Romford Essex Accountants Blog: Voting A Bonus - Getting The Procedures Right!

We discussed in our blog Bonus or Dividends? the merits of a company owner/director drawing monies from their company via a dividend or a bonus.

For whatever reason, if it is decided that the company will pay the director a bonus then it must follow certain rules:-

• Any PAYE and national insurance liability must be paid within nine months of the year-end to be tax deductible; and
• Financial Reporting Standard 21 dictates that bonuses declared after the year end may only be accrued in the financial statements if there was a 'legal or constructive obligation at the balance sheet date" for such a payment to be made. A bonus declared after the year end will have to be included in the following years financial statements.

So we suggest that you draft a minute of a board meeting prior to your accounting year end setting out the terms of the bonus (i.e. a percentage opf profits and a bonus which will be sufficient to clear an overdrawn director's loan account. The Minute will demonstrate that there was a legal obligation to pay the bonus before the accounting year end and, therefore, the bonus can be accrued in the financial statements.

If you require assistance in drafting the Minute of the Board Meeting or have any further question concerning this blog then please contact us here at Trueman Brown Chartered Accountants.