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bigduckontax
bigduckontax, Accountant
Category: Tax
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MY business has been helped by friends who worked pay,

Customer Question

MY business has been helped by friends who worked for no pay, so I have given them promissory notes to be honoured much later. Are promissory notes claimable for tax relief in the year they were issued?
Jeremy WELBY
Submitted: 1 year ago.
Category: Tax
Expert:  TaxRobin replied 1 year ago.
HelloThe interest would only be paid for tax purposes when the funding bond was redeemed for cash generally. ITTOIA05/S380 treats the issue of funding bonds as a payment of interest. These are either shares, or further loan notes, bonds or promissory notes given to the creditor in lieu of interest.This would not be deductible as compensation paid.To make it simple, the promise of compensation at a future date is not deductible by you.Had you issued shares in your company or this was a loan situation then perhaps but as compensation for services, no.
Expert:  bigduckontax replied 1 year ago.
If your friends were to invoice you for the moneys owing instead of issuing promissory notes then these invoices would from part of your trading account and be posted as creditors. They would then be allowable against your income for tax purposes. If you can arrange this then your last year's action is perfectly proper.