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Income Tax (Earnings and Pensions) Act 2003

Section 221: Payments where employee absent because of sickness or disability

880.Sick pay paid to an employee by an employer under the contract of employment will usually be chargeable as earnings under Chapter 1 of Part 3. This section derives from section 149 of ICTA and provides for payments in the nature of sick pay financed by employers through insurance policies and trust funds to be taxed in the same way. If the particular payment already falls within the scope of Chapter 1 of Part 3, this section does not apply.

881.It has to be inferred from section 149(1) of ICTA that a sickness payment is deemed to be earnings for the period of absence. Subsection (3) makes the position explicit.

882.Subsection (4) derives from section 149(2) of ICTA and ensures that where both the employer and the employees contribute towards the cost of providing sick pay, the benefits paid to employees are taxed only to the extent that the employer finances them.

883.Subsection (6) derives from section 149(1) and (3) of ICTA and ensures that payments to the sick employee’s family or third parties on behalf of the employee (or his family) are also taxable. The source provision uses the term “family or household”. In this section the reference to “household” has been dropped because the term has a different meaning in the benefits code. The range of persons covered is instead included in the definition of a person’s family in section 721(4) of this Act. This is a change of approach explained more fully in Note 27 in Annex 2.

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