Disabled employees: tax relief and exemptions

Introduction

Expenses or benefits that are paid for by an employer, for an employee's personal use, are usually taxable. There is no general exemption for disabled employees but there are some relaxations to the rules and a few specific exemptions which should be considered.

Equipment, services and facilities

Normally where an employer provides equipment or services or facilities to an employee for private as well as business use, a taxable benefit will arise. However, if an employee is disabled, and the employer makes available any equipment, services or facilities to enable them to take up or stay in work, then no taxable benefit will arise even if there is substantial private use. This tax exemption is subject to the following conditions:

• the employer must make similar benefits available to all of their disabled employees,
• the main purpose of the benefit must be to enable the employee to do their work, and
• either the benefit is one that the employer must offer under the terms of the Equality Act (EA) 2010 or similar legislation, or it is provided under the access to work scheme.

Examples of the equipment or services which might be provided include:

• a hearing aid,
• a wheelchair,
• a reader for someone with a visual impairment,
• a support worker for practical help in getting to and from work,
• new equipment or alterations to existing equipment, or
• alterations to the premises to accommodate the employee.

This exemption only applies where the employer or a third party meets the cost. Disabled employees cannot claim a tax deduction for costs which they bear themselves and are not reimbursed by their employer. The employee can, however, apply for a grant from the access to work programme to cover the cost, in which case they are not liable for tax on any such payment that is applied entirely to cover the cost. We have further information about this on our page on the access to work scheme.

Some further details of this exemption can be found in HMRC’s employment income manual on GOV.UK.

Tax relief for home to work travel

In general, there are strict rules which ensure that the costs an employee incurs in travelling between home and work cannot usually be claimed as an allowable expense against their taxable income. If an employer pays or reimburses the cost, then this amount becomes a taxable payment.

However, no income tax or National Insurance contributions (for either the employer or the employee) are payable if transport is provided between home and work for a disabled employee, or if the employer pays for such transport or reimburses the expense incurred.

Note that again disabled employees cannot claim a tax deduction for such costs which they bear themselves and are not reimbursed by the employer.

The definition of disability for this purpose is 'a physical or mental impairment which has a substantial and long-term adverse effect on his ability to carry out normal day-to-day activities'. This draws on the definition of disabled person in EA 2010, however the EA 2010 meaning is more wide reaching than the tax meaning, therefore it is important that you are aware that there could be some circumstances where a disabled employee does not qualify for tax exemption even though that employee may be within the meaning of 'disabled person' for other purposes. This includes where the individual has a recurring disability but is in a period of remission during which the impairment ceases to have a substantial adverse effect, where the individual has recovered from a previous disability and where the individual is being treated for the effects of an impairment so that the effects of it are alleviated or removed.

In short, if the employee is able to carry out normal day-to-day activities at the time the employer meets the cost of their commuting, HMRC may not allow the tax exemption. It should be remembered however that this interpretation is non-statutory, and circumstances might be identified in which it could still be appropriate to argue that the exemption applies.

See HMRC’s employment income manual on GOV.UK for more information.

This exemption does not cover the provision of a car, which is subject to other rules – read about this below.

Tax and the provision of cars and fuel

In general, a taxable benefit charge on the provision of a company car and/or fuel can only be avoided by an employee where the car and/or fuel are only available for business use. However, these rules have been adapted to remove or reduce the charge for disabled employees.

For example, there are circumstances in which a disabled employee is not taxed if the employer provides a car or fuel or pays or reimburses any related expense. This is where:

• the car is specially adapted for the employee’s use, or fitted with automatic transmission because the employee cannot use a manual gearbox, and
• the employee uses the car only for business travel or for ordinary commuting between home and work (and travel to training).

You can find confirmation of this rule in HMRC's employment income manual on GOV.UK. The definition of disability for this purpose is that of 'a physical or mental impairment which has a substantial and long-term adverse effect on his ability to carry out normal day-to-day activities' as discussed above. See HMRC's employment income manual on GOV.UK for further important information about this definition.

This exemption is highly restrictive as it prohibits any private use of the car. Private use might include a call to the doctors on the way home from work, or regular small detours to a newsagent on the way to work. If the employee's use of the car strays into these realms, then the car and fuel benefit should be reported to HMRC by the employer (on form P11D) and you may have to pay tax on the value. It is easy to trigger inadvertent tax charge here, so it is important to be aware of the rules.

