Due to the way the tax rules work, it is possible to have a deduction for a bonus declared in a set of company accounts and pay this up to nine months after the year-end.
This could be in a different tax year where other income is lower and this would result in a lower tax liability. Alternatively a deferral of the timing of the tax payment could be made.
Example:
Jane is preparing the company accounts for XYZ Ltd, her own limited company.
The company’s year-end is 31 December 2014. She declares a bonus for the year to 31 December 2014 and makes provision in the accounts. The bonus is due for payment and actually paid in August 2015.
As the bonus is paid within nine months of the company year-end, a deduction is permitted for corporation tax purposes in the company accounts for the year to 31 December 2014. However, the bonus is taxed for PAYE purposes when it is paid in August 2015.
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