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The morality of an additional salary

A non-resident employee and shareholder with a NT code wants a salary bonus to contra compensation

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I have a client Limited Company who have received compensation from one of the big four banks for a fraud case where the bank admitted their systems were a fault. This in turn has generated higher profits that normal resulting in a much higher corporation tax liaiblity. I have been asked to put through a salary bonus for one of the employees who is also a shareholder in the Company. That employee is non-resident and has an NT PAYE code. The question I have been asked is how high can the bonus be. I wondered what you would do in this situation. 

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By Matrix
22nd Jun 2020 19:55

Given they have asked you and assuming you prepare the corporation tax computations for the company, I would advise that any bonus has to be agreed before the accounting year end and paid within 9 months and has to be commensurate with activities undertaken by that employee to obtain a tax deduction. A good benchmark would be to confirm that the amount paid is on arm’s length terms. Would they pay this amount to an unrelated employee carrying out the same duties?

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Replying to Matrix:
By lionofludesch
22nd Jun 2020 23:10

Good answer.

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