HMRC has updated its Employment Income Manual (here) by releasing additional guidance on the treatment of claw back of bonuses and other payments made to employees. The update confirms that repayments by an employee of bonuses could generate ‘negative earnings’ which would be available to be set off against positive earnings or to claim repayment of PAYE deducted. Given the increased emphasis on the ability to enforce such arrangements, HMRC’s endorsement of that tax treatment is welcomed.

The guidance extends the application of the judgment of the Upper Tribunal in Martin v. HMRC to other cases. The guidance also notes that negative earnings may not be offset directly against future income where an employee leaves employment to become an LLP member.

For further information, please contact Paul Hale or Enrique Clemente.