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Introduction

Employees may lose income as a result of not attending work for a variety of reasons. In some cases, employees may be paid by a third party for loss of their earnings. HMRC refer to these payments as ‘Financial Loss Allowances’ or ‘Lost Time payments’ in their guidance. Examples of a loss of earnings include being required to attend the following where the employer does not pay their employee for the working hours they miss as a result:

1. •

   jury service

2. •

   trade union meetings

The PAYE treatment of payments received depends on whether the amount of compensation is based on the actual loss of employment income.

HMRC guidance is available from EIM01120 and NIM02220 with examples at EIM01135. See Simon’s Taxes E4.747A and Division E4.8.

Exemptions for compensation for loss of earnings

There are two exemptions in place with allow an individual to receive compensation for loss of earnings without any tax or NIC being due. There are as follows:

1. •

   voluntary office-holders in ITEPA 2003, s 299A

2. •

   Voluntary public service in