SE42720 - Waivers of remuneration: waiver of salary - example

Sections 202A and 202B ICTA 1988

This is an example of a waiver of salary and the income tax effects of it.

For an example of a waiver of a bonus see example SE42725.

For information on waivers generally see SE42705 onwards.

Example of waiver of salary

A senior employee, who is not a director, is entitled to a salary of £60.000 a year. This is earned on a day to day basis. The employee is entitled to payment of 1/12th of the annual salary on the final day of each month.

The employer is in severe financial difficulties and does not make any payment of the January 2000 salary. To help the employer on 8th February 2000 employer and employee make a revised agreement. The agreement is that the employee will not be entitled to any salary for the period 1st January 2000 to 31st March 2000.

For the tax year 1999-00 the employee is liable to tax under Schedule E on salary of £50,000. This is made up of £45,000 (9 x £5,000) paid to 31st December 1999 and the £5,000 that the employee became entitled to payment of on 31st January 2000.

The agreement made on the 8th February 2000 does not alter the Schedule E liability on the unpaid January 2000 salary as the agreement was made after the January salary was treated as received for Schedule E assessment purposes. But the agreement does prevent any Schedule E liability arising on the February and March salary given up.