Employers who provide Group Income Protection (GIP) payments may fall into a tax trap as a result of the HMRC’s Employment Income Manual’s December update, according to Broadstone.
The change, which was made public on the HMRC website, states that the Treasury’s October 2019 guidance was “incorrect” and that IPTM6120, the Insurance Policyholder Taxation Manual, now contains accurate information.
The earlier guideline eliminated the possibility of double taxation on income benefits from GIP policies that were paid for by employee salary sacrifice under Optional Remuneration Arrangements (OpRA). According to the revised guideline, these benefits payments are in fact taxable.
HMRC stated in its most recent release that certain groups may have relied on it and that, in many instances, it would “not seek to review the tax approach where customers have relied on the previous guidance.”
The most recent HMRC policy permits employees who are currently collecting benefits before December 31, 2023, to continue to be taxed as they are.
According to HMRC, any connected sickness or disability benefits obtained through a GIP programme will be treated as taxable employment income and subject to the regular payroll deductions on both the employer-paid and employee-paid portions.
Broadstone says there are practical exceptions to this rule when employers and employees relied on HMRC’s prior position on double taxation. In these cases, HMRC will support employers by providing additional guidance.
Broadstone head of health & protection Brett Hill says: “Employers have until 31 December 2023 to amend their processes (where relevant) to reflect HMRC’s current view. This should allow time for internal systems, communications, and benefits platforms to be updated, but employers will need to be aware of this change.
“The shock of Covid and the subsequent crisis in the NHS means that employees are now looking for sickness support from their employers more than ever, as such GIP cover is often used as an important employee retention tool.”
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