EIM06460 - Employment income: sick pay and injury payments: examples
Section 221 ITEPA 2003
Example (a): employees' and employer's contributions fixed in advance
Employees and their employer contribute to a sick pay insurance
scheme. Until 31 December 2003, the employees each pay £7 per
month and the employer pays £6 per month for each employee.
From 1 January 2004, the employees' contributions increase to
£8 per month and the employer pays £7 per month per
employee.
An employee falls sick on 1 October 2003, and is still ill
and receiving sick pay on 1 October 2004.
From 1 October 2003:
| 6 | x sick pay is taxable as employment income |
| 6 + 7 |
From 1 January 2004:
| 7 | x sick pay is taxable as employment income |
| 7 + 8 |
As the employee is still receiving sick pay on 1 October 2004 the part of the sick pay which is not taxable as employment income is potentially chargeable as Savings and Investment Income . Sections 735 – 743 ITTOIA 2005 exempt that part of the sick pay, but not the part taxable as employment income (see above).
Example (b): employees' or employer's contribution variable
A sick pay club makes up its accounts to 31 May each year.
The employees each contribute 60p per week, and their
employer pays whatever sum is needed to bring the total
contributions up to £100,000 per year. Because the number of
employees is variable, the relative amount of the employees' and
employer's contributions will not be known until the end of the
year.
By 30 June 2004, the club calculates the employees' total
contributions for the year ended 31 May 2004 to be £40,400, so
the employer pays in £59,600. The proportion taxable as
employment income is calculated to be:
| 59,600 | x any sick pay paid out of the scheme |
| 59,600 + 40,400 |
and this proportion is applied from 1 July 2004.
By 30 June 2001, the club calculates the total contributions
for the year ended 31 May 2001 as employees £35,700 and
employer £64,300. The proportion taxable as employment income
is recalculated as:
| 64,300 | x any sick pay paid out of the scheme |
| 64,300 + 35,700 |
to take effect from 1 July 2005.
On 1 October 2005 the club changes its rules and employees
begin to contribute 40p per week, and their employer 70p per week
per employee. From 1 October 2005 the proportion of sick pay
taxable as employment income can be calculated in accordance with
the rules in Example (a) above and is:
| 70 | x any sick pay paid out of the scheme |
| 70 + 40 |
