With many trade and professional bodies working to a December or March year end, if you employ staff with professional qualifications it is likely that either they have just paid their subscriptions or are just about to. In this month’s back to basics, we take a look at the tax consequences of paying your employees’ subscription costs - and how they can get tax relief if you opt not to.
Subscriptions paid by the employer
As a general rule, annual membership subscriptions paid by the employer are benefits in kind. However, if the relevant body is on either a list of professional bodies set out in legislation, or a separate approved professional body list set out in HMRC manuals, then it is possible for the employer to reimburse the employee or pay the fee directly with no benefit in kind tax consequences.
The first category of professional bodies listed in legislation include the membership or practicing fees for individuals including heath professionals, lawyers, vets, driving instructors, architects and teachers. Where the individual is engaged in one of the professions on the list - and the payment of fees to the professional body is required in order to practice - then payment of the fee by the employer will not create any tax consequences for the employee. This applies whether the employee pays the fee and is reimbursed by the employer, or the employer pays the fee directly on behalf of the employee. The cost of the subscription will be a tax-deductible cost for the employer.
The second list of HMRC-approved bodies – known as ‘List 3’ – covers qualifications which are not required by law in order to practice. But, provided the activities of the body are of direct benefit to, or concern the profession practiced by the employee, then the employer can reimburse their employees without creating a benefit in kind, or can pay the employee’s membership direct to the organisation. The ATT and CIOT are included in List 3, under ‘T’ for tax.
Subscriptions paid by the employee
Where the employer does not reimburse any professional fees, then the employee can seek tax relief if their annual subscription relates to their work and is included on one of the two lists above.
Relief can be claimed:
- Via a self-assessment return if the individual is in self-assessment.
- Online via HMRC’s new online service for claiming tax relief for employment related expenses
- By calling HMRC and requesting an adjustment to the individual’s PAYE code.
Exclusions from relief
It’s important to note that the rules above only apply to annual fees. Even if the body is listed in legislation or on List 3, where the payment is of an entrance fee or for life-membership, then tax relief will not be available for the employee if they pay it themselves. If the employer reimburses (or pays directly) entrance fees or life-membership costs, then a benefit in kind will arise.
A taxable benefit in kind will also arise if the employer chooses to pay for any professional fees which are ‘unapproved’ – so not on the lists above. The costs must either be reported on a P11D, or taxed via payroll, creating an income tax cost for the employee. The employer will also have to pay Class 1A NIC on top.
This article reflects the position at the date of publication shown above. If you are reading this at a later date you are advised to check that that position has not changed in the time since.
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