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Tax issue when giving salary to crisis charities

26 April 2020

Individuals giving up a portion of their salary during the Covid-19 crisis could unexpectedly incur a tax charge due to new anti-avoidance rules introduced in 2017, AJ Bell has warned.

The rules were designed to prevent people avoiding tax and national insurance contributions by giving up a proportion of their salary in exchange for a benefit from their employer. The measure also covers the case where an employee gives up salary which the employer donates to charity.

According to AJ Bell, the rules mean that workers giving up salary to benefit Covid-19 causes could be hit with an unexpected tax bill if they fail to follow the correct procedure.

The firm has called upon HMRC to provide “urgent clarification” for individuals who want to put their salary to good use, stating it would be “terrible and wrong” if altruistic acts quickly carried out to help the NHS and economy through the pandemic fell foul of HMRC’s wide-ranging rules.

AJ Bell says the Chancellor, Treasury or HMRC need to communicate to people that foregoing salary during this time would not be counted as an optional remuneration scheme.

Peter Hopkins, technical director, AJ Bell, commented: “The tax rules were amended in 2017 to stop a range of salary sacrifice schemes.  The way the rules are drafted would catch an employee reducing salary and the employer paying it directly to charity and might possibly catch those continuing to work but forgoing salary to try and keep their employer’s business afloat.

“It would be extremely helpful if the Treasury or HMRC urgently clarified the position for people who want to put their salary to good use. The rules were never intended to penalise people in this way but the wording was intended to stop charitable gifts through the employer and it looks like they might bite in the current environment.

“Rangers football club is perhaps the highest profile case of HMRC taking a business down due to how key staff were remunerated  – in that case by loans from Employee Benefit Trusts which avoided tax. Today’s motivation is very different but the rules are there to catch people avoiding tax and if you give up salary altruistically, but in the wrong way, you may be doing so in a way that people have used before to avoid tax  and the law doesn’t look at the motivation.”

 

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