EIM06420 - Employment income: sick pay and injury payments: sick pay funded by employees
Sections 735 – 743 Income Tax (Trading and Other Income) 2005
Where employees contribute to a fund for the provision of sick pay, the contributions do not attract tax relief and should be made from income after the deduction of tax and NIC.
Payments made to employees when they are sick out of a fund consisting entirely of employee contributions are not taxable as employment income. But if they are annual payments a charge may arise on Savings and Investment Income. The tax treatment of such payments should be considered by reference to sections 735 – 743 ITTOIA 2005 (see IPTM6100 and subsequent).
Using a Salary Sacrifice
For instances where an employer provides income protection policies through a salary sacrifice arrangement with their employees see guidance at EIM06470.