BIM44610 | Specific deductions: employee benefit trusts: general-purpose EBTs: timing of deductions for contributions: computing adjustments: example

From HM Revenue & Customs · Business Income Manual

S38 Income Tax (Trading and Other Income) Act 2005, S1290 Corporation Tax Act 2009

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; and
allowed as a deduction in computing the employer’s taxable profits for later periods in which qualifying benefits are paid.
employee benefit contributions made before 1 April 2017 (CT) or 6 April 2017 (IT). The example at BIM44611 illustrates the further restrictions for employee benefit contributions made or to be made on or after 1 April 2017 (CT) and 6 April 2017 (IT).

Example

Employer has a past pattern of paying bonuses under a discretionary bonus scheme.
Employer contributes £1 million to EBT to fund likely bonuses for the next three years.
No qualifying benefits paid 1/1/10 to 30/9/11.
No qualifying expenses paid 1/1/10 to 30/9/11.

-	Amount
Deduction in profit and loss account under GAAP (for constructive obligation to pay bonuses)	£333,333
Disallow (and carry forward)	£333,333
Total deduction allowed for tax purposes	Nil

-	Amount
Deduction in profit and loss account under GAAP	£333,333
Disallow (and carry forward)	£333,333
Total deduction allowed for tax purposes	Nil

-	Amount
Deduction in profit and loss account under GAAP	£233,334
Disallow (and carry forward)	Nil
Allow in tax computation (previously disallowed)	£666,666
Total deduction allowed for tax purposes	£900,000

-	Amount
Maximum deduction still to be allowed	Nil
EBT contributions not yet deducted in P&L account	£100,000