Provisions

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT member discussion
Hi all,

A client of mine wants to provide for a bonus to a memmber of staff in the end of year accounts (31st March 2006). This will not be paid until after the FYE and payroll YE. Is this allowed? He is willing to pay any PAYE & NIC's (based on this year's rates) now so as to verify that this event will take place.

Also, (my own wariness), what happens if it does not happen?

I know HMRC have their own rules about provisions e.g. bad debt & depreciation and do not want to give the client incorrect advice.

Sorry, dont have many but they're never straight forward.

Eamonn

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Provisions

    Hi Eamonn

    Not sure if this will help, but these are my thoughts on the matter -

    You cannot pay PAYE and NICs unless the money has been paid - you only deduct them from what has been paid (and then ers NI on top).

    Assuming that the above is correct, then i would have thought that the only thing you could do is include the gross amount of bonus and ers NI in the P&L and then make the total sum a y/e creditor.

    Why does he not want to pay it this year? Cashflow? If so, then you might be justified in your wariness!

    Claudia
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Provisions

    I have accrued bonus' for employees at year end for payment in the next financial year. One of the reasons for accruing it (rather than paying it) is because it is a bonus on year end final profits which are not final until after the statutory accounts have been completed. I cannot see any reason why you should not be able to accrue it and the Er's element of the cost too.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Provisions

    Hi

    Following on from TLG post. It isn't unusual for a business to accrue a bonus (and the E'ers NIC - certainly if it is paying corporation tax @ 30% and the bonus will bring them into the 19% bracket. Extremely good tax planning!! :lol:

    However, the bonus MUST be paid within 9 months of the accounting year end and the relevant tax/nic paid over. Paid must mean paid and not offset against directors loan account.

    Don't worry too much about this - it is purely a tax planning exercise.

    Regards
    Ste
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Provisions

    Hi peugeot,

    excuse my ignorance, but can you tell me why accruing the bonus would take them into the 19% bracket?

    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Provisions

    By accruing a bonus the company will be reducing its taxable profit and the amount of tax due which could be the difference between tax at 30% or tax at 19%
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:Provisions

    Sorry it's taken so long to reply. But don't even know how to use this forum properly yet.

    Thankk you for advice on provisions. If one person gets this & no one else who advised please pass on.

    Believe me it has been very helpful, hope I can return same.

    Eamonn

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