Source · Select Committees · Work and Pensions Committee
Recommendation 9
9
Rejected
Paragraph: 73
Publish plans to promote Group Income Protection for small businesses and rectify double taxation.
Recommendation
Group income protection (GIP), though not an alternative to Statutory Sick Pay, can help small businesses to manage the cost of long-term sickness absence and increase the chances of employees making a full return to work. We welcome the Government’s plans to work with employers to raise awareness of the benefits of GIP. We still have concerns, however, about the double taxation applied to some GIP 36 Statutory Sick Pay policies. The Government should set out in response to this report exactly what it has done, and plans to do, to promote group income protection among smaller businesses, including any proposals to incentivise take-up. It should also set out what plans it has to rectify the anomaly of salary sacrifice arrangements being subject to double taxation.
Government Response Summary
The government rejected the premise of "double taxation" for Group Income Protection salary sacrifice arrangements, explaining the current tax treatment. For promoting GIP, they referred to the independent "Keep Britain Working" review, which will engage with health and work stakeholders including insurers.
Paragraph Reference:
73
Government Response
Rejected
HM Government
Rejected
Some insurance products, particularly Group Income Protection (GIP) policies, provide access to valuable rehabilitative and preventative support for employers and employees. Keep Britain Working is an independent review that has been established to consider the role of UK employers in reducing health-related inactivity and promoting healthy and inclusive workplaces. As part of this work, a broad range of health and work stakeholders from across the country, including insurers, will be engaged. In relation to the specific point about salary sacrifice arrangements, the provision of a GIP policy is a benefit-in-kind and taxable in its own right. When provided outside of salary sacrifice, this is exempt from a benefit-in- kind charge. When provided via salary sacrifice the Optional Remuneration Arrangements (OpRA) rules apply resulting in a benefit-in-kind charge, and this treatment is in line with the majority of other benefits-in-kind following the previous Government’s reforms in 2017. Sick pay is always taxable as earnings as it relates to the employee’s employment. Where an employee has contributed to the premiums of a GIP scheme from their taxed income, only the part of the sick pay attributable to the employer’s contributions are charged to income tax. Where employees continue to use salary sacrifice, they will be taxable in full on any sick pay paid out of the scheme in addition to incurring a benefit-in- kind charge. The contribution to the policy and any subsequent sick pay are not the same amounts, and therefore there is no double taxation, but the employee will be charged both at the point of contribution and at receipt. Employees are able to stop using salary sacrifice and make contributions out of their taxed income to ensure that they are not taxed on any sick pay received from the scheme which is attributable to these contributions.