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HMRC internal manual

Employment Income Manual

Employment income: basis of assessment for general earnings: the time when earnings are received: directors' earnings conditional on results: the date they are to be treated as determined

Rule 3(c), Sections 18(1) and 686(1)

A director’s service agreement may provide that the director is to be paid a bonus according to a formula. For example, the director may be entitled to be paid five per cent of the company’s profits in excess of a specified figure. In such a case the earnings are not determined for the purposes of EIM42340 until the underlying information is available to calculate the amount due. Merely setting down the formula on paper does not determine the amount due. It is the existence of the excess profits that determines the amount due. The earnings will be determined once the relevant accounts have been prepared and this is so even if the computation of the amount due to the director is not actually made.

You may normally accept that earnings conditional upon results cannot be determined until the relevant company figures or accounts are available. The company will not get a deduction in computing its corporation tax profits for earnings relating to its accounting period that are not determined (or otherwise treated as paid) by the end of nine months from the end of the accounting period. So the company will usually have an incentive to avoid undue delay in finalising the figures.