The £500 recommended medical treatment exemption

An employer can pay up to £500 per employee in a tax year for medical treatment that a health care professional has recommended in writing to help the employee return to work, without any income tax or National Insurance and without reporting it to HMRC. Before the recommendation, the employee must have been absent, or assessed as unfit for work, for at least 28 consecutive days. The relief is in section 320C of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

Why is medical treatment paid by an employer normally taxable?

HMRC’s starting point, set out at EIM21774 in the Employment Income Manual, is that money an employer spends on medical treatment for an employee is taxable. It is either a payment of earnings under section 62 ITEPA 2003 or a benefit under Chapter 10 of Part 3 of the Act. How it is taxed depends on who arranges and pays for the treatment:

• If the employer arranges and pays the provider directly, it is a benefit in kind. The employer reports it on a P11D (or payrolls it) and pays Class 1A National Insurance.
• If the employee arranges the treatment but the employer pays the provider, the employer reports it on a P11D and adds the value to earnings for Class 1 National Insurance, but not for PAYE tax.
• If the employer reimburses the employee, the payment is earnings and goes through payroll with PAYE tax and Class 1 National Insurance.

Section 320C, which took effect on 1 January 2015, carves out a narrow exception for treatment that is part of a return to work plan. It sits alongside the other health exemptions, such as annual health screening and flu jabs, which are covered in our guide to exempt health benefits.

What conditions must be met?

The conditions come from section 320C itself and from the Income Tax (Recommended Medical Treatment) Regulations 2014 (SI 2014/3227). HMRC summarises them as four conditions at EIM21774:

1. A qualifying period of absence. Before the recommendation is made, the employee must have been either assessed by a health care professional as unfit for work for at least 28 consecutive days, or absent from work because of injury or ill health for at least 28 consecutive days (regulation 4).
2. The right source. The recommendation must be made by a health care professional as part of occupational health services, either provided under section 2 of the Employment and Training Act 1973 or provided by, or under arrangements made by, the employer (section 320C(3)(a)).
3. The right purpose. The recommendation must be made to help the employee return to work after a period of absence due to injury or ill health (section 320C(3)(b)).
4. The right form. The recommendation must be in writing, given to both the employee and the employer, and must specify the treatment recommended (regulation 5).

On top of these, the treatment must not be provided through salary sacrifice or a flexible remuneration arrangement (section 320C(1)).

The assessment route has a useful extension. Regulation 4(2) says an assessment that the employee may be fit for work if the employer makes arrangements to help them return still counts as an assessment that they are unfit, as long as the employee does not go back to work before the recommendation is made.

Who counts as a health care professional?

Regulation 2 defines a health care professional as:

• a registered medical practitioner;
• a registered nurse; or
• an occupational therapist, physiotherapist or psychologist registered with a regulatory body established under section 60 of the Health Act 1999.

Treatment recommended by anyone else, such as an unregistered therapist or a line manager, does not qualify however sensible the advice. HMRC accepts at EIM21775 that larger employers can use in house health professionals. In that case the cost of the treatment can include an appropriate share of the cost of employing the professional, and where some of the treatment does not qualify the employer should make a reasonable apportionment and keep records showing how it was done.

What does the exemption actually cover?

Section 320C(7) defines medical treatment as all procedures for diagnosing or treating any physical or mental illness, infirmity or defect. That is wide enough to include physiotherapy, diagnostic scans, consultant appointments and psychological therapy, provided the treatment is the one specified in the written recommendation.

HMRC’s guidance at EIM21776 adds several practical points:

• Only the cost of the treatment is covered. Related costs, such as travel to and from appointments, are not.
• The exemption applies whether the employer arranges and pays for the treatment, pays for treatment the employee arranged, or reimburses the employee.
• Treatment given after the employee has returned to work is still covered if it is linked to the return.
• Where a course of treatment mixes qualifying and non qualifying elements, a reasonable apportionment of the cost is accepted.

How does the £500 limit work?

