BIM47130 - Measuring the profits (specific rules and practices) - receipts and deductions: specific deductions - staffing costs: timing of deduction
For periods of account ending after 5 April 1989, FA89/S43 determines when a deduction for emoluments is to be given in computing profits or gains assessable under Cases I, II, V or VI of Schedule D in respect of activities carried on by an individual, partnership or company.
The circumstances in which FA89/S43 operates are as follows:
- a calculation is made of profits or gains for a period of account ending after 5 April 1989; such a calculation includes formal and informal accounts and any statement which details how profits or gains chargeable are calculated;
- in making that calculation ‘relevant emoluments' (see BIM47135) would be deducted; and
- the ‘relevant emoluments' are not paid within nine months of the end of that period of account.
A period of account is defined in FA89/S43 (9) as a period for which an account is made up.
FA89/S43 (2) provides that relevant emoluments which are not paid nine months after the end of the period of account shall not be deducted in computing the profits for that period of account but shall be deducted in computing the profits for the period of account in which they are paid.
When emoluments are paid
Emoluments are paid on the same date that they are treated as received, within the definition in ITEPA03/S18, for the purposes of assessment as employment income (FA89/S43 (12)).
Guidance on when emoluments are treated as received by ITEPA03/S31 is at EIM42260.
There is no requirement under FA89/S43 that a relevant or potential emolument must be chargeable as employment income in the hands of the recipient.
If it is contended that payment has been made (so there should be no disallowance under FA89/S43) but PAYE has not been operated, then there has been - if nothing else - a PAYE failure.
Conversely if PAYE has been operated, this should be accepted as sufficient evidence that the sums are emoluments that have been paid. Consult Personal Tax in any case where, despite the operation of PAYE, emoluments may not have been ‘paid' until some later date.