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Can anyone help me? In the “Computing trading income” chapter in bpp, there is the following passage about unpaid remunerations and employee benefit contributions –
“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.”
There was no example given along with this explanation so I am a little bit confused. So if the salary is not paid within the 9 month period of the end of the period of account, only then is the salary deductible? Does this mean that it is not deductible for taxable purposes if it is paid? Let’s say the salary is paid within the 9 month period, but the payments is deemed paid during the 2016/17 tax year, how do we adjust for this?
This issue is usually to do with the payments by companies of bonuses to employees and that as long as the bonus is paid within 9 months of the accounting period end and is shown as a deduction in those accounts it will be an allowable expense of that period.
This allows a company sufficient time after the end of its accounting period to accurately determine its profits and decide upon what bonus payments it will then make from those profits and still achieve tax relief in that period.
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