EIM06474 | Employment Income: sick pay and injury payments: provision through a salary sacrifice arrangement

Interaction with previous guidance

On 15 October 2019 HMRC provided guidance to the Association of British Insurers (ABI) on how the OpRA legislation affected the taxation of Group Income Protection (GIP) policies taken out by employers to fund payments of sick pay. This guidance stated that salary sacrificed by employees could be taken into account as employee contributions for the purpose of determining the amount taxable under either section 221 ITEPA 2003 or chapter 7 of part 5 ITTOIA 2005.

This guidance was incorrect. The correct position is now reflected in the previous pages and at IPTM6120. These amounts of salary foregone will not be employee contributions for either provision.

The guidance was provided as a general view on the tax treatment of sick pay funded via salary sacrifice arrangements. HMRC therefore recognises that it may have been relied on by:

• employees entering into or deciding to remain in sick pay arrangements via salary sacrifice after 15 October 2019

• payers and payees considering the tax treatment of sick pay payments made after 15 October 2019 where they derived from salary sacrifice arrangements

HMRC will therefore not seek to revisit the tax treatment where customers have relied on the previous guidance in the following cases:

• where sick pay payments were made to employees or former employees without deduction of tax between 15 October 2019 and 31 December 2023 inclusive to the extent that they are (or are derived from) amounts that can be or have been attributed on any just and reasonable basis to salary foregone by employees in periods starting on or after 6 April 2017

• where repayment claims (including overpayment relief claims and PAYE adjustments) were made between 15 October 2019 and 1 December 2022 inclusive to the extent that these claims related to sick pay payments made to employees or former employees and are, or are derived from, amounts that can be attributed on any just or reasonable basis to salary foregone by employees in periods starting on or after 6 April 2017

• sick pay payments made on or after 1 January 2024 will be accepted as non-taxable to the extent that they are made or are derived from amounts that can be attributed on any just or reasonable basis to salary foregone by employees between 15 October 2019 and 31 December 2023

HMRC will assume that customers have relied on the 15 October 2019 advice unless details of the claim indicate there was no such reliance.

In all other cases, the guidance provided in the preceding pages and relevant pages in IPTM6200 onwards will apply to the taxation of sick pay provided under OpRA.

(This content has been withheld because of exemptions in the Freedom of Information Act 2000)