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Income tax repayments on bonus repaid

A recent Tribunal decision provided that an employee who had paid income tax on a bonus that was later ‘clawed back’ by his employer was entitled to tax relief.

The tax payer had been employed by a company which required him to sign a new employment contract with a view to tying him to the company for at least five years. The contract included a £250,000 “signing bonus”, with an obligation to repay a time-apportioned proportion of the amount if the employment relationship ended before the five year period was up.

The bonus was taxed under PAYE when paid. The individual subsequently resigned and had to repay £162,500.

The Tribunal found that in this case, the repayment of the bonus could be classed as negative taxable earnings and so employment loss relief could apply.

The decision may make contractual clawback provisions more appealing for employers and employees.



Date: 31st October, 2014
Author: Cathy Corns


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