Coronavirus: waiving income and donating to charity

HM Revenue & Customs has issued advice for people choosing to give up part of their income to support their business, or donate to charity during the coronavirus (COVID-19) pandemic.

Some people are opting to waive part of their income to support their business or employers, or donate to  a cause.

Employers, directors and employees have several options to support a business or employer, including:

• waiving their salary or bonuses before they’re paid
• waiving the right to any dividends
• giving salary or dividends back to their employer after they’ve been paid

To donate to charity, people can use:

• Payroll Giving
• Gift Aid

Supporting a business or an employer

Waiving salary or bonuses before they are paid

A ‘waiver of remuneration’ happens when an employee gives up rights to remuneration and gets nothing in return.

Where a worker agrees to a reduction in pay, for example to support company cashflow during the pandemic, then no Income Tax or National Insurance contributions (NICs) are due on the amount waived.

However, if this is part of a wider arrangement to divert the amount to a particular recipient or charity, then it will remain taxable. For example, if it was waived on condition that the sum be given to a particular charity.

Waiving dividends

Directors or other shareholders, including employees, are able to waive their right to be paid a dividend.

But for this to be tax effective, a Deed of Waiver has to be formally executed, dated and signed by shareholders and witnessed and returned to the company. A solicitor can draft such a deed.

The waiver must be in place before the right to receive a dividend arises. For final dividends, this is before they are formally declared and approved by the shareholders. For interim dividends, the waiver must be in place before the dividends are paid.

Giving salary or bonuses back to your business or employer after they have been paid

It is possible to give back salary or bonuses to a business or employer after they have been paid.

However, it is not possible to claim back the Income Tax and NICs that would already have been deducted from the salary or bonuses on payment.

Bonuses must be waived before the date they are due to be paid. If they are waived on or after the due date then tax will still be payable on them, even if the bonus is not paid over.

Donating to charity

Payroll Giving

Payroll Giving is a way of giving money to charity without paying tax on it. It must be paid through PAYE from someone’s wages or pension.

Employees can select a registered charity to donate to and let their employer know.

Employers should contact a Payroll Giving agency to set up a scheme.

Donations will be taken from employees’ pay before tax and NICs.

Any registered charity in the UK or the EU recognised by HMRC for tax purposes can receive donations through Payroll Giving.

Read the full guidance on Payroll Giving.

Gift Aid

Donating through Gift Aid means charities and community amateur sports clubs can claim an extra 25p for every £1 donated.

This is a way of giving to charity tax efficiently even being paid.

Read the full guidance on Gift Aid.