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Director Pay Cuts - Be Wary of the Tax Traps

on Thursday, 28 May 2020.

Many businesses across the UK are responding to the economic impact of the coronavirus (COVID-19) pandemic by asking directors, senior executives and other employees to accept a reduction in pay.

Care should be taken before finalising such arrangements as there could be unintended tax consequences for the business and employee concerned.    

If a director agrees to waive their pay, either in whole or in part, the company may still have a legal obligation to deduct the tax on the amount of pay that has been waived, leading to an unexpected cost to the business and the director that may not be recoverable. 

In certain circumstances, the tax cost may be unavoidable and the business may have to accept that it is the price that has to be paid for wider savings.

However, with careful management of the timings of putting in place such an arrangement, potential tax liabilities can be mitigated.

Coronavirus Legal Advice

If your business is planning to ask directors or other senior executives to waive pay, or if you have already put in place such arrangements, please get in touch with our tax specialists. Please contact Emma Bradley on 07747 462131 who is on hand to advise you on how to manage this process and deal with any tax consequences. Or, complete the form below.

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