Employees who agreed to waive salaries during the pandemic could face tax bills

Thousands of UK employees who have agreed to waive salaries or bonuses to help their employers during the pandemic could now face tax bills, say tax and advisory firm Blick Rothenberg.

Nimesh Shah, a partner at the firm said:

“Many generous individuals have agreed to waive pay and/or bonuses to help with their employer’s cash flow or donate to charity.

“It’s admirable that people are willing to give-up their own pay to help others during the COVID-19 crisis, but HMRC’s tax rules aren’t so generous.

“HMRC have issued a news release warning generous individuals that tax charges can arise where they decide to waive a salary or bonus.

“This relates to specific salary sacrifice rules introduced in April 2017.

“The original design of the rules was ridiculous and should not be catching these situations.

“The Government now have the perfect opportunity to re-write this law, having seen first-hand the complications they cause through innocent acts of kindness.

“It’s possible to manage some of the tax charges by carefully planning ahead and ensuring the right documentation is in place between the employee and employer; however, many will be unaware of the exact procedure and tax charges can easily arise on something you never received.

“HMRC’s news release outlines options on how some of the tax charges may be managed.

“Employers and employees need to act on this right now so that they can mitigate tax charges for loyal employees who are trying to do the right thing and who otherwise will get caught.

“The Government and HMRC have introduced temporary exemptions or changed tax rules completely for certain situations during the current crisis – it’s bizarre that they haven’t moved to change these unfortunate rules and chosen only to issue guidance on how charges could be avoided.”

 

If any readers run into this situation EYE would like to hear from you. news@propertyindustryeye.com

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One Comment

  1. Mythoughts

    Not sure I would want to use these guys as my accountant. Surprising article from such a well established accountancy firm.

    The advice from HMRC is clear, straightforward and easy to implement.
    If an employee and employer agree to a reduction in the employee’s remuneration before they are paid, for example to support company cashflow during the pandemic, then no Income Tax or National Insurance contributions (NICs) will be due on the amount given up.- HMRC website
    Directors or other shareholders, including employees, are able to waive their right to be paid a dividend.
    For this to be effective, a Deed of Waiver must be formally executed, dated and signed by shareholders and witnessed and returned to the company.
    The waiver must be in place before the right to receive a dividend arises. For final dividends, this is before they are formally declared and approved by the shareholders. For interim dividends, the waiver must be in place before the dividends are paid.
    Bonuses must be waived before the date they are due to be paid. If they are waived on or after the due date then tax will still be payable on them, even if the bonus is not paid over.
    Payroll Giving
    Payroll Giving is a way of giving money to charity without paying tax on it. It must be paid through PAYE from someone’s wages or pension.
    If you’re an employee, you should select a registered charity to donate to, and let your employer’s payroll department know.
    Employers should contact a Payroll Giving agency to set up a scheme. The donation will be taken from employees’ pay before Income Tax but after National Insurance. Any registered charity in the UK or the EU recognised by HMRC for tax purposes can receive donations through Payroll Giving.

     

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