Bank Payroll Tax: Example

Graham Chase, Tax Partner, CMS

Assuming no exemption is available then it seems to work like this:

Bank pays £100,000 bonus.

Bank is required to pay £37,500 in “supertax” to HMRC (the first £25,000 of the bonus does not attract the supertax).

The bonus of £100,000 is then subject to tax and NICs in the usual way. Employer’s NICs of £12,800 (at 12.8%) and income tax (40%) and employee NICs (1%) of £41,000 (assuming the higher rate to apply) are payable.

Our banker receives £59,000.

The cost of delivering this net £59,000 is £150,300. So in this example the effective tax rate is 60.7%.

Clearly, the £25,000 has a significant impact on the calculation of the effective rate. If this is ignored then the cost of delivering the net £59,000 is increased to £162,800 so the effective rate is 63.7%.

Also the bank cannot deduct the supertax in calculating its corporation tax profits – to the extent the bank has profits (or perhaps a reasonable prospect of making some) and therefore is tax paying, the effective rate needs to be increased to take account of the corporation tax cost of not getting a deduction.

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