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Q & A : THE BANK BONUS TAX

Q. WHICH FIRMS ARE CONCERNED THEY MAY BE AFFECTED BY THE BONUS TAX?
A.The Treasury originally said the tax would only hit the 397 deposit-holding banks and building societies which hold a banking licence from the Financial Services Authority, as well as their subsidiaries. However, the rules have since blurred; the Treasury has already stipulated that hedge funds will not be subject to the tax, while today’s announcement will seek to provide more detail on whether non-bank subsidiