In Kirin Kalia v HMRC [2023] TC08952, the First Tier Tribunal (FTT) found that backdated sickness payments made under an employer’s group income protection plan were subject to National Insurance Contributions (NICs) in the tax year they were paid, not in the tax year they related to.

  • Ms Kalia participated in her employer’s group income protection plan which entitled her to payments of approximately 75% of her salary whilst not working due to sickness.
    • Payments would be made by Ms Kalia’s employer, who insured their risk with Aviva.
    • Where Aviva did not make payment under the policy, Ms Kalia’s employer was not required to make any payments under the income protection plan.
  • Ms Kalia stopped working on 19 October 2017, due to illness.
    • She was paid eight weeks of sick pay in accordance with her contract before Statutory Sick Pay (SSP) commenced.
  • When entitlement to SSP ceased, Aviva stated that Ms Kalia’s illness was excluded from its cover under the terms of her employer’s insurance policy.
    • As a result, Ms Kalia’s employers made no payments to her under the income protection plan.
  • Following a challenge to the Financial Ombudsman, it was found that Ms Kalia’s illness was in fact covered by Aviva’s policy.
  • Backdated payments, representing 15 months of arrears, were paid as a lump sum to Ms Kalia in June 2020.
  • Due to the impact of this 'single payment' NICs treatment on Ms Kalia’s Employment and Support Allowance claim, she argued the arrears should have been treated as 15 late payments of monthly sick pay, paid simultaneously.
  • After lengthy correspondence with HMRC, Ms Kalia Appealed to the First Tier Tribunal (FTT).

Under Section 6 of the Social Security Contributions and Benefits Act 1992, a Class 1 NIC liability arises when earnings are paid.

This basic rule is overridden, by Regulation 7 of The Social Security (Contributions) Regulations 2001, where earnings are paid otherwise than at regular intervals.

The FTT found that:

  • The payment made to Ms Kalia represented 15 individual payments of sick pay, made simultaneously.
    • This was different from ‘arrears’ which might be paid in cases such as where an increase in salary is backdated to an earlier date.
      • Arrears paid in this sense would represent a single payment rather than an aggregate of payments of salary that was owed but had not been paid. Legal entitlement would have only arisen at the time the award was made. 
  • These 15 payments were ‘mistimed’ as they represented earnings which would normally have been made at regular monthly intervals. This resulted in Regulation 7 applying.
  • Under Regulation 7, the payments for:
    • April 2019 to March 2020 were subject to NICs in the earnings period in which they were actually paid (June 2020: the 2020-21 tax year).
    • April to June 2020 were subject to NICs in the earnings periods in which the payments would normally fall (the 2020-21 tax year).

The appeal was dismissed.


This case is a useful reminder to be alert to the separate rules which apply for NIC purposes and can easily be overlooked.

The FTT noted that, under Reg 58 of SS(C)R 2001, an application could be made by Ms Kalia to reallocate the amounts relating to April 2019 to March 2020 to the 2019-20 tax year, for state benefits purposes.

Useful guides on this topic

National Insurance: Rates
What are the current National Insurance rates? What rates will apply to next year? 

National Insurance: What's the maximum payable?
How are National Insurance Contributions (NICs) limited? What is the maximum payable? What different rules apply to employment and self-employment income? 

National Insurance for landlords
When are National Insurance Contributions (NICs) payable by landlords? Can landlords pay Class 2 NICs voluntarily?

How to appeal an HMRC decision
Disagree with an HMRC decision? How to appeal, what type of decision can you appeal and what are your different options when you disagree with HMRC? What are the key steps in making an appeal?

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Kirin Kalia v HMRC [2023] TC08952

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