Voluntary Pay Cuts - Update (Another one)

02 June 2020      Julia Ascott, Employment Taxes Specialist

After an article in the FT, BUFDG originally provided our members with information on voluntary pay cuts.  This original article has been expanded as HMRC bought out their own guidance and external advisors issued more articles (see link to KPMG at the end of this note).

Earnings are treated as received the date your staff become entitled to it.  The date of entitlement differs between directors (including non-executive directors) and employees.


Typically the date of entitlement will arise as set out in the directors' service agreement.  Alternatively, it may be stipulated by a general meeting when agreement is reached on the director's remuneration, which may include agreement to the Institution's accounts (and thereby approving the remuneration of directors).  For more information on this subject, read HMRC's guidance.


With employees, the position is easier as entitlement typically arises on the (due) date of payment. Review HMRC's guidance for more information.

Voluntary pay cuts - key message

Firstly, ensure you understand when the date of entitlement arises for all of your workers who may be considering giving up their right to receive full pay.  Once you have that date, ensure that employees have given up their right to (a proportion of) their pay before that date, perhaps by using an employment contract addendum.

Example - regular, monthly paid employees - will give up the right to receive 20% of pay in July

  • pay date of 20th that includes pay for the entire calendar month from the 1st to the 31st July
  • employees must give up their entitlement to receive 20% of their income before the 1st July
  • once the employee works in July they are entitled to their normal rate of pay, unless and until they have legally reduced it 

It is the same principle used for salary sacrifice arrangements, albeit in this situation they will not be receiving a benefit in return for giving up part of their salary.

If you have any questions about this subject, please email me.

UPDATE - HMRC have issued their own guidance on giving up pay - read it here.

For further information, please read KPMGs article on reducing salaries or waiving bonuses.

Read more

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