Income Tax (Earnings and Pensions) Act 2003 section 221

Payments where employee absent because of sickness or disability

Section 221 deals with the tax treatment of sickness-related payments arranged by employers, such as those financed through insurance policies or trust funds, ensuring they are treated as taxable earnings in the same way as ordinary sick pay.

• When an employee is absent due to sickness or disability and receives a qualifying sickness payment arranged by the employer, that payment is treated as taxable earnings for the period of absence.
• This section only applies where the payment is not already taxable as earnings under another provision — it is designed to catch employer-arranged payments such as those from insurance policies or trust funds that might otherwise escape the earnings charge.
• A qualifying sickness payment must be made to the employee (or a family member, or for their benefit) by reason of the employment and as a result of arrangements entered into by the employer.
• Where both the employer and employees have contributed to the fund from which the payment is made, only the portion that can justly and reasonably be attributed to the employer's contributions is treated as earnings.