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HMRC internal manual

Business Income Manual

Wholly and exclusively: duality of, or non-trade, purpose: remuneration, etc: contents

S34 Income Tax (Trading and Other Income) Act 2005, S54 Corporation Tax Act 2009

Introduction and layout of guidance

Over the years a number of cases have come before the courts to consider the deductibility of amounts paid to employees, including directors. Normal employee costs are allowable but a variety are not, including:

  • employee costs that are capital - see for example BIM37725
  • dividends paid to employees - see BIM37705
  • ‘excessive’ remuneration, including remuneration paid to obtain a fiscal advantage - see BIM37707, BIM37715 and BIM37740

In addition there is a statutory timing rule in S36 Income Tax (Trading and Other Income) Act 2005 for unincorporated businesses and S1288 Corporation Tax Act 2009 for companies that precludes deduction for amounts paid more than nine months after the end of the period of account in question. There is detailed guidance at BIM47130.