SE42350 - Emoluments from offices and employments: basis of assessment - the time when an emolument is received - directors’ emoluments conditional on results - the date they are to be treated as “determined”

Section 202B(1)(e) and (4)-(6) and Section 203A(1)(e) ICTA 1988

A director's service agreement may provide that the director is to be paid a bonus according to a formula. For example, the director may be entitled to be paid five per cent of the company's profits in excess of a specified figure. In such a case the emoluments are not determined for the purposes of SE42340 until the underlying information is available to calculate the amount due. Merely setting down the formula on paper does not determine the amount due. It is the existence of the excess profits which determines the amount due. The emoluments will be determined once the relevant accounts have been prepared and this is so even if the computation of the amount due to the director is not actually made.

You may normally accept that emoluments conditional upon results cannot be determined until the relevant company figures or accounts are available. The company will not get a deduction in computing its Corporation Tax profits for emoluments relating to its accounting period which are not determined (or otherwise treated as paid) by the end of nine months from the end of the accounting period. So the company will usually have an incentive to avoid undue delay in finalising the figures.