Joe Brough outlines the conditions that must be met for a company to secure a corporation tax deduction for directors’ accrued bonuses and the associated PAYE implications.
It is common for an element of a director’s salary to be contingent on targets being met, which then results in them becoming entitled to be paid a bonus. Where a bonus is contingent on the profits made by the company, it may be some time after the year end until it can be determined whether it will be paid and, if so, how much.
The ‘right’ time
Where this is the case, the question arises as to when the company will receive corporation tax relief on the bonus and when PAYE should be applied. In certain circumstances, a company will be able to claim a deduction in an earlier tax year to that in which the payment is reported under PAYE. However, without careful consideration the opposite