BPTM3066 - Relevant remuneration: excluded remuneration: bonus pool: examples 2 & 3
Example 2 - Announcement during chargeable period
Suppose a taxable company (M) confirmed on 1 Feb 2010 that 10% of its profits for the year ending 31 December 2010 would be allocated to a bonus pool to be shared between employees in employment both on 1 February 2010 and on 31 December 2010. C is required to distribute the full amount of the bonus pool by payments to qualifying employees but the remuneration committee has discretion to determine how much each employee should receive with the amounts to be determined at a meeting of the remuneration committee on 1 March 2011 and immediately notified to the employees.
For the purposes of paragraph 6(1), this might only be relevant remuneration awarded during the chargeable period if a contractual obligation to pay or provide it arises by virtue of the announcement (paragraph 6(1)(a)).
The condition at paragraph 5(3)(a) is not satisfied and paragraph 5(3)(b) does not apply for the purposes of paragraph 6(1) and so cannot be considered when determining whether a contractual obligation to pay or provide something arises by virtue of the announcement. Therefore the announcement will not constitute the award of relevant remuneration by virtue of paragraph 6(1).
Example 3 - Announcement during chargeable period
Suppose a taxable company (T), similar to M in example 2, confirmed on 1 Feb 2010 that 10% of its profits for the year ending 31 December 2010 would be allocated to a bonus pool to be shared between employees in employment both on 1 February 2010 and on 31 December 2010. However, T stated that the bonus pool would be distributed to employees by reference to a specific, points-based formula. Each employee is allocated a fixed number of points and will receive an award on 1 March 2011 calculated as:
Points allocated to employee |
x Bonus pool |
Total points allocated to qualifying employees |
|
As explained in example 2 above, paragraph 5(3)(b) does not apply for the purposes of paragraph 6(1). Nevertheless, if the amount of the 'bonus pool' is fixed (or capable of becoming fixed) without the exercise of discretion and the employee's share of that amount is similarly fixed (or capable of becoming fixed) by virtue of the formula then, in effect, it is likely that the amount to be paid or provided to (or in respect of) the employee is fixed (or capable of becoming fixed) without the exercise of discretion. Consequently, paragraph 5(3)(a) will apply for the purpose of paragraph 6(1)(a) and the announcement by T will constitute the award of relevant remuneration made during the chargeable period.