Section 320C(2) switches the exemption off to the extent that its value in a tax year exceeds £500. HMRC reads this as a cap of £500 per employee per tax year, with any excess taxed in the normal way for medical treatment (EIM21774). The excess is reported according to how it was paid, using the three routes described above.

Because the cap is measured per tax year, a course of treatment that runs across 5 April is tested separately in each year. Keep invoices dated so that the split between years is clear.

A worked example

Illustration only. An employee injures her back and is signed off. After 30 consecutive days of absence, the employer’s occupational health provider, a registered physiotherapist, writes to the employee and the employer recommending six physiotherapy sessions at £90 each, a total of £540, to help her return. The employer pays the clinic directly.

• The first £500 is exempt and is not reported.
• The remaining £40 is a taxable benefit. Because the employer arranged and paid the provider, it goes on her P11D (or is payrolled) and the employer pays Class 1A National Insurance on it. At the 2026 to 2027 Class 1A rate of 15%, that is £6.
• If the employer also paid her taxi fares to the clinic, those would fall outside this exemption altogether.

When does the exemption not apply?

• Salary sacrifice. Treatment funded by giving up salary is excluded by section 320C(1). It is then taxed under the optional remuneration rules, and GOV.UK guidance says to report the salary given up where that is more than the cost. See our page on salary sacrifice schemes.
• Insurance premiums. Premiums for a policy in the employee’s name covering possible future treatment are not exempt (EIM21777). They remain a taxable benefit, as explained in our guide to private medical insurance. However, where an employer uses the proceeds of a policy in its own name to pay for, or reimburse, recommended treatment, the exemption can apply if all the conditions are met.
• Payments into a trust. A payment into a trust to fund future employee claims is not exempt, because it is not a payment for recommended treatment (EIM21777).
• Treatment arranged too early. A recommendation given before the 28 day test is met does not qualify, even if the absence later runs past 28 days.

Separately, HMRC’s helpsheet HS207 notes that from 6 April 2020 counselling services that are also medical treatments, such as cognitive behavioural therapy, are not a taxable benefit when provided as part of an employer’s welfare counselling services. That is a different relief and does not use up the £500.

What records should the employer keep, and what goes wrong?

GOV.UK confirms that qualifying treatment up to £500 does not need to be reported to HMRC and carries no tax or National Insurance. Nothing appears on the P11D or in payroll for the exempt part. That makes the paperwork the only evidence if HMRC asks questions during an employer compliance check. Keep:

• evidence of the 28 days of absence or the unfit for work assessment, with dates;
• the written recommendation, showing who made it, their professional registration and the treatment specified;
• invoices showing the cost of each item of treatment and the tax year it falls in;
• any apportionment workings for mixed treatment or in house provision.

The mistakes we see most often are:

• paying for treatment before the 28 day threshold has been reached;
• relying on a verbal recommendation, or one sent only to the employee;
• treating travel, accommodation or equipment as part of the exempt cost;
• going over £500 and forgetting to report the excess as a benefit in kind, with Class 1A National Insurance where the employer paid the provider;
• assuming that cover under a health insurance policy is exempt in the same way.

If HMRC opens a check into your return, tax investigation insurance pays your accountant’s fees. Solar Protect cover pays up to £100,000 with no excess; it never pays tax, interest or penalties. Read how our cover works or get a quote.

Related Accountapedia entries

• Tax on income protection and sick pay insurance
• Counselling services for staff: tax treatment
• Which expenses and benefits attract Class 1 NI
• Employer paying an employee’s personal bills
• Employer funded training: the tax exemption
• Health and medical services: VAT exemption
• Employer paid pension advice: the £500 exemption

Sources

• GOV.UK: Manual page EIM21774
• GOV.UK: Print
• legislation.gov.uk: Act 2003 c. 1, section 320C
• legislation.gov.uk: SI 2014/3227
• GOV.UK: Manual page EIM21775
• GOV.UK: Manual page EIM21776
• GOV.UK: Manual page EIM21777
• GOV.UK: Hs207 non taxable payments or benefits for employees 2026
• GOV.UK: Rates and thresholds for employers 2026 to 2027

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.