BIM37700 - Wholly & exclusively: duality of, or non-trade, purpose: remuneration, etc

Introduction and layout of guidance

Over the years a number of cases have come before the courts to consider the deductibility of amounts paid to employees, including directors. Normal employee costs are allowable but a variety are not, including:

  • Employee costs that are capital - see for example BIM37725.
  • Dividends paid to employees - see BIM37705.
  • ‘Excessive’ remuneration, including remuneration paid to obtain a fiscal advantage - see BIM37707, BIM37715 and BIM37740.

In addition there is a statutory timing rule at FA89/S43 that precludes deduction for amounts paid more than nine months after the end of the period of account in question. There is detailed guidance at BIM47130.

BIM37705Claim to deduct dividends paid to directors (Eyres v Finnieston Engineering Co Ltd)
BIM37707Excessive remuneration: establish the purpose (Stott & Ingham v Trehearne)
BIM37715Paid to daughter (Copeman v William Flood & Sons Ltd)
BIM37717Payment to retiring director following dispute (Deverell, Gibson & Hoare Ltd v Rees)
BIM37720Payment to director changing duties because of ill-health (Wilson v Nicholson Sons & Daniels Ltd)
BIM37725Loss on sale of property used as temporary residence by employee (Owen & Gadsdon v Brock)
BIM37730Payment of share of profits following sale of shares (Faulconbridge v Thomas Pinkney & Sons Ltd)
BIM37735Wife or civil partner’s wages (Moschi v Kelly)
BIM37737Whether payments to children were allowable remuneration (Dollar & Dollar v Lyon)
BIM37740Excessive remuneration - disallow the excess (Earlspring Properties Ltd v Guest)
BIM37745Premium to secure directors’ pension (Samuel Dracup & Sons Ltd v Dakin)