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HMRC internal manual

Employment Income Manual

Waivers of remuneration: application of income

Sections 15(2) and 18 ITEPA 2003For an overview of waivers of remuneration see

EIM42705. For more details see EIM42710.

Where 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. All that is happening is that the employee is applying remuneration in a particular way by giving it back to the employer.

This principle is illustrated by the case of Parker v Chapman (13TC677). A director was entitled to be paid a commission based on the company’s turnover. Instead of insisting that the company pay the amount owing, the director voluntarily applied the money in taking up new shares in the company. It was held that the director was assessable on the full amount of the commission.

In another case Reade v Brearley (17TC687) Findlay J said at page 693:
“If a person holds an office and the office is an office of profit, it is perfectly clear that no application of the income which he may think proper to make as between himself and other persons, can for a moment affect his liability as being the holder of an office of profit…. the voluntary foregoing of a salary due to a person ought to be regarded by the Court, and would be regarded, simply as being an application of the income.”