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HMRC internal manual

Business Income Manual

HM Revenue & Customs
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Specific deductions: staffing costs: holiday pay

The timing of deductions for the remuneration of employees, including holiday pay, is governed by the rules at BIM47130 onwards.

Under a formal scheme for providing holiday pay, an employee leaving the employment before the holiday may be given a certificate to be presented for payment at the agreed holiday period. If the holiday pay is not claimed then it may be claimed within a limited time after the commencement of that period. The amount of any claims that have lapsed during an accounting period should be treated for tax purposes as a trading receipt.

Where a formal scheme is operated using a trust fund, any interest arising to the fund is strictly taxable on the trustees. But where, under the scheme, the interest is paid over to the employer in respect of the expenses of administration of the fund, the amount may be regarded for tax purposes as a trading receipt of the employer.