Tax deducted from sick pay

FROM last week, the Inland Revenue started making insurance companies deduct tax from payments under sickness plans after a year's claims.

But the new forms for non- taxpayers to claim gross payments, R89 (PHI), have not yet been printed.

So non-taxpaying claimants have had 25 per cent sliced off their monthly cheques and will have to reclaim the tax via their local offices.

Claimants liable for 20 per cent tax cannot use the forms and will have to apply for repayment of overpaid tax monthly.

The forms are akin to those used by non-taxpayers to claim gross payment of bank or building society interest.

The rules on payments under PHI (permanent health insurance) were tightened up in last November's Budget.

Individual claimants used to get tax-free payments for the remainder of the tax year in which they started claiming plus another full tax year - a total of anything from 13 to 23 months. But from 6 April, the exemption will run for a straight 12 months.

Housewife PHI policies, where the benefit is not a replacement of income, are not entitled to the tax holiday.

In 1993, over 9,000 people began a new PHI claim. There are 1.3 million individual PHI policies in force and 1.2 million people are covered by workplace schemes.

People whose cover comes from a group scheme will have their payments dealt with by their employer through the PAYE (pay as you earn) system.

The Inland Revenue became concerned that at the end of the concession period claimants were not paying the proper tax on their income.

The average benefit paid under PHI policies is just over pounds 6,000 a year. The basic personal tax allowance is pounds 3,445. The first pounds 3,000 of taxable income is taxed at 20 per cent rather than the standard rate of 25 per cent.

The Association of British Insurers said insurance companies are having to write to claimants to explain the new system.

The forms for gross payment will eventually be issued by the companies. 'There was such a short period before implementation. It's a sorry tale,' an ABI spokesman said.

The Inland Revenue said that the forms are now with the printers. However they could not give a date when they would be available.

Anne Wallace, a public relations consultant from Frodsham, Cheshire, is claiming under a policy from Sun Life after a bad bout of glandular fever.

She said her local tax office had not heard about the changes and could not help her. 'I was getting pounds 519 a month, so taking 25 per cent off was a big chunk,' she said.

Legal & General, which has promoted PHI policies for housewives, said the policy of excluding claimants who were not losing wages or income from self-employment from the tax holiday was 'sexist'.