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HMRC internal manual

Business Income Manual

Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: computing adjustments: example

S38 Income Tax (Trading and Other Income) Act 2005, S1290 Corporation Tax Act 2009

This example shows how to compute the amount of deductions for employee benefit contributions which are:

  • disallowed in computing the employer’s taxable profits for a period to the extent that qualifying benefits or qualifying expenses are not paid within nine months of the end of the period; and
  • allowed as a deduction in computing the employer’s taxable profits for later periods in which qualifying benefits are paid.

Example

Accounting period ended 31/12/2010

  • Employer has a past pattern of paying bonuses under a discretionary bonus scheme.
  • Employer contributes £1 million to EBT to fund likely bonuses for the next three years.
  • No qualifying benefits paid 1/1/10 to 30/9/11.
  • No qualifying expenses paid 1/1/10 to 30/9/11.
  Deduction in profit and loss account under GAAP
(for constructive obligation to pay bonuses) £333,333    
       
    Disallow (and carry forward) £333,333
    Total deduction allowed for tax purposes Nil
       

Accounting period ended 31/12/2011

  • No contribution to EBT.
  • No qualifying benefits paid 1/1/11 to 31/12/11.
  Deduction in profit and loss account under GAAP £333,333
     
  Disallow (and carry forward) £333,333
  Total deduction allowed for tax purposes Nil
     

Accounting period ended 31/12/2012

  • No contribution to EBT.
  • Qualifying benefits paid to employees = £900,000.
  Deduction in profit and loss account under GAAP £233,334
     
  Disallow (and carry forward) Nil
  Allow in tax computation (previously disallowed) £666,666
  Total deduction allowed for tax purposes £900,000
     

Subsequent periods

  Maximum deduction still to be allowed Nil
     
  EBT contributions not yet deducted in P&L account £100,000