Specialist bonus tax article idea

, We thought you would be interested in the below article from specialist tax adviser Mark Walters, partner at Frank Hirth, who sheds new light on the bonus tax. He includes thoughts on: o Bonus tax is not just for Bankers o Real bonus tax is 70% o Cross-border mobility means bonus tax is a real threat to competition as not part of a global bonus pact. I look forward to hearing from you. DECEMBER 2009 Killing The Golden Gooseff We have had continuing debate in recent weeks about the cumulative impact of a 50% tax rate beginning in April 2010, as well as uncertainty regarding tax residency with cases under review in the courts and no statutory residence test. We have now had further announcements in the December 2009 Pre-Budget Report with the implication to face of a special bank payroll tax coming into effect from 9 December 2009. The question forming in the city is whether the practical message about the deficit and downturn in the economy is being paid for now in this special levy on bonuses. Coupled with other measures impacting from April 2010, is this the final element in killing the goose that can lay golden eggs in the future as it has historically? The special bonus tax will, as a headline, apply to bankers’ bonuses but the legislation as proposed in the technical note casts a far wider net. It seems to incorporate banks, financial trading companies in banking groups, resident investment businesses in the broader spectrum of hedge funds, and foreign banks operating through UK branches. To the extent that the bonus exceeds £25,000 it seeks to apply this levy on all discretionary and other obligations with no prior contractual right at 9 December 2009, through to 5 April 2010 even for those who are non-resident offering services here in the UK. The onus of administration falls on the bank or other financial institution which is caught up in these provisions to account for those payments through a separate bank payroll tax. So a separate set of administrative procedures to record and deal with this matter will be required to account for payment at the entity level by 31 August 2010. The business will not be able to apply a corporate deduction to the sum subject to this levy so the combined effect brings effectively a 70% charge on the bonuses the “banks” propose. To be clear the bonus to be paid above £25,000 will have suffered the 50% bank payroll levy and the balance in the hands of the city employee will, for the 2009/10 tax year, be subject to current higher rates of tax and where appropriate, national insurance at 41%. There are wide-ranging anti-avoidance measures to circumvent loans, split payments between group companies or awards from firms other than in cash. This type of legislative action may capture headlines politically but is it ultimately sensible as part of series of hammer blows? The cross-border mobility of workers, the competition with financial centres across Europe and the Middle East, coupled with the adjustments made to tighten taxation on non-domiciled workers in the UK and the world of residency in the last eighteen months may be proved to be ill-judged where not part of a global pact of action on bonuses. Contacts: Mark Walters, Frank Hirth: +44 (0)20 7833 3500 MarkW@frankhirth.com www.frankhirth.com Tim Maltin, Maltin PR: +44 (0)20 7887 135 tim@maltinpr.com www.maltinpr.com A photograph of Mark Walters is available at: www.maltinpr.com/mark-walters