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HMRC internal manual

Business Income Manual

Specific deductions: staffing costs: share of profits

Remuneration to an employee (including a director of a company) calculated as a share of the profits of the business as a whole is normally allowable as a deduction. (See Stott and Ingham v Trehearne [1924] 9TC69, where remuneration so calculated was in part allowed.)

A deduction will therefore normally be allowed for remuneration taking the form of bonuses under a co-partnership or profit sharing scheme (as distinct from dividends, interest or bonuses on co-partnership stock).

In an exceptional case payments described as remuneration may in fact be distributions of profits after they have been earned, and so not a deductible expense of earning the profits (see, however, British Sugar Manufacturers Ltd v Harris [1937] 21TC528).