A company that accrues a bonus or other remuneration in its accounts can only deduct it for that year if it is paid within nine months of the end of the period of account. If it is paid later, the deduction moves to the period in which it is paid, and if it is never paid there is no deduction at all. For directors, paid has a special meaning: a bonus can be treated as paid when it is credited to the director’s account, not only when cash leaves the bank.

What does the nine month rule say?

The rule is in section 1288 of the Corporation Tax Act 2009. It applies where an amount is charged in a company’s accounts for employees’ remuneration, the amount would otherwise be deductible, and the remuneration is not paid before the end of the nine months immediately following the end of the period of account. In that case:

  • if the remuneration is paid after the nine months, the deduction is allowed for the period of account in which it is paid (section 1288(2)), and
  • if it is never paid, no deduction is allowed (section 1288(3)).

Section 1289 widens the rule. Employee includes an office holder, so directors are covered, and remuneration means anything treated as earnings under Parts 2 to 7 of the Income Tax (Earnings and Pensions) Act 2003. An amount charged in the accounts includes a provision made with a view to it becoming remuneration, and it does not matter whether the charge relates to particular employments or employments generally. HMRC’s guidance at BIM47135 gives two examples: a global bonus pool not yet allocated between staff at the accounting date, and a provision for a bonus that only becomes payable if the employee is still working for the company years later. Both fall within the rule.

The rule is about timing, not whether the cost is allowable in principle. The bonus must still be paid wholly and exclusively for the trade, and HMRC can challenge pay to directors or relatives that is excessive for the work done (BIM47105). Contributions to an employee benefit trust follow separate rules (BIM47130).

When is a director’s bonus treated as paid?

Section 1289(4) says remuneration is paid when it is treated as received under section 18 of ITEPA 2003. Section 18 treats money earnings as received at the earliest of:

  1. the time payment is made,
  2. the time the person becomes entitled to payment, and
  3. for a director, the earliest of: the time sums are credited in the company’s accounts or records (even if the director cannot draw them), the end of the period if the amount for the period is fixed by then, or the time the amount is determined if that is after the period ends.

HMRC’s guidance at EIM42300 explains that a director usually becomes entitled to a bonus when the members pass a resolution or approve it informally, or under the terms of a service agreement. At EIM42310 HMRC says the credit does not have to be to the director’s own account. An entry in a general remuneration account or a minute book is enough, provided it identifies the director and is a credit of earnings. For the company law steps, see our guide to approving directors’ pay.

Does a year end accrual count as paid?

Not by itself. HMRC’s guidance at EIM42320 explains that a figure entered in draft accounts for remuneration the members are expected to vote later is not yet earnings, so it is not credited earnings either. The same applies to a bonus that depends on a future condition, such as remaining in office, and to a general provision for amounts not yet agreed. That accrual can still be correct in the accounts (see accruals and prepayments), but for tax it only becomes deductible in that year if the bonus is actually paid, in the section 18 sense, within the nine months.

Why does PAYE follow the same date?

The receipt rules in section 18 are mirrored for PAYE by section 686 of ITEPA 2003, so the moment a director’s bonus is treated as paid is also the moment PAYE should be operated. HMRC’s guidance at BIM47130 links the two directly. If PAYE has been operated, that is normally accepted as sufficient evidence that the remuneration has been paid. If a company argues the bonus was paid within nine months but did not operate PAYE, there has been a PAYE failure. Voting a bonus to secure the deduction and leaving it off the payroll creates a different problem. See how bonuses are taxed through PAYE for the employee side.

What if the tax return is filed before the nine months are up?

Section 1289(3) deals with this. If profits are calculated before the nine month period ends, any remuneration still unpaid at that time must be assumed to remain unpaid, so it is added back. If it is then paid before the nine months expire, the calculation can be revised and the return amended. HMRC’s guidance at BIM47140 confirms the amendment must be made within the normal time limits. Small companies filing early to get ahead of the corporation tax deadlines often miss this second step.

How does the timing work in practice?

Illustration only. A company has a 31 March 2026 year end and its accounts include a £50,000 bonus provision for its director. The nine month window ends on 31 December 2026.

What happens Year the deduction falls in
Members approve the bonus on 15 November 2026, it is credited to the director’s loan account and run through payroll Year ended 31 March 2026
The return is filed in September 2026 before approval, then the bonus is paid on 15 November 2026 Added back in the original return; the return can then be amended to claim it for the year ended 31 March 2026
The bonus is approved and paid on 20 January 2027 Year ended 31 March 2027
The bonus is abandoned and never paid No deduction in any year

At the current 25% main rate of corporation tax, missing the window on £50,000 defers £12,500 of tax relief by a year. If the company’s profits are lower, the value depends on the rates and marginal relief that apply.

Can a bonus be used to clear an overdrawn loan account?

Yes, and the nine month dates often line up. HMRC’s guidance at CTM61600 accepts that crediting emoluments to the loan account can repay a director’s debt, applying the same principles on when earnings are paid. A bonus that has been subjected to PAYE and National Insurance and then credited to the loan account is also outside the 30 day and arrangements rules, because the repayment itself gives rise to an income tax charge (CTM61642). If the bonus is paid within nine months of the year end, it can secure the corporation tax deduction for the year and stop the section 455 charge on the loan at the same time. A bonus paid out in cash and then paid back in does not get that protection; see director loan repayments and the 30 day rule.

What mistakes come up most often?

  • Treating the accrual as the payment. A provision in the accounts does not make the bonus paid, even for a director.
  • No record of approval. Without a resolution, an informal approval by the members or a contractual right, there may be no earnings to credit, and the deduction can slip into the next year.
  • Not operating PAYE when the bonus is credited. The credit triggers PAYE for a director even if the money is not drawn.
  • Filing early and forgetting to amend. The add back is compulsory when the return is filed first; the deduction comes back only by amendment.
  • Assuming a waiver restores the position. HMRC’s guidance at EIM42290 says a waiver only prevents earnings arising if it is made before entitlement. A bonus waived after it was due has already been received for tax purposes.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.