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HMRC internal manual

Employment Income Manual

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HM Revenue & Customs
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Waivers of remuneration: waiver of salary: example

Sections 15(2) and 18 ITEPA 2003This is an example of a waiver of salary and its income tax effects.

For an example of a waiver of a bonus see EIM42725.

For information on waivers generally see EIM42705 onwards.
### Example of a waiver of salaryA 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 2003 salary. To help the employer, on 8 February 2003 employer and employee make a revised agreement. The agreement is that the employee will not be entitled to any salary for the period 1 January 2003 to 31 March 2003.

For the tax year 2002/03 the employee is liable to tax on employment income of the salary of £50,000. This is made up of £45,000 (9 x £5,000) paid to 31 December 2002 and the £5,000 that the employee became entitled to payment of on 31 January 2003.

The agreement made on 8 February 2003 does not exclude the unpaid January 2003 salary from money earnings as the agreement was made after the January salary was treated as received for employment income purposes. But the agreement does prevent any employment income tax liability arising on the February and March salary given up.