Tax-Free Wellbeing Support for Staff: HMRC's Updated Counselling Rules

In its October 2026 Employer Bulletin, HMRC confirmed it has updated its guidance on the tax-free welfare counselling exemption. The law itself hasn't changed, but the guidance now includes examples covering mental health and menopause support, and links across to the related exemptions for medical treatment, health screening and employee assistance programmes (EAPs).

If you already pay for staff wellbeing support, or you're thinking about it, this is a good moment to check that what you provide really is tax-free, rather than something that should be on a P11D or payrolled as a benefit.

What the welfare counselling exemption covers

Under section 210 of the Income Tax (Earnings and Pensions) Act 2003 and the related regulations, welfare counselling that an employer provides or pays for is not a taxable benefit, as long as it's available to employees generally. HMRC's view is broad: counselling of any kind counts, except:

• advice on finance (other than advice on debt problems)

• advice on tax

• advice on leisure or recreation

• legal advice

Topics HMRC lists as covered include stress, problems at work, debt problems, alcohol and drug dependency, bereavement, ill-health, harassment and bullying, and personal relationship difficulties. Since April 2020, counselling that is also medical treatment, such as cognitive behavioural therapy, can be covered too, provided it's part of your welfare counselling service.

The refreshed guidance adds examples on mental health and menopause support, which reflects what many employers are now offering their teams.

Employee assistance programmes: the all-or-nothing catch

Many employers provide counselling through an EAP. HMRC's guidance says all the component parts of the programme need to fall within the exemption for any of it to be exempt. If your programme bundles in bespoke legal advice, financial planning or leisure perks, HMRC suggests separating those parts, ideally into an entirely separate scheme. Where only a minor, insignificant part falls outside, HMRC takes a common-sense approach.

There are also limits on family cover. The exemption is for the employee, although limited support for a spouse, partner or dependants can be allowed. For example, there must not be a separate helpline number for family members, and they shouldn't be offered face-to-face counselling on their own.

Related tax-free health benefits

The updated guidance points employers to three other exemptions that often sit alongside counselling:

• Recommended medical treatment: up to £500 per employee per tax year towards treatment recommended to help someone return to work after at least 28 days' absence (or expected absence) through ill-health or injury.

• Health screening and medical check-ups: one health screening assessment and one medical check-up per employee per year can be provided tax-free.

• Employee assistance programmes: exempt where every element falls within the exemptions, as above.

What employers should check now

• List exactly what your wellbeing or EAP provider offers, including anything available to family members.

• Check whether any element falls outside the exemption (legal advice, financial planning other than debt, or leisure) and whether it can be separated.

• Make sure counselling is open to employees generally, not just a select few.

• If you pay for medical treatment to help someone return to work, keep a record of the recommendation, the absence and the cost against the £500 limit.

• Bear in mind that mandatory payrolling of benefits in kind starts on 6 April 2027, with phase 1 covering company cars, car fuel, vans, van fuel and employer-provided medical benefits. Separating taxable and exempt items clearly now will make that switch much easier.

Why it matters

Getting this wrong usually surfaces as a missed P11D entry and a Class 1A National Insurance bill, with interest and penalties if HMRC finds it later. Getting it right means you can support staff with things like mental health or menopause counselling without creating a tax charge for them or extra National Insurance for the business.

Need a hand with this? We're accountants in Bury, and our payroll and benefits reporting service covers it for a fixed fee.

Talk it through with us

If you're reviewing your staff wellbeing package and want to be sure it's set up tax-efficiently, book a free, no-obligation 30-minute chat by phone, Teams or at our Bury office, or see your fixed fee online in 2 minutes. Prefer to talk now? Call 0161 327 0047.

Source: HMRC Employer Bulletin, October 2026; HMRC Employment Income Manual EIM21845.