surprise that it has increasingly become common practice for companies to offer eye tests to their employees as part of their remuneration package.
Indeed, the Health and Safety (Display Screen Equipment) Regulations 1992 states that employers have a legal obligation to provide employees that use display screen equipment (DSE) an eye test if they request one and corrective lenses if these are subsequently required.
There are various ways in which an employer can provide access to an eye test under the regulations. Some employers choose to set up a corporate account with an optician offering their employees vouchers for eye tests, whilst other employers let their employees book and pay for their own eye tests choosing to reimburse them at a later date (normally after the completion of an internal expense form). However, there are significant differences from a tax perspective between the two options.
A taxable benefit?
The starting point is that eye tests and glasses/contact lenses are considered exempt benefits if employers are required to offer them to their employees by The Health and Safety (Display Screen Equipment) Regulations 1992.
When the legislation introducing the exemption for eye tests and special corrective appliances entered into force in 2006, the explanatory notes stated that, ‘eye tests and special corrective glasses will be exempt from a tax charge, irrespective of how an employer decides to pay for them.’
However, HMRC recently updated their position on this matter by amending their internal guidance manual to state: ‘where the cost of an eyesight test, spectacles or contact lenses is reimbursed to the employee, a taxable benefit arises’. HMRC later clarified their position on their Community Forum stating that they consider this to be an expense that is not solely related to employment and so any reimbursement should be reported via payroll subject to PAYE and National Insurance.
The key change here is that a taxable benefit arises if the employee arranges the eye test, pays for it and is then reimbursed by the employer. If the same service is provided via an agreement between the employer and the optician, such as an employer setting up a corporate account for their employees to have an eye test, the benefit remains exempt from tax and National Insurance.
Is this fair?
It is not unusual for there to be different ways of taxing the same thing depending on how it is paid for, particularly when it comes to benefits provided by an employer. In today’s working environment it may prove impossible to offer the benefit through a single corporate account with an optician as employees are increasingly working remotely from different locations.
The change in HMRC’s approach is more likely to affect employees of smaller companies for whom it is easier to use the reimbursement route. Many companies may not even be aware they can have a corporate account with an optician.
Action Points
Any reimbursement of eye tests or glasses/contact lenses is reportable and should be included on the payroll and subject to the usual PAYE withholding (income tax and NIC).
If employers do not wish their employees to incur the tax and NIC, it is possible to include the benefit as part of a company’s annual PAYE Settlement Agreement.
If the employer provides the benefit by way of a corporate arrangement with an optician, it remains exempt from tax and national insurance but records of which employees have been provided this benefit should be maintained.
Please contact a member of our Employment Tax team, if you would like further information.