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HMRC internal manual

Employment Income Manual

Director's undrawn remuneration lost in company's liquidation: adjustment of employment income


  • a company has gone into liquidation and
  • a director’s undrawn remuneration has been lost because there are insufficient funds to pay it

then the employment income may be reduced by the amount of undrawn remuneration that is lost, provided certain conditions are satisfied. The employment income should be reduced whether or not any assessment or self assessment is final. The conditions that have to be met are:

  • the director is a creditor for the undrawn remuneration in the statement of affairs prepared in connection with the liquidation and
  • the remuneration was at no time capable of being drawn by the director having regard to the financial state of the company and
  • no additional corporation tax would be payable if the undrawn remuneration was to be disallowed in computing the company’s profits or losses (for example, where existing surplus losses would be available to cover such a hypothetical disallowance).

It should be noted that remuneration waived prior to the liquidation must not be treated as undrawn remuneration lost by the director in the company liquidation. Where a director has voluntarily relinquished remuneration owing to him or her by giving it up in favour of the company he or she will not be a creditor of the company for that remuneration when the liquidation occurs.

For practical handling points on such a case see EIM42740.