Is sick pay taxable? SSP, tax and NI explained

Statutory Sick Pay is treated as earnings for Pay As You Earn and Class 1 National Insurance, so it is taxed in the same way as ordinary wages (litrg.org.uk). At £123.25 a week for the 2026-27 tax year, against a personal allowance of £12,570, the amount actually deducted is often small or nil (gov.uk).

The short answer is that sick pay is taxable, but the headline rule and the practical outcome are not the same thing. This article explains how SSP and company sick pay are taxed, why so little tax is usually taken, how the figures appear on a payslip, and what happens to tax when SSP runs out and a benefit takes over.

Key takeaways

• Statutory Sick Pay is taxable and counts as earnings for both income tax and National Insurance.
• In practice little or no tax is often deducted, because the personal allowance covers most of a low weekly payment.
• Company or occupational sick pay is also taxable, taxed through PAYE like normal salary.
• SSP is paid through payroll and shown as a separate line on the payslip.
• New Style Employment and Support Allowance, which can follow SSP, is also taxable.

Is statutory sick pay taxable?

Yes. SSP is paid by the employer through the payroll and is subject to the same deductions as wages (gov.uk). It is not a tax-free benefit, and it is reported to HMRC through Real Time Information alongside any other pay in the period (litrg.org.uk).

The reason is that SSP replaces wages during sickness rather than sitting outside the pay system. Because it flows through PAYE, the employer applies the employee's tax code and National Insurance category to it exactly as it would to salary (gov.uk).

Income tax on SSP

SSP is earned income, so income tax applies to it under PAYE (litrg.org.uk). The amount of tax depends on the employee's tax code and how much of their income for the year sits above the personal allowance (gov.uk).

For 2026-27 the personal allowance is £12,570, the threshold below which no income tax is due (gov.uk). An employee whose total annual income, including SSP, stays under that figure pays no income tax on the sick pay at all (litrg.org.uk).

National Insurance on SSP

SSP also counts as earnings for Class 1 National Insurance, so employee and employer contributions can apply (litrg.org.uk). Whether any National Insurance is actually due depends on whether the pay in the period clears the relevant earnings threshold (gov.uk).

Because SSP on its own is a modest weekly figure, it frequently falls below the point at which employee National Insurance becomes payable (gov.uk). Where SSP is paid alongside normal wages, the combined figure is assessed together, and contributions are calculated on the total (gov.uk).

Why little or no tax is often deducted in practice

A full week of SSP at £123.25 is far below the weekly equivalent of the personal allowance, which is roughly £242 (gov.uk). An employee receiving only SSP for several weeks is therefore unlikely to have used up their tax-free allowance, so the PAYE calculation often produces no income tax (litrg.org.uk).

The same logic applies to National Insurance, which is charged per pay period rather than annually (gov.uk). A week in which the only payment is SSP commonly sits under the primary threshold, so no employee contribution arises for that week (litrg.org.uk). Small business payroll systems apply these thresholds automatically, which is why an employee on SSP often sees the gross and net figures close together.

How SSP appears on a payslip

SSP must be itemised on the payslip as a distinct line, separate from ordinary wages, so the employee can see how much of their pay is statutory sick pay (gov.uk). This transparency also lets the employee check that the correct amount has been paid for the qualifying days in question (acas.org.uk).

The gross SSP figure is what is subject to tax and National Insurance; any deductions are then applied to arrive at the net amount, exactly as with salary (gov.uk). UK payroll software calculates the SSP line, applies the tax code, and reports the figure to HMRC in the same submission as the rest of the pay run.

SSP and occupational sick pay together

Where an employer also operates a company sick pay scheme, the payslip can look more complex. The enhanced pay is shown, an offset line removes the SSP element, and the SSP is then added back so the totals reconcile without paying the same money twice (acas.org.uk). All of these elements are earnings, so the tax and National Insurance are calculated on the combined taxable figure (gov.uk).

Is occupational sick pay taxable?

