Waivers of remuneration

A waiver of remuneration happens when a director or an employee gives up their right to salary or other cash remuneration and gets nothing in return. Where the employee gets a non-cash benefit in return, this is called a salary sacrifice.

The treatment of a waiver of remuneration, when a director / employee gets nothing in return, is different to the scenario when this is treated as a salary sacrifice.

The effect of a waiver for Income Tax purposes depends on its timing.

• If the remuneration waived is given up before it is treated as received for employment income purposes, then the remuneration given up will not be taxable earnings.
• If the remuneration waived is given up after it is treated as received for employment income purposes, then the employee remains taxable on the remuneration given up.

The view taken by HMRC is supported by case law decisions, including the cases of Parker v Chapman (13TC677) and Reade v Brearley (17TC687) quoted in the Employment Income Manual.