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HMRC internal manual

Employment Income Manual

Employment income: sick pay and injury payments: sick pay and other sums paid after cessation of employment

Part 9 ITEPA 2003

It will be unusual for an employer to continue direct payments after an employment has ended. But if sick pay is paid by the employer for periods after cessation the payment may well be taxable as pension income. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

Payments made by a third party after the employment has ended may also be taxable as pension income. For example an employer may fund a sickness or disability scheme which provides for continuing benefits to be paid to former employees by the insurer. If one of the reasons for the employment ending is the sickness or disability of the former employee the payments made by the third party will be taxable as pension income (see Johnson v Holleran (61TC428)).

If a third party payment is not taxable as pension income, perhaps because the termination of employment is not linked to sickness or disability, or because the arrangement is not funded by a former employer, the payment may be chargeable as Savings and Investment Income (see IPTM6100 and subsequent).