Waiving remuneration

Employees or directors may be thinking about accepting reduced remuneration packages, or waiving remuneration, or both.

Agreeing a reduced package for the future is fairly simple in tax terms: you will be taxed on what you are actually paid, rather than what you would have been paid under the previous agreement.  Where remuneration is “sacrificed” in return for the receipt of some other benefit, special rules need to be considered; but they don’t apply in the case of a simple outright reduction.

However, different rules may apply if you agree to give up something to which you have already become entitled.  The point here is that once remuneration has been “paid” it irrevocably becomes your taxable income and PAYE must be operated.  Any subsequent “forgiveness” or handing back or failure to draw what’s owed doesn’t alter that.

It’s crucial to appreciate that for these purposes, “payment” isn’t restricted to physical or electronic transfer of money such as handing over notes or crediting to a bank account.  And its precise meaning varies slightly according to whether you are a company director.

The basic rule is that “payment” occurs at the earlier of

  • The time when money is physically or electronically transferred or
  • The time when you become entitled to call for money to be physically or electronically transferred.

Assume, for example, that your contract says that your annual salary is payable in 12 monthly instalments on the 25th of the month.  You agree with your employer that you will accept a 30% reduction for the foreseeable future.  To be effective to reduce the salary taxable for April, the agreement will need to be made by the 24th of April.

What if you don’t agree to an absolute reduction but you agree to defer payment of 30% of your salary?  Here, the tax treatment depends on exactly what you are agreeing.  If it is, for example “I agree that 30% of my salary will be deferred each month and will be paid in lump sum on 1 January 2021” then it will not become taxable income until 1 January 2021.  But if it is “I agree that for the time being I will leave 30% of my salary outstanding as a loan which you don’t need to pay until I ask for it”, the full amount of the salary will have been “paid” (albeit loaned back to your employer) and will remain taxable.

For directors, as with employees, a waiver of remuneration is valid only if it is effected before “payment”: but for directors, “payment” is extended a little further to include the earlier of:

  • The time when sums on account of earnings are credited in the company’s accounts or records (whether or not there is any restriction to draw on the sums);
  • If the amount of earnings for a period is determined by the end of the period, the time when the period ends; or
  • If the amount of earnings for a period is not determined until after the period has ended, the time when the amount is determined.

In every case, in order to be valid, a waiver should be formally documented – preferably by way of a deed or failing that by an agreement under which consideration (£1 is enough) is given by the employer.

For more information, please get in touch with your usual BKL contact or reply to this email.

Above, stay safe and stay well.

This article was republished in TAXline (June 2020) and is available on the ICAEW website to ICAEW members.



Sam Inkersole

In 2022, Sam won the Taxation’s Rising Star award at the Taxation Awards in and was named in the Accountancy Age 35 Under 35.

Jon Wedge

While Jon’s client work focuses on the financial services sector, he also oversees the firm’s assurance service, as well as supporting the trainees following in his footsteps.


Elana joined us in 2017 as an ACA trainee, after graduating from Durham University where she had studied languages. She is now a manager in our assurance team.


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