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HMRC internal manual

Employment Income Manual

Waivers of remuneration: overview

Sections 15(2) and 18 ITEPA 2003

A waiver of remuneration happens when an employee gives up rights to remuneration and gets nothing in return.

Where the employee gets a non-cash benefit in return, this is called a salary sacrifice. For guidance on a salary sacrifice see EIM42750 onwards.

Optional remuneration arrangements

From 6 April 2017, the Income Tax and NICs advantages where benefits in kind are provided through salary sacrifice arrangements (described in the Finance Act 2017 as “optional remuneration arrangements”) are largely withdrawn.  For most benefits in kind which were subject to either a full exemption or a limited exemption, the exemption does not apply if the benefit is provided in conjunction with a salary sacrifice arrangement.

The Income Tax and NICs advantages are largely removed by basing the value of the benefit treated as earnings from the employment on the amount of the salary given up, if this is greater than the earnings charge which would otherwise arise under the normal benefit in kind rules.

Guidance on optional remuneration arrangements from 6 April 2017 starts at EIM44000.

Transitional provisions apply for a limited period. For further details see EIM44030.

Certain benefits in kind are excluded from the changes. For further details see EIM44130.

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.

For more details see EIM42710.

For examples of this see EIM42720 where salary is waived and EIM42725 where a bonus is waived.