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bigduckontax
bigduckontax, Accountant
Category: Tax
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Are long term disability payments taxable? My employer

Customer Question

Are long term disability payments taxable?
My employer provides the insurance as a benefit and part of my contract. I became ill about a year ago and filed a claim in April for long term disability insurance after the deferred period of 6 months. Those six months I received the normal SSP. In October, I was finally advised that my claim had been accepted and that a lump sum (for payment in arrears from April to September) would be transferred to my employer for payment via payroll. And that thereafter, I would receive the stipulated amount each month via payroll. I will get paid mostly in one quarter of the year as the payment is in arrears for 6 months. Will this make my tax withholding rates go up? Will HMRC assume I will get this amount paid every quarter? What can I do to prevent this and make sure that the correct amount is being withheld?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I'm Keith and happy to help you with your question.
HMRC advice on these policies is as follows:
'What types of policies pay benefits that may be tax free?
The most common types of policies that pay benefits that may be tax free are:
Permanent health, personal accident, sickness or income protection insurances: these provide continuing income in times of sickness
Some long-term care insurances: these provide benefits to meet the costs of residential care or care in the home
Creditor insurance: benefits provided under this type of policy meet specific bills or debts. Examples are mortgage payment protection insurance, and policies to meet loan repayments or gas, electricity, water or credit card bills when you are sick or unemployed.'
So having verified if these payments are indeed not taxable then you should ensure that your employer pays these entitlements gross and not within the PAYE envelope. If, by chance, they are incorrectly taxed than all will come out at the end of the year as it were when you render your self assessment income tax return. It won't help your cash flow, so you should ensure that the payments under the policy do not pass through the PAYE system.
I do hope I have shown you a way forward in this matter.
Customer: replied 2 years ago.

Hi "Bigduckontax" and thank you for your reply, however I am still not clear on whether my benefits are taxable. It certainly doesnt ft under any of the benefits you describe as it is a long term disability insurance provided by my employer. I am aware that in some cases they are taxable and in some cases they are not. How can I find out if it is?

Expert:  bigduckontax replied 2 years ago.

Yes, that is a problem. You could check with the insurer which I feel would be the safest or inquire of your employer or even consult your tax office. If it is taxable and paid through PAYE then there is no problem as the correct deductions will be made. If it is not taxable then, as I told you, you should ensure that your employer pays them outside the PAYE envelope or you will have to wait until the end of the tax year to achieve the appropriate refund of over deducted tax.

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Expert:  bigduckontax replied 2 years ago.
Thank you for your support.
I am so sorry I had to send you on a hunt for more data, but the whole question was dependent on the type of insurance product and you will appreciate that there are an awful lot of policies.

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