Q&A: Directors' bonuses

Q. Our company has a year end of 31 July. We have been able to increase our profits despite COVID-19 and are likely to vote a bonus to the directors for the first time in several years. The problem is we are unlikely to have the cash to make payment until November for various logistical reasons. Can we include the bonus as a deduction in the accounts to 31/07/2021?

A: Yes - if you act promptly. To be able to deduct the bonus from this year's taxable profits, you need to create an obligation to pay it before the year end. You should hold a board meeting to do this. Once the obligation is created, the amounts must be paid within nine months of the year end, so payment in November will not be a problem.

About the Author

Beverley Howells

Partner

Beverley is a partner with Torgersens, specialising in tax. Her role covers all aspects of taxation, from managing compliance to providing business advice. Her main areas of expertise are in business tax and corporation matters and in particular, acting for owner-managed businesses. Having joined the firm as a graduate trainee, Beverley qualified as a Chartered Accountant in 2000.   Outside of work, Beverley’s favourite place is the beach, enjoying a walk along our beautiful North East coastline. Ideally, she would be joined by a canine companion and has recently started a campaign for her own office dog! 

To get in touch please e-mail beverley.howells@torgersens.com.