BIM44610 - Specific deductions: Employee
benefit trusts: general purpose EBT contributions: timing of
deductions: FA03/SCH24: computing adjustments: example
This example shows how to compute the amount of deductions for
employee benefit contributions which are:
- Disallowed in computing the
employer’s taxable profits for a period to the extent that
qualifying benefits or qualifying expenses are not paid within nine
months of the end of the period (FA03/SCH24/PARA1 (3)), and
- Allowed as a deduction in computing the
employer’s taxable profits for later periods in which
qualifying benefits are paid (PARA1 (4)).
Example
Accounting period ended 31/12/2004
- Employer has a past pattern of paying
bonuses under a discretionary bonus scheme.
- Employer contributes £1m to EBT to
fund likely bonuses for the next 3 years.
- No qualifying benefits paid 1/1/04 to
30/9/05.
- No qualifying expenses paid 1/1/04 to
30/9/05.
| Deduction in profit and
loss account under GAAP
(for constructive obligation to pay bonuses) | £333,333 |
| Disallow under PARA 1(3)
(and carry forward) | £333,333 |
| Total deduction allowed
for tax purposes | Nil |
Accounting period ended 31/12/2005
- No contribution to EBT.
- No qualifying benefits paid 1/1/05 to
31/12/05.
| Deduction in profit and
loss account under GAAP | £333,333 |
| Disallow under PARA 1(3)
(and carry forward) | £333,333 |
| Total deduction allowed
for tax purposes | Nil |
Accounting period ended 31/12/2006
- No contribution to EBT.
- Qualifying benefits paid to employees =
£900,000.
| Deduction in profit and
loss account under GAAP | £233,334 |
| Disallow under PARA 1(3)
(and carry forward) | Nil |
| Allow in tax computation
under PARA 1(4) | £666,666 |
| Total deduction allowed
for tax purposes | £900,000 |
Subsequent periods
| Maximum deduction still
to be allowed under PARA 1(4) | Nil |
| EBT contributions not yet
deducted in P&L account | £100,000 |
