Introduction to this document

Year-end bonus board minute

Bonuses for employees or directors declared after the year-end may only be accrued in the balance sheet if there was a “legal or constructive obligation at the balance sheet date” to make such payments. All other bonuses declared after the year-end cannot be included in the accounts until the following year.

Before the year-end

It’s common tax planning to prepare a draft set of accounts, work out the tax liability and then decide to vote a bonus to the directors (which must be paid within nine months of the year-end). This bonus is then included in the accounts to either clear an overdrawn director’s loan account or reduce the company’s corporation tax liability.

So you’ll need to get an agreement in place before the year-end to pay bonuses after the year-end so they can still be provided for in the accounts. This condition can be easily satisfied by preparing a Year-end Bonus Board Minute before the company’s year end setting out the basis for determining it (e.g. x% of profits).