Bank Payroll Tax

Graham Chase, Tax Partner, CMS

Two important points to keep in mind:

1. It is temporary –  The bank payroll tax will have effect from the time of the announcement on 9 December 2009 until 5 April 2010 for all discretionary and contractual bonus awards.

2. There are exemptions – There is an exception for contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at the time of the Chancellor’s announcement.

On the basis that most people will be prepared to wait (perhaps) then it seems to me that few cheques to HMRC will be written.

3 thoughts on “Bank Payroll Tax”

  1. This measure does seem to have as its rationale acting as a deterrent to the banks paying significant bonuses, rather than raising substantial tax revenues.
    “Regular salary” also provides an exemption. Thus, one way that a bank can avoid the “bank payroll tax” is to pay the ‘bonus’ by increasing basic pay rather than by paying an amount that is contingent on the performance of the bank.

  2. One of the measures that we were expecting (but seems not to have materialised) was some “anti forestalling” rules aimed at preventing employers paying salary and bonuses prior to 6 April 2010 (when the new 50% top rate of income tax comes into force) so as to benefit from the current 40% top rate of income tax.

    Those details of the “supertax” on bank bonuses that have been released almost suggest that this is, in reality, an anti-forestalling measure (aimed only at the banks) disguised behind a political message that Labour is being tough on bankers’ bonuses. If this supertax really will only apply to bonuses paid before 6 April 2010 (and it will be phased out thereafter), surely the banks will simply delay paying bonuses until the new tax year – on the basis that an extra 10% of income tax (borne by the employee) will be far preferable than a non-deductible 50% supertax on the employer?

  3. the question is whether the April 2010 deadline will be extended and a bonus payment made late in these circumstances most likely be subject to the Bank payroll tax…?

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