What does section 865 of ITTOIA 2005 do regarding unpaid remuneration in non-trade businesses?

Section 865 restricts deductions for employees' remuneration charged in accounts by non-trade and non-property businesses until the remuneration is actually paid to employees. Schedule 2 paragraph 154 provides transitional rules defining what counts as remuneration charged in accounts, particularly where amounts are held by intermediaries such as trusts.

How are amounts held by intermediaries treated for accounting periods ending before 27 November 2002?

For accounting periods ending before 27 November 2002, any amount held by an intermediary with the intention that it would become employees' remuneration is treated as remuneration charged in the accounts. This brings it within the scope of the unpaid remuneration rules, disallowing the deduction until remuneration is actually paid to employees.

What changed for accounting periods ending on or after 27 November 2002 under this transitional rule?

For periods ending on or after 27 November 2002, amounts held by an intermediary are only caught by the transitional rule if they relate to employee benefit contributions defined in sections 38 to 44 and were made before 27 November 2002. New contributions from that date fall under the dedicated employee benefit contribution rules directly.

Why was the 27 November 2002 date significant for the unpaid remuneration provisions?

The 27 November 2002 date marks the introduction of dedicated employee benefit contribution rules in sections 38 to 44 of ITTOIA 2005. The transitional provision in paragraph 154 ensures pre-existing intermediary arrangements are not left outside the scope of either the unpaid remuneration rules or the new employee benefit contribution rules.

Income Tax (Trading and Other Income) Act 2005 section 865

Unpaid remuneration: non-trades and non-property businesses

Section 865, supported by Schedule 2 paragraph 154, clarifies what counts as employees' remuneration charged in accounts for the purposes of the unpaid remuneration rules, with different treatment depending on whether the accounting period ended before or on/after 27 November 2002.

For accounting periods ending before 27 November 2002, amounts held by an intermediary intended to become employees' remuneration are treated as remuneration charged in the accounts.
For accounting periods ending on or after 27 November 2002, the same treatment applies only to employee benefit contributions (as defined in sections 38 to 44) that were made before that date and are held by an intermediary.
The transitional rule ensures that contributions routed through intermediaries before the 2002 cut-off date continue to be caught by the unpaid remuneration provisions.
These rules apply specifically to non-trade and non-property business income, ensuring that deductions for remuneration are only allowed when amounts are actually paid to employees.

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