Many generous individuals have agreed to waive pay and/or bonuses to help with their employer’s cash flow or donate to charity. It’s admirable that people are willing to give up their own pay to help others during the COVID-19 crisis, but HM Revenue & Customs’ (HMRC) tax rules aren’t so generous.
HMRC have issued a news release warning generous individuals that tax charges can arise where they decide to waive a salary or bonus. This relates to specific salary sacrifice rules introduced in April 2017. The original design of the rules was ridiculous, and they should not be catching these situations.
The Government now have the perfect opportunity to re-write this law, having seen first-hand the complications they cause through innocent acts of kindness.
HMRC’s news release outlines options on how some of the tax charges may be managed. Employers and employees need to act on this right now so that they can mitigate tax charges for loyal employees who are trying to do the right thing and who otherwise will get caught.It is possible to manage some of the tax charges by carefully planning ahead and ensuring the right documentation is in place between the employee and employer; however, many will be unaware of the exact procedure and tax charges can easily arise on something you never received.
The Government and HMRC have introduced temporary exemptions or changed tax rules completely for certain situations during the current crisis – it’s bizarre that they haven’t moved to change these unfortunate rules and chosen only to issue guidance on how charges could be avoided.
If you would like to discuss any of the above or have other queries about how you can make the right decisions for the future of your business and your income, please contact your usual Blick Rothenberg contact or Nimesh Shah.
You can also visit our Coronavirus – Practical Guidance for businesses today Hub for our latest updates and insights.