Employee support without a tax bill

HM Revenue and Customs clarified on 21 October how the tax exemption works when an employer pays for employee welfare counselling. If a programme meets the conditions, its cost does not have to be treated as taxable employee income, charged to National Insurance or reported separately to HMRC.

The rule applies across the UK. The law has not changed: HMRC has added clearer examples, including mental health and menopause support. Small employers should review the actual supplier contract rather than assume that every wellbeing package is exempt.

What support can qualify?

The exemption can cover counselling for stress, workplace problems, harassment and bullying, bereavement, relationship difficulties, dependency, career concerns, debt problems, mental ill health and menopause support where this is counselling rather than ordinary medical treatment.

Certain therapies, including cognitive behavioural therapy and interpersonal therapy, can also qualify when supplied as part of the employer's welfare counselling service.

Where is the boundary?

The programme must be made available to employees generally on similar terms. A benefit offered only to one selected director cannot simply be labelled a general welfare programme.

The mixed-package risk

Many employee assistance providers sell one package containing counselling, a debt line, lawyers, tax guidance and other services. HMRC warns that where a package contains services outside the exemption, the tax treatment of the whole package may be at risk.

A practical solution is to ask the provider to separate qualifying welfare counselling from legal, tax and other services, with distinct service lists, prices and contracts where possible.

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What about family members?

The exemption is primarily for the employee. Couple or family counselling can support that employee, but a spouse, partner or dependant should not receive their own helpline or standalone face-to-face counselling. Dependants must not be given access to the legal information part of the service.

When does tax still arise?

The exemption does not apply when counselling is provided through salary sacrifice. The employer must report whichever is higher: the salary given up or the cost of the counselling.

If a service fails the exemption, it will generally need to be payrolled as a taxable benefit or reported after the tax year on the employee benefits form. Employer National Insurance may also be due.

Employer checklist

1. Obtain the full service list. Do not rely on the words “employee assistance programme”.
2. Mark excluded items. Look for tax, investment, legal and leisure advice.
3. Check access. The service should be available to employees generally on similar terms.
4. Split mixed contracts. Ask the provider to identify qualifying services and their cost.
5. Keep evidence. Retain the contract, service list, access policy and invoice.
6. Give the details to payroll. This matters especially where medical treatment, family access or salary sacrifice is involved.

An employee does not make a separate claim for this exemption. Where an eligible programme is handled correctly, its cost should not increase taxable pay on the payslip or appear as a taxable benefit at year end.