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Pre-Budget Report 2009: Bank bonus tax - the details

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9th Dec 2009
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The much expected “bank bonus tax” was announced in the Pre Budget Report. Technical specifications and draft legislation is already available, and no doubt banks and their advisers will be poring over the detail to identify any potential loopholes. Leading comments on this measure are summarised here.

The payroll tax will impose a charge on the bank which decides to distribute profits by way of bonuses which are not contractually committed at the time (as opposed to the date) of the announcement. The new tax applies to all bonuses paid from the time of the announcement (sometime around 1pm on 9 December) until 5 April 2010. It will apply to bonuses of more than £25,000, and will be payable by the bank even if the bonus is awarded by another party in respect of services performed for the bank. The press notice (PBRN02) indicates that the structure of the rules will cover those engaged through intermediaries.

The definition of bank will include the obvious high street and investment banks, but will also wrap in the banking arm of major retailers such as Tesco, but the charge is restricted to those in “banking employment” so would not affect other staff in the wider group.

The tax charge will apply to money, money’s worth, benefits or loans to bonuses which are awarded to employees after the announcement or to which a contractual entitlement arose after the announcement was made, and will be payable at 50%, with the tax falling due on 31 August 2010. The sum will not be deductible in arriving at the corporation tax liability of the bank. This is clearly a move to reduce the available "bonus pool" in respect of those banks that would be due to pay bonuses at the end of the year. The employee tax (and NIC) burden is unaffected, and employer NIC will be due in the normal way on any bonuses paid.
 

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