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HMRC internal manual

Employment Income Manual

Waivers of remuneration: waiver of bonus: example

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

For an example of a waiver of a salary see EIM42720.

For information on waivers generally see EIM42705 onwards.
### Example of a waiver of a bonusA senior employee, who is not a director, is contractually entitled to a bonus each year. The amount of the bonus is based on the profits of the employing company.

The company’s year end is 31 January. Accounts for the year ended 31 January 2003 are finalised on 31 July 2003, enabling the amount of the bonus to be calculated. The employee is not entitled to payment of the bonus until 31 October 2003. The employee is informed on 31 August 2003 that the bonus will be £10,000.

The letter informing the employee of the bonus asks the employee to give up her rights to the bonus as the company is now in a difficult financial position. The employee agrees to do this in a letter sent to the company on 30 September 2003.

The employee is not liable to tax on the bonus as employment income because it was given up, on 30 September 2003, before it would have been treated as money earnings for employment income purposes, on 31 October 2003.

If the bonus had been given up after 31 October 2003 the employee would have been liable to tax on the £10,000 as it would have been given up after it was treated as money earnings for employment income purposes.