EIM40013 - The year that earnings are 바카라 사이트渇or바카라 사이트�: bonuses and deferred remuneration plans: the effect of conditionality and employer's discretion

Conditionality

Many bonus schemes are referenced to performance periods, but awards will not be paid unless employees are in employment on the date of payment. For example, a bonus is referenced to company profits for year ended 31 December but is not paid until the following 30 June. Employees who worked for the employer during the performance year forfeit their entitlement if they leave employment before 30 June.

Up to 28 February 2008, HMRC took the view that the bonus award could only be 바카라 사이트渇or바카라 사이트� the year in which unfettered entitlement to receive it arose. The year that the bonus was 바카라 사이트渇or바카라 사이트� was the year in which the employment condition was satisfied. Since 28 February 2008, HMRC has adopted the principles set out in EIM40008 and subsequent pages.

Good and bad leavers

Many of the plans with employment conditions identify 바카라 사이트済ood바카라 사이트� and 바카라 사이트渂ad바카라 사이트� leavers and prescribe different treatments for the 2 categories. 바카라 사이트淕ood leavers바카라 사이트� are employees who cease employment before the bonus payment date through retirement, redundancy or ill-health. 바카라 사이트淏ad leavers바카라 사이트� are those who are dismissed for cause or resign to join a competitor.

It바카라 사이트檚 possible to take various views on the year that such bonus awards are 바카라 사이트渇or바카라 사이트� where there is an employment condition:

  • the performance period
  • the performance period plus the period from the end of the performance period to the date of payment, sometimes referred to as the 바카라 사이트渧esting period바카라 사이트�
  • the year in which the date of payment falls

Your decision should take account of what the bonus scheme is intended to achieve. If this is not clear from the documents, you may base judgments on how the employer treats good and bad leavers.

Plans that:

  • are designed to provide incentives to employees for performance periods, but,
  • do not pay out unless the participants are still in employment at the specified date, but,
  • do not specify any additional performance conditions in the period beginning after the original performance period and ending on the payment date,

are likely to pay out awards that are 바카라 사이트渇or바카라 사이트� the original performance period. However, if the plan introduces additional performance conditions for the second period the period that the award is 바카라 사이트渇or바카라 사이트� is likely to be the aggregate of both periods.

If 바카라 사이트済ood leavers바카라 사이트� are entitled to receive awards; that may indicate that the awards are 바카라 사이트渇or바카라 사이트� the original performance period. Entitlement to pro-rated awards may indicate that entitlement is 바카라 사이트渇or바카라 사이트� the performance and the vesting periods.

Some schemes provide for deferred bonuses to be paid out when ownership of the company changes hands. This may be an indicator that the bonus is earned by that date and is 바카라 사이트渇or바카라 사이트� the relevant performance period.

Even though these contingencies may not occur for all or any of the plan participants, their existence may shed light on the period the bonus is intended to be 바카라 사이트渇or바카라 사이트�.

It is sometimes argued that the employment condition is never just about being in employment on the specified date; that the intention of the employer in introducing this condition is to obtain satisfactory performance in the period ending on the date of payment. This may well be the case. If evidence can be found to support the contention you should accept that the period the awards from the plan are 바카라 사이트渇or바카라 사이트� is the combined performance and vesting periods.

Employers바카라 사이트� discretion

Some bonus schemes give the employer absolute discretion to award or refuse to award bonuses. The discretion may lie with the trustees if an Employee Benefit Trust (EBT) pays out the awards. The courts have held that, whatever the plan says, an employer바카라 사이트檚 discretion in awarding or withholding a bonus is not unfettered. However wide the discretion appears to be, the employer is required to exercise his discretion rationally and in good faith, and not irrationally or perversely.

There may be a pattern of awards that may indicate the year the awards are 바카라 사이트渇or바카라 사이트�. Employees may also have an understanding of how the bonus scheme works, and the period awards are referenced to, while accepting the employer바카라 사이트檚 discretion.

A discretionary bonus may therefore be 바카라 사이트渇or바카라 사이트� the performance period, the combined performance and 바카라 사이트渧esting바카라 사이트� period or the year in which discretion is exercised and payment is made. It is important to consider all of the relevant information.