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HMRC internal manual

Employment Income Manual

The year that earnings are "for" - annual bonuses awarded for meeting corporate, team or personal targets

Many employers operate annual bonus schemes for their employees. There are usually performance criteria. These may require employees to meet corporate, team or individual targets.

Bonuses may be paid out by the employer or through a trust - usually an employee benefit trust (EBT). The identity of the payer is not relevant when determining the year that the award is “for”. However, see the guidance below on “discretion”.

In some schemes, particularly those referenced to company performance, employees may accrue entitlement to receive bonuses as the performance period passes. In others, entitlement is conditional on remaining in employment until a specified date (see below).

The performance period and therefore the period that the bonus is “for” may be set out in the scheme documents.

If the performance period spans more than one tax year, Section 16(4) ITEPA 2003 applies. The bonus should be apportioned to the relevant tax years on the basis of a just and reasonable apportionment.

Section 16 attributes general earnings to one or more tax years. You should not accept that awards can be “for” a shorter period, even a day, to which the rules in Part 2 Chapters 4 and 5 can be applied. Employers may spontaneously award “spot-bonuses” to all employees in post on a particular date, or entitlement to a performance bonus may crystallise when a particular performance factor is satisfied. Even though these events make take place on a particular day, the resultant awards should be treated as general earnings “for” the tax year in which the event occurred.

Unless there is evidence to the contrary, HMRC takes the view that performance bonuses are “for” the performance period. This may be a calendar year or the company accounting period. In the case of specific projects, it may be the period beginning on the date when work started and ending when the specified outcomes were achieved.

Impact of Extra Statutory Concession A11 (ESC A11)

ESC A11 is a non-statutory concession that permits tax years to be split. It is usually relevant to years in which individuals arrive in or depart from the UK. In consequence of arrival or departure, there are discrete periods of non-residence (NR) and ordinary residence (OR) for tax purposes. If the conditions are satisfied, the tax year is split and each part treated as a separate tax year.

Where entitlement to spot bonuses or conditional bonuses arises on a single day the advice set out above indicates that the award is to be treated as earnings “for” the year in which that days falls. In ESC A11 cases this will be that part of the split year in which the relevant day falls.

Evidence suggests spot bonuses and similar payments are relatively unusual and will be seen infrequently. If you suspect that the timing of entitlement has been manipulated to gain a tax advantage from the use of ESC A11, HMRC may decide to set aside the Concession and treat the individual as resident in the UK for the whole tax year.

Impact of Part 7A ITEPA 2003 - Employment income provided through third parties

Finance Act 2011 introduced new rules (in Part 7A ITEPA 2003) that apply to third party arrangements used to provide for what is in substance a reward or recognition, or a loan, in connection with the employee’s current, former, or future employment See EIM45000 onwards.

The rules apply with effect from 6 April 2011. However, certain transactions carried out between 9 December 2010 and 5 April 2011 inclusive are covered by anti-forestalling rules. See EIM45900 onwards.


  • the rules in Part 7A ITEPA apply to a bonus that is also taxed as earnings from an office or employment under section 62 ITEPA 2003 (see EIM00515) and
  • the time when the bonus is taxed as earnings from an office or employment is no later than the time when employment income would arise under Part 7A

section 62 will take priority over Part 7A. See EIM45735.

In practice, there are many circumstances where this order of priority will make no practical difference as the outcome will be the same. However, if there are bonus arrangements that:

  • use third party arrangements (such as a trust or a special purpose company) and
  • where it is argued that the arrangements do not immediately generate taxable earnings from the employment

the rules on employment income provided through third parties may apply. Note that there are a number of exclusions from the application of these rules, including for deferred remuneration arrangements as long as certain conditions are satisfied. See EIM45255.