HMRC updates tax guidance for waiving income and bonuses and charitable giving

HM Revenue & Customs (HMRC) has updated its guidance for people choosing to waive their income to support their business or a charity during the COVID-19 pandemic.

The move comes after research revealed that an increasing number of people were choosing to give up all or part of their income despite not understanding the tax implications.

What are the rules?

Employers, directors and employees have the right to waive their salary or bonuses, known as a “waiver of remuneration”.

In these situations, no Income Tax or National Insurance Contributions (NICs) will be due on the amount given up, providing it is not part of any wider arrangement to deliver the amount to a recipient or cause. For example, waived income would not attract liabilities if it was sacrificed to boost cash flow. But it would attract tax if it was waived on the condition that the sum would be donated to a particular charity.

It is also possible to return salary or bonuses after they have been paid. However, it is not possible to claim back Income Tax and NICs that have been deducted.

What about dividends?

Waiving dividends, meanwhile, requires a Deed of Waiver to be formally executed, dated and signed by shareholders and witnessed and returned to the company.

On dividends, the guidance states: “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.”

Employers, directors and employees can also choose to donate to charity under the Payroll Giving and Gift Aid scheme.

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