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HMRC internal manual

Enquiry Manual

HM Revenue & Customs
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Close Companies: Settlement: Crediting Director's Bonuses

It is proper accountancy practice to credit directors’ bonuses in the year for which they are voted rather than the year in which they are paid. The loan accounts should be rewritten for CTA10/S455 and ITEPA03/S175 purposes using the time the bonuses are voted or an earlier date if PAYE was operated on payment.

For CTSA APs with a filing date on or before 31 March 2009, the return will be incorrect where the liability arising from the rewriting is not included in the return.

For CTSA APs beginning on or after 1 April 2008 with a filing date on or after 1 April 2009, there will be an inaccuracy in the return if the rewriting is not included in the return.

For pre-CTSA APs there is a failure to notify offence if the liability arising from this rewriting is notified or comes to light more than 12 months after the end of the AP.

Often the bonuses put the loan account back into credit. The abuse that has taken place is largely of the PAYE system and CTA10/S455 serves as a long-stop deterrent. You should bear that in mind when considering the level of penalties, and for pre-CTSA APs whether it is worth pursuing the S455 liability as well as the associated S175 tax, interest and penalties.