So how will the super tax work and can bankers find ways round it?
As I am sure you are all aware, the Pre Budget Report earlier this month introduced a new Bank Payroll Tax, aimed at discouraging banks from paying large bonuses to their staff.
Without going into the rights and wrongs of how bankers are paid -- Bruce Jackson drew a target on his own back last week if you're so inclined -- the actual mechanics of the new levy, and how and when it applies are what I'm examining here.
Who is affected by the new rules?
Well, in simple terms it is the banks, rather than the employees themselves who are affected. Where a bank pays bonuses to 'relevant banking employees' they may be liable for the tax.
Note that the term 'relevant banking employees' includes bank employees, but also includes, in broad terms, any individual providing banking services. The individual must be either UK resident in 2009/10 or perform banking duties wholly or mainly in the UK in that year.
As this is a tax liability of the bank, rather than the employee, the tax, calculated at 50% of all relevant amounts will be pooled and the amount per banking company calculated, becoming due for payment on 31 August 2010. Banks are required to disclose details of all payments whether or not they consider the bank payroll tax should apply. Oo er.
Relevant earnings
The tax is levied on the earnings of employees to the extent that that employee receives over £25,000 during the relevant period, which runs from 9 December 2009 to 5 April 2010.
On the face of it this would include even local bank managers, but there is a specific exclusion for regular and contractual salary payments.
Where amounts paid are, for example a regular monthly sum under a contract of employment entered into before 9 December 2009, those payments will be excluded from the calculation of relevant amounts.
Similarly any bonus or benefit entitlement that is required to be paid under a pre- 9 December contract will also be excluded. This continues to apply even if the payment of a bonus is dependent on performance or other criteria determined after 9 December 2009.
Shares awarded under approved, but not under unapproved, schemes are also excluded.
Possible loopholes?
As you may have noticed, the taxman appears to be getting cannier in his old age, and as a result, some potential loopholes have already been spotted and sewn up.
The £25,000 limit covers the whole period, rather than being per payment, and applies per employee, but if the same employee has more than one employment with two connected employers, the £25,000 is split between them. Bang goes theory number one.
The definition of relevant earnings also includes situations where the bank enters into future obligations to pay remuneration outside the relevant period, as well as relevant loans, where the only or main purpose of such a loan is to avoid bank payroll tax. Theory number two up in smoke.
Finally, any other cunning plan you can concoct to circumvent the rules is likely to be caught by the targeted anti-avoidance rule which "will ensure that, however the payment of a bonus (or an amount which in substance is a bonus) is structured, it will be chargeable to bank payroll tax if, but for stated aspects of that structure, it would otherwise have been so chargeable.". They are such spoilsports aren't they?
What next?
Well, the legislation seems to be very tightly drawn, and avoidance, while not futile, is likely to be difficult, which is, of course, the point.
One possible way would be for the bank and employee to secretly agree to delay payment of any bonus they may otherwise have received until after 5 April 2010. Of course, there must be no contractual obligation to pay such a future sum, or this payment will be caught anyway; the banker needs to rely on the good morals and trustworthiness of his employer.
Note, however, that the Government "will consider extending the period of the charge so that the tax remains in place until the relevant provisions of the Financial Services Bill come into force.", making the delay potentially futile.
Whatever your opinion on bankers and their bonuses, there can be little doubt that the new rules are going to have a significant impact on the sector in the short term. Whether the tax will achieve the Government's stated aim to "encourage banks to consider their capital position and make appropriate risk-adjustments when settling the level of bonus payments this year" or whether it is, simply pre-election posturing remains to be seen.
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