Paying a director’s salary or bonus is a Corporation Tax deductible cost for a company. The taxman could dispute a deduction if the remuneration is excessive compared to the company’s income. However, the timing of a tax deduction is a different matter.
According to the Corporation Tax rules, a deduction can be claimed in the company’s accounts as long as the remuneration is paid no later than nine months from the end of the accounting period.
In the year ended 30 April 2017 Dotcom Ltd accumulated a large amount of profit and its director, Dave, decided to pay himself a bonus. The bonus is due for payment and actually paid in December 2017. As the bonus is paid within nine months of the company year-end, Dotcom Ltd will get a Corporation Tax deduction in its 30 April 2017 accounts. However, the bonus is only taxed for PAYE purposes when it is paid in December 2017.