top of page

HMRC updates guidance for sick pay and injury payments under salary sacrifice

HMRC has published an update to the Employment Income Manual in relation to EIM06470 - Employment Income: sick pay and injury payments: provision under a salary sacrifice arrangement.

HMRC have said that the 15 October 2019 interpretation of the legislation was incorrect.

The below is taken from the page for reference:

On 15 October 2019, HMRC provided guidance to the Association of British Insurers on how the OpRA legislation affected the taxation of Group Insurance Protection (GIP) policies taken out by employers to fund payments of sick pay. This guidance stated that salary sacrificed by employees as part of GIP arrangements could be taken into account as employee contributions for the purposes of determining the taxable amount of annual payments under section 735 ITTOIA and by extension section 221 ITEPA.

That guidance was incorrect. The correct position is reflected in the following pages and IPTM6120 that salary sacrificed will not be employee contributions for the purposes of either provision.

Where customers have relied on this guidance in assessing their historic obligations and liabilities on payments of sick pay HMRC will not seek to revisit the tax treatment where those payments were made to individuals before 31 December 2023.

As the payment of sick pay can occur in a period significantly after the salary has been sacrificed and arrangements can require time to be amended, HMRC will accept that payments of sick pay relating to salary sacrificed in the period from 15 October 2019 to 31 December 2023 may continue to be taxed in accordance with the previous guidance.

Full details as to when this treatment will apply are set out at EIM06474


bottom of page