Bankers’ bonus tax

Hartley Foster, Tax Partner, Olswang

In a widely anticipated move, the Chancellor has introduced, with effect from today, a one-off  bank ‘supertax’ of 50 per cent on any individual discretionary bonus paid by a bank to an employee that is over £25,000.

This is to be paid by the bank, not by the bank employee (although the employee will, of course, also have to pay, income tax at their top rate on any bonus they receive).

We await the draft legislation.

3 thoughts on “Bankers’ bonus tax”

  1. Am I right that this is actually a 75% marginal tax rate?

    Bank pays banker £100,000 bonus.
    Bank is is required to pay £50,000 in supertax to HMRC.
    Banker receives £50,000 bonus.
    Banker pays £25,000 due to the marginal tax rate (currently 40%, going up to 50%)
    Banker receives £25,000 in his bank account.
    Effective tax rate 75%.
    Oh, I almost forgot the 1.5 NI. A further £1,500 paid to HMRC
    Effective tax-rate 76.5%

    1. Almost. On the plus side there is a £25,000 threshold, but on the negative side employer NICs. Worked example to follow!

  2. Just on the NI point, Nicholas, the NI rates are to increase from April 2011 (as was announced in the 2008 PBR). Whilst the date has not changed, the amount of the increase has. Looking just at class 1 NI (i.e. “employee’s” and “employer’s” NI), all rates will now increase by 1% (in the 2008 PBR it was announced that they would go up by just 0.5%).

    So, from April 2011:
    – employee’s NI will apply at 12% up to the upper earnings limit and 2% thereafter (uncapped) (this is effectively another penny of income tax!);
    – employer’s NI will apply at 13.8% (uncapped).

    So even without any supertax on Banker’s bonuses (should such a tax still exist in April 2011 – see Graham’s comment that the current intention is that this tax will only apply until next April), the tax cost to both employees and employers in relation to salaries and bonuses is going to increase more than we previously thought. That said, we won’t see these increases for almost 18 months yet.

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