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One-off Bank Payroll Tax (BPT) on employee bonuses
Practical Law UK Legal Update 2-501-3510 (Approx. 3 pages)
One-off Bank Payroll Tax (BPT) on employee bonuses
by Adam Willman, Norton Rose LLP
| Published on 26 Jan 2010 |
This article is part of the PLC Global Finance January 2010 e-mail update for the United Kingdom.
Speedread
The UK Government has introduced a new, temporary and one-off, tax on bonuses paid by banks and building societies to employees, where the bonus is paid before 6 April 2010 (although that date may be extended).
In the 2009 Pre-Budget Report, the UK Government announced a new, one-off and temporary, tax on employee bonuses. This corporate payroll tax is additional to any income tax and national insurance liabilities that may be payable.
The new BPT, chargeable at 50%, will be payable by any relevant UK or foreign bank, building society or other financial services firm which pays a bonus (in any form) to employees (exceeding GB£25,000 per employee) at any time in the period between 9 December 2009 and 5 April 2010.
The draft legislation is not designed to catch "regular" salary, meaning pay which cannot vary according to business or individual performance or similar considerations. In addition, there is a specific exclusion for bonuses paid under a contractual obligation which arose before the chargeable period and where the employer no longer has discretion as to the amount payable.
The total BPT will be payable by all relevant companies on 31 August 2010. It is expected also that firms will have to record and report bonus payments made during the period, whether or not they believe BPT is payable on them. HMRC has yet to publish penalties for non-payment, but is considering publishing a list of "deliberate defaulters".
The draft legislation contains anti-avoidance measures. There are provisions preventing, among other things:
- Deferring rewards until after the BPT period.
- Disguising bonuses as loans.
- Paying multiple bonuses each less than GB£25,000.
- Preventing companies from leaving a group prior to the chargeable period, with a view to keeping the remaining group outside the charge.
Concern was raised by financial services firms which are not within banking groups as to whether they would be subject to the BPT, as the initial definition of "taxable company" was defined by reference to a broad range of regulated activities.
This prompted HMRC to issue clarification, restricting the scope of the BPT to firms that are “full scope BIPRU 730k investment firms” under FSA rules (or would be if their head office was in the UK). Broadly this includes firms that are subject to the highest base capital requirement for regulatory capital purposes, and which are authorised by the FSA to carry on activities of "dealing on own account" and "underwriting and/or placing financial instruments".
This should mean that many firms, such as companies primarily engaged in asset management, are outside the scope of the BPT; however this will not be clear until the revised draft legislation is published.
It seems likely that there will be continued debate and refinement of the BPT, especially since the UK Government is considering extending the chargeable period until the relevant provisions of the Financial Services Bill come into force.