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HMRC internal manual

Employment Income Manual

Employment income: basis of assessment for general earnings: example of a case where the year of assessment is not the year that the emolument is for

Section 15 ITEPA 2003

ExampleAn employee is entitled to a bonus for the year ended 31 March 2004, the amount of which depends on the company’s results for that year. The company’s accounts for the year ended 31 March 2004 are finalised on 31 October 2004, and the employee’s bonus of £5,000 is paid on 30 November 2004.

The bonus is earnings for 2003/04, so the first step is to check the employee’s residence status for that year (see EIM42201). If the employee was resident and ordinarily resident in the United Kingdom in 2003/04 the bonus is taxable in full in 2004/05, the year that the employee received it (see EIM42206).

If the employee was not resident, or not ordinarily resident, in the United Kingdom in 2003/04 the position may not be so straightforward. See EIM42207 and EIM40001 onwards. Some or all of the bonus may not be chargeable to tax. But if any of it is taxable, the liability arises in 2004/05 – the year of receipt.