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Hello sir, in the “Computing trading income” chapter in bpp, there is the following passage –
“If earnings for employees are charged in the accounts but are not paid within nine months of the end of the period of account, the cost is only deductible for the period of account in which the earnings are paid. When a tax computation is made within the nine month period, it is initially assumed that unpaid earnings will not be paid within that period. The computation is adjusted if they are so paid.
Earnings are treated as paid at the same time as they are treated as received for employment income purposes.
Similar rules apply to employee benefit contributions.”
I do not understand what bpp is trying to explain. If the salary is unpaid within 9 months of the end of the period of account, will it be deductible? if it is paid, do we add it back to net profit as it not deductible? Does the tax year have any relevance to problems such as this? For example, the salary is paid within the 9 month period but it falls within the 2016/17 tax year. What is the treatment then?
I am sorry if I sound really stupid but BPP hasn’t provided any example with this explanation.
The 9 month issue pertains to the employer and the tax deductibility of the payment. The tax year is only relevant to the employee receiving the payment (as previously noted this is usually a bonus payment) and the employee is assessed on amounts received in the tax year – though note that “received” for this purpose is the earlier of when actually received or the date the employee became entitled to the payment (this date would be given if required)
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