Tax

Coronavirus | Impact on remuneration arrangements

Written on 18 Jun 2020

Businesses have been carefully monitoring costs during the Covid-19 pandemic and considering how best to manage them over the coming months. Many affected employers have applied for the government support schemes (including the Coronavirus Job Retention Scheme).

Some of the practical measures we have seen employers introduce in the light of COVID-19 include using discretion to freeze pay and discretionary bonus schemes; reducing salaries and working hours in agreement with employees; and inviting employees to take sabbaticals and career breaks.

HMRC has published advice for people choosing to give up their income to support their business or donate to charity during the coronavirus pandemic. "Check the tax rules on waiving your income or donating to charity" emphasizes the need for the employee to agree to any reduction in salary or waiver of a bonus before they are due to be paid. Advice should be obtained on the tax and employment law considerations.

Many businesses are also dealing with cash flow difficulties, with some considering the use of equity-based arrangements for the first time as part of the remuneration package.

Company share prices and valuations have been affected, with a knock-on effect on the operation of any share plans.

On a practical level, companies proposing to make awards or dealing with maturities have been dealing with the administrative challenges of staff working from home. Many have moved towards electronic execution of documents.

Companies already operating employee share plans may be considering the vesting of awards and performance conditions in the light of the COVID-19 pandemic. This involves careful consideration of the rules of the plan and associated award documentation (with additional considerations for listed companies – see our recent Insight).

Particular care is required over the proposed exercise of any discretion. For tax-advantaged arrangements, it will be important to ensure that any changes do not amount to the grant of a new option, as this could prejudice its tax status.