Whilst the car benefit charge cannot be avoided if there is to be any private use of the vehicle, the fuel charge can be removed by the disabled employee paying for all private use fuel.

In cases where an employee does not qualify for the total exemption and there is a car benefit charge to calculate, there are a number of differences that may apply to reduce the value of the car benefit charge for disabled employees, which we will go on to discuss below.

Company car benefit for disabled employees

In order to calculate any car benefit charge for an employee you need to know:

• the list price of the car at the date of registration,
• the cost of any accessories fitted to the car initially or added later, and
• the carbon dioxide (CO2) emissions of the vehicle.

Adjustments can sometimes be made to reduce these figures where a disabled employee uses the car. As these figures form the basis of the calculation of the tax charge, any reduction in them will reduce the amount of the taxable benefit too. The possible adjustments are as follows:

Automatic cars

When calculating the benefit for an automatic car, the list price of the equivalent manual car should be used in the calculation if it is lower, provided the disabled person must use an automatic version because of their disability. A manual car is equivalent to an automatic if it is first registered at about the same time and is the closest variant available to the make and model of the automatic car.

To qualify the disabled person has to hold a disabled person’s parking badge (often known as a blue badge). People with hidden disabilities such as anxiety and dementia may be able to apply for blue badge car parking permits.

In a similar fashion, the CO2 emissions figures for an equivalent manual car should also be used.

Accessories

Any special equipment designed solely to enable a disabled person to use a company car is exempt from tax if provided by an employer. So, the value of accessories that are added to convert a car for a chronically sick or disabled person can be ignored, such as fittings to enable a wheelchair user to drive the car or hand controls for people unable to operate ordinary pedal controls.

Additionally, the value of certain other accessories can be ignored where they:

• are included in a car provided to an employee who holds a disabled person's parking badge when the car is first made available, and
• are made available for use with the car because that equipment enables the employee to use the car despite the disability which entitled him or her to hold the parking badge.

What this means is that if an employee who holds a disabled person's blue badge is provided with non-standard ‘generic’ accessories (such as power steering) because the employee requires that accessory to overcome his disability, these accessories are disregarded when calculating the car benefit charge.

You can find a useful summary of the special car benefit rule adjustments for disabled drivers in HMRC’s Employment Income Manual on GOV.UK.

Employers are able to help eligible employees to secure any tax relief on benefits that they are entitled to by dealing with benefits and expenses form P11D correctly. If this does not happen for whatever reason, you may need to make an adjustment to the P11D figure on your self assessment tax return if you complete one (you may need to ask a professional adviser or a voluntary sector organisation like the charity TaxAid to help you). Those who do not currently complete a self assessment should contact HMRC to discuss what to do to ensure the correct tax treatment.

Other tax reliefs

Termination payments

When an employment ends, an employer will sometimes make a final payment to the employee, which might include compensation for losing their job or payment in lieu of notice.

This is a complex area, and payments can be entirely exempt from tax, partially exempt from tax or fully taxable, depending on the nature of payment and circumstances in which it is made. There is more information on our page on redundancy.

However, a payment or benefit provided ‘on account of’ injury to, or disability of an employee when an employment ends (including in connection with an employee’s death), will generally not be taxable. This exception also applies if the employee is transferred to different duties or if there is a change in their earnings because of the disability or injury.

Disability includes psychiatric injury but not injured feelings. There must be an identifiable medical condition giving rise to the disability or injury, and the payment must be made solely on account of the disability or injury. HMRC will generally require medical evidence and documentation before agreeing to apply the exception.

Go to HMRC's employment income manual on GOV.UK to find out more and see examples of what HMRC mean by ‘on account of’ a disability.

Business travel

If a director or employee needs a spouse or partner to travel with them on business trips (including overseas) because their health is so poor that they cannot undertake the travel unaccompanied, the director or employee should not be charged tax if their employer bears the costs of their spouses or partner's travel. This includes reasonable hotel expenses.

You can find more information about this in HMRC's employment income manual on GOV.UK.

Medical treatments

An employer can contribute of up to £500 a year for each employee on medical treatments recommended by a health care professional.

You can find more detailed information about this in HMRC’s Employment Income Manual on GOV.UK.

More information

For information on assistance through the access to work scheme – not a tax programme but has tax implications – see our dedicated page.

You may find our guidance for employers on employing a disabled person and on statutory sick pay useful.