EIM06470 - Employment Income: sick pay and injury payments: provision under a salary sacrifice arrangement

Overview

The Optional Remuneration Arrangements (OpRA) legislation was introduced by Finance Act 2017 (section 7 and schedule 2) from 6 April 2017.

EIM pages EIM06410, EIM06420, EIM06430 and EIM06460 need to be read alongside this page if there was a salary sacrifice arrangement in place as part of the arrangements for paying sick pay on or after 6 April 2017 as these arrangements will be caught by the OpRA legislation.

EIM06471 provides guidance on the tax treatment of the right to receive sick pay provided under salary sacrifice arrangements.

EIM06472 provides guidance on the tax treatment of sick pay received from schemes which were provided under salary sacrifice arrangements during employment.

EIM06473 provides guidance on the tax treatment of sick pay received from schemes which were provided under salary sacrifice arrangements post termination of employment.

Previous guidance

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

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