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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: interaction with unpaid remuneration rules

S36, S38 Income Tax (Trading and Other Income) Act 2005, S1288, S1290 Corporation Tax Act 2009

There are provisions which determine when a deduction for employees’ remuneration is to be given in computing the employer’s taxable profits. General guidance on the rules (the ‘unpaid remuneration’ rules) is at BIM47130.

The deductions in an employer’s accounts which may be affected by the unpaid remuneration rules are those ’in respect of employees’ remuneration’. This includes an amount for which a provision is made in the accounts with a view to its becoming employees’ remuneration.

The rules defer the deduction for employees’ remuneration which remains unpaid nine months after the end of the period of the accounts in which it is deducted in accordance with generally accepted accounting practice. If the remuneration for which a deduction has been so disallowed is paid in a later period, a deduction is given in computing the employer’s taxable profits for the later period.

The interaction of the unpaid remuneration rules with the employee benefit contribution legislation may need to be considered if:

  • a provision for employees’ remuneration in a company’s accounts has been disallowed under the unpaid remuneration rules because there was no intention at that stage that the remuneration would be paid other than by the employer direct; and
  • the original intentions change and the employees eventually receive the remuneration in a later period out of a contribution made by the employer to an EBT or other employee benefit scheme.

In these circumstances the amount disallowed for the earlier period should be treated as having been disallowed instead under the employee benefit contribution legislation.

The amount disallowed will then be available to be allowed as a deduction under the employee benefit contribution legislation for the period in which remuneration in the form of qualifying benefits is provided by the EBT or other third party out of the employer’s contribution.