B2.421 Employees—salary and other remuneration
There will normally be little difficulty in justifying the deduction of salary or other remuneration paid to employees, whether in cash or in kind, as employees generally carry out activities wholly and exclusively for the purposes of the trade. However the wages must actually be paid to the employee; notional payments are not deductible1.
Where the employee is concerned with work on a capital project, or is only involved in activities relating to a companies capital assets, it may be arguable that part of his salary should be regarded as a capital expense and therefore not deductible. However, in Scott Bader Co Ltd2, the suggestion that a deduction for the salary costs involved on the secondment of an employee should be denied as a capital item was firmly rejected. If the salary cost is capitalised as part of the cost of the project no deduction will effectively be sought although capital allowances may be due in respect of it. Where a deduction is claimed HMRC do not normally seek to deny a deduction of salary costs on this basis.
Deductibility of bonuses, commission and gratuities
With regard to salaries and wages generally, see BIM47000. For incentive and reward schemes, see BIM45090.
A bonus or commission payable to an employee, whether or not dependent upon the profits of the business, will be deductible if the payment is wholly and exclusively made for the purposes of the trade. In Finnieston Engineering Co Ltd3, dividends on shares held by the
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