Readers’ forum: Tax treatment of incentive upfront payment

One of my client companies has a real problem with staff retention in his industry. He has been discussing with me some ideas to encourage staff to stay. One of those would be to offer new staff an upfront sum of money which they have to repay if they leave within two years.

He is taking employment law advice on this but has asked me about the tax treatment of this payment. Could this be structured as a loan so that there is no upfront tax charge? If the employee then stays for the two years the loan would be waived and there would be a tax charge at that point. Alternatively would this be taxable upfront as PAYE remuneration – in which case: what would happen if the employee left within two years and had to pay the money back?

I’d welcome views from Taxation readers as to whether there...