What is a Participating Employer for Employee Benefits?
Question asked by Richard Whitty
I’ve been looking at arranging Group Income Protection Insurance for my employees. This is to provide cover in case they’re off sick. I was just wondering about the taxation of Group Income Protection and how it works if someone unfortunately needs to claim.
HMRC taxes Group Income Protection Insurance differently compared to the Income Protection you take out personally.
You pay for individual Income Protection from cash you’ve already paid tax and National Insurance on (i.e. your wages). That means should you need to make a claim, the benefit you receive is normally tax-free.
However, when an employer takes out company Income Protection Insurance, usually it’s a business expense. This means you can reclaim the cost against corporation tax.
In most cases, this makes the benefit from Group Income Protection therefore subject to income tax when an employee claims.
The insurer pays a claim as salary continuance to the employer. It’s the employers job to distribute this to the worker via PAYE. HMRC then taxes the worker’s benefit just as if it would earned income.
No. In most cases, Group Income Protection is not treated as a taxable P11D benefit in kind for the employee.
This means there’s not usually therefore any additional tax due as a result of having this protection.