In income protection policies, how is the payout taxed for the employer?

In income protection policies, when the employer pays the premiums on behalf of the employee, the payouts received by the employer are typically taxed under Pay As You Earn (PAYE) regulations. This means that the benefits provided to the employee in the event of a claim are considered taxable income.

This taxation occurs because the employer has made a contribution towards the policy, and as such, the benefits received can be seen as an additional income to the employer, which is subject to income tax. Essentially, any payments made by the employer for the income protection policy serve to provide financial support to the employee in the case of illness or incapacity, and when these payments are passed on to the employer as taxable income, they fall within the taxable regime rather than being exempt or tax-free.

Understanding how taxation applies to employer-funded income protection policies helps clarify the financial implications for both the employer's perspective and any benefits received by the employee during a claim period.