From 2021, it will be possible to reimburse former employees’ study costs tax-free. This could be quite risky for the former employer.
Tax-free study costs
At present, employers can reimburse their employees or cover the costs of a course, tax-free, for:
- maintaining and improving the employee’s knowledge and skills in relation to their employment (existing knowledge);
- undertaking a course or degree programme with a view to earning an income (new knowledge).
Former employees
The distinction between the two categories is sometimes very fine. However, this distinction will become more important from 2021 onwards. From then on, former employees may be reimbursed or provided with tax-free support to undertake training aimed at acquiring new knowledge. The new exemption can, for example, be used to pass on former employees’ unused study budgets to them.
However, the risk that the course undertaken by the former employee does not meet the conditions lies with the former employer. This is because it is the former employer who is liable for the additional payroll tax assessment. The former employer would therefore be well advised to make clear arrangements with the former employee (and to check that these are adhered to):
- that he is undertaking a course of study with a view to improving his social standing in financial and economic terms;
- there is an objective expectation that the former employee will be able to use that knowledge in the course of business.
Best-Efforts Obligation under the NOW scheme
In response to the economic consequences of the coronavirus crisis, measures such as the Emergency Measure for the Preservation of Employment (NOW) were introduced. Under the second and third phases of the NOW scheme, employers are subject to a duty of care. This means that employers must make every effort to encourage employees to take part in career development advice or training. The extension of the payroll tax exemption may prove useful in this regard.