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Hello.
Sanjay is employed. As well as his annual salary he is also paid a bonus in April each year.
The amount of the bonus is based upon his performance to the end of the previous
calendar year.
On 6 April 2017 he received a bonus of £2,800 in respect of the year to 31 December 2016
and on 3 April 2018 he received a bonus of £3,300 in respect of the year to 31 December
2017.What amount of bonus is taxed in the tax year 2017/18?
1.The answer is £6,100.
2. Why £2,800 has been included in the answer?
-The rule says the date of receipt is the earliest of actual payment and becoming entitled of such payment.Therefore on 31 Dec 2016, Sanjay became entitled of the £2,800 and thus that amount should be assessed for tax year 2016/17.
3.Please locate where I’ve got things wrong?
Thanks in advance.
Your interpretation of when the employee “becomes entitled to the payment” is incorrect. The accounting period for which the bonus was earned is irrelevant and is not when the employee became entitled to the payment, which term will be specifically used in an exam question if it is to be used.
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