Company, contractual or occupational sick pay is also taxable. It is paid through payroll as part of the employee's earnings, so income tax and National Insurance apply in the normal way (gov.uk). Whether tax is deducted depends on the same factors as salary: the tax code and the income already received in the year (gov.uk).

Because occupational sick pay is usually closer to normal salary than SSP is, it is more likely to attract income tax and National Insurance than SSP paid alone (acas.org.uk). An accountant payroll platform handling multiple employers treats enhanced sick pay as ordinary taxable earnings while keeping the SSP element separately identified for reporting.

Tax when SSP is the only income

When SSP is the only payment an employee receives, the practical tax position softens further. The cumulative PAYE system spreads the personal allowance across the year, so weeks of low or nil pay during sickness tend to leave allowance unused (gov.uk). That can even trigger a small tax refund through the payroll when earnings resume, depending on the tax code operated (litrg.org.uk).

Tax codes and SSP

The tax code drives how much allowance is set against each payment. A standard cumulative code applies a slice of the annual personal allowance to every pay period, including periods paid only as SSP (gov.uk). If the code is wrong, the SSP could be over-taxed or under-taxed, which is why employees are encouraged to check the code shown on the payslip against their circumstances (acas.org.uk).

What happens to tax when SSP ends

SSP is capped at 28 weeks in a single period of incapacity or a series of linked periods of incapacity for work (gov.uk). When entitlement ends, the employer issues form SSP1 so the employee can claim New Style Employment and Support Allowance from the Department for Work and Pensions (gov.uk).

That benefit is itself taxable, so the tax does not disappear simply because payment moves from the employer to the state (gov.uk). The mechanism changes, with the benefit reported to HMRC rather than run through the employer payroll, but the principle that sickness-related income is taxable carries through (gov.uk).

The employer's side: reporting and cost

For the employer, SSP is taxable earnings that must be reported through Real Time Information like any other pay, with tax and National Insurance accounted for in the FPS (litrg.org.uk). Payroll that holds the HMRC Recognised badge submits these figures automatically and reflects the correct thresholds without manual reconfiguration (gov.uk).

Unlike statutory family payments, SSP cannot be recovered from HMRC, so the gross cost stays with the employer even though the payment is taxable in the employee's hands (gov.uk). Businesses embedding payroll into their own systems through an HMRC-recognised payroll API can calculate the SSP deductions and the unrecoverable employer cost in the same operation.

Conclusion

Sick pay is taxable in principle and modest in practice. SSP and company sick pay both pass through PAYE as earnings, carry income tax and National Insurance, and appear as itemised lines on the payslip, yet the low weekly value of SSP against a £12,570 allowance means the deduction is frequently small or nil.

The taxable thread runs the whole length of a sickness absence, from the first SSP payment, through any enhanced company scheme, and on to the benefit that follows once the 28-week cap is reached. Understanding where the tax bites, and where the allowance absorbs it, is what lets employees read their payslips with confidence and employers report each figure correctly.

Frequently asked questions

Is statutory sick pay taxed like normal wages?

Yes. SSP is treated as earnings and is subject to income tax and Class 1 National Insurance through PAYE, in the same way as salary. Whether any tax is actually deducted depends on the tax code and how much of the personal allowance has been used (litrg.org.uk).

Why is no tax taken from an employee's sick pay?

A full week of SSP at £123.25 is well below the weekly share of the £12,570 personal allowance, so an employee receiving only SSP often has enough unused allowance to cover it. In that case the PAYE calculation produces no income tax, and the weekly figure may also sit below the National Insurance threshold (gov.uk).

Is company sick pay taxable?

Yes. Company, contractual or occupational sick pay is paid through payroll as earnings, so it is subject to income tax and National Insurance like ordinary salary. Because it is usually higher than SSP, it is more likely to have tax deducted (gov.uk).

Is the benefit after SSP ends taxable?

New Style Employment and Support Allowance, which can be claimed when SSP entitlement ends after 28 weeks, is taxable. The employer issues form SSP1 to allow the claim, and the benefit is then reported to HMRC rather than paid through the employer payroll (gov.uk).