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In a letter to the Chancellor of the Exchequer, GRiD addresses the unjust double taxation of Group Income Protection within the Optional Remuneration Arrangement ‘OpRA’ legislation

Press release 29 March 2023.

  • HMRC’s interpretation of the OpRA legislation means employees will be taxed on the salary they sacrifice and also taxed on any benefits they receive due to incapacity
  • GRiD urges HMRC to revise its position and to only tax employees once on the payment of proceeds from the employer

GRiD has written to the Rt Hon Jeremy Hunt MP about its material concerns regarding HMRC’s flawed interpretation of the legislation relating to the taxation on Group Income Protection (GIP), within the context of an optional remuneration arrangement (OpRA).

Writing on behalf of the industry body for the group risk sector, Paul White, chair of GRiD, and Clare Lusted, GRiD’s Regulatory Committee chair, said that HMRC’s latest interpretation of the OpRA legislation (as of 1 December 2022), after more than six years of discussion and exchanges, has led to a position where an employee in claim will be double taxed i.e. taxed on the salary they sacrificed for their GIP cover, and taxed on the benefits they receive if they are unable to work due to sickness or injury. They wrote that this situation needs to be urgently addressed as double taxation of input and output is unfair and that this has been recognised elsewhere in tax legislation by HMRC. (HMRC previously agreed in 2019 that proceeds could be paid tax-free proportionate to the part of the premium treated as a benefit in kind.)

HMRC’s latest interpretation

For context, other means of offering GIP – either where an employee contributes from net (post-tax) pay, or where the scheme is entirely employer-funded, are only taxed once. The former on premium payments (because premiums are paid out of income that has already been taxed), the latter on proceeds. However, HMRC’s latest interpretation of OpRA legislation states that where the employee enters into a GIP arrangement via salary sacrifice, a benefit in kind exists based on the amount of salary foregone (and so is taxable), and also asserts that the corresponding proceeds are also taxable.

GRiD’s interpretation of OpRA taxation rules

GRiD’s interpretation of the legislation as it is currently written is that the salary sacrifice entered into by an employee to enable a higher level of sick pay benefit from their employer in the event of incapacity is not a taxable benefit and is therefore out of scope for OpRA taxation. The effect of this is that employees should only be taxed once on the payment of proceeds from the employer to the employee.

GRiD is asking for HMRC to adopt this position and states that no change of legislation is necessary to correct HMRC’s flawed interpretation or for its implementation, which would benefit employers, employees, the state and the economy.

Uncertainty causing decline in top-up GIP options

According to Swiss Re Group Watch 2022 statistics, the uncertainty of the situation has already created a reduction in the number of employers offering flexible ‘top-up’ GIP options. If employers believe topping up GIP cover is too complicated, fewer are likely to offer it, hastening a decline in this comprehensive cover.



Total membership -all in-force policies

Membership where flex options available

% of total membership













Source: Group Watch 2022, Swiss Re

Why is GIP important?

GIP insurance is an important benefit as it pays a proportion of an employee’s income if the individual is unable to work long-term because of sickness or injury. This might be for a set period, for instance, five years, or up until state pension age. It also offers preventative support designed to improve employee health and wellbeing and reduce employee absence, and personalised and tailored early intervention and rehabilitation support to help employees back to work.

Depending on the level of cover, allowing employees to make a contribution or a flexible top up enables the employee to ensure their plan is suitable for their age, life stage and outlook.

HMRC’s position shifts responsibility and costs from the private sector to the state

GRiD believes HMRC’s current position to be incongruent with the government’s aim to encourage more people back into the workplace and to reduce the costs associated with having a significant proportion of the workforce economically inactive.

With fewer comprehensive GIP policies in place, fewer employees will be supported financially while they are unable to work and fewer people will receive the inherent preventative and rehabilitation support that is embedded into these policies. This results in lower income tax revenues for HMRC and an increased welfare bill.

The protection industry needs to raise employer awareness of this issue

GRiD highlights the need for employee benefits consultants, advisers and insurers to raise this issue with employers. Employers currently have until the end of 2023 to review the way they provide their GIP salary sacrifice arrangements and to communicate any necessary changes to employees. Currently, GIP claim payments under salary sacrifice schemes up to 1 January 2024 can be made tax-free proportionate to the part of the premium treated as a benefit in kind, after which time, the OpRA rules will apply.

Paul White, chair, GRiD said: “At a time when Government is looking at the insurance industry for ways to encourage individuals to take increased personal responsibility through adequate insurance, HMRC’s intransigence is pushing employees away from GIP schemes and into a position of having no or inadequate income protection cover should they fall ill. 

“As a sector, we know that work is good for employee health. We specialise in helping employers get their staff back to work after an illness or injury and we know that early intervention and retaining the link with the employer is vital. If employers are not incentivised to invest in solutions, sick employees languish at home waiting for costly state support while their condition gets worse, and their former employer has to seek a replacement, harming productivity and increasing costs.

“We urge the Chancellor of the Exchequer to direct HMRC to review its policy on GIP contributions via salary sacrifice and to adopt the correct interpretation of the legislation, especially in the current economic climate where protection of this nature offers good value and a lifeline to many employees in their hour of need.”

  • Ends –

For further information please contact:

Sharon Mason 
SMUK Marketing and PR 
Mob: 07747 611773
Land: 01252 843350


Katharine Moxham
Spokesperson for GRiD
Mob: 07887 512508

Notes for editors

About GRiD

Group Risk Development (GRiD) is the industry body for the group risk sector, promoting the value to UK businesses of providing financial protection for their staff, enhancing their wellbeing and improving employee engagement. Our membership includes insurers, reinsurers, intermediaries and those operating in (or with other interests in) the UK group risk market. Together this forms a collective wealth of experience built over many years. Under the chairmanship of Paul White (head of technical, Howden Employee Benefits & Wellbeing) GRiD aims to promote group risk through a collective voice to Government, policymakers, stakeholders and employers.

GRiD works with government departments and regulators involved in legislation and regulation affecting group risk benefits, and with other organisations involved in the benefits and financial protection arenas. GRiD also seeks to enhance the industry's standing by encouraging best practice and by participating in industry-wide initiatives such as the professional qualification in group risk managed jointly with the Chartered Insurance Institute.

GRiD’s media activity aims to generate a wider awareness and understanding of group risk products and their benefits for employers and employees.

GRiD's dedicated spokesperson, Katharine Moxham, provides expert media comment on a full range of group risk issues.

Follow Katharine Moxham on Twitter @KMoxham



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