Tax and PAYE on waived earnings

With careful planning, directors and employees may successfully and efficiently waive taxable monetary earnings without incurring any income tax or NICs liability provided that the waiver is without condition or consideration and is validly entered into before those earnings are received for tax purposes. Once earnings have been received, income tax and NICs will be due and PAYE operated regardless of whether the earnings have been paid, and it will not be possible to unwind or cancel the liability. This should be avoided, and directors and employees who wish to ‘repay’ a proportion of salary or bonus should instead be encouraged to make charitable donations which, if made through gift aid or payroll giving, can be made on a tax efficient basis. Employers and employees should consider the wider impact of any waiver or reduction to taxable earnings on their overall remuneration and its effect on other benefits and entitlements.