This briefing considers the voluntary waiver of salary and bonus payments by directors and employees and summarises some of the potential tax pitfalls and practical issues required to give effect to such arrangements.
As the economic effects of Covid-19 continue and companies across all sectors and markets look to manage cash flow, several company directors and senior management have shown solidarity with the workforce by voluntarily agreeing to salary reductions or waiving all or part of their annual bonuses.
You may be forgiven for thinking that such actions should not give rise to financial 'penalties' on those giving up their pay; however, care must be taken when structuring these arrangements as individuals may otherwise find themselves paying tax and NICs, even on the amounts they have given up.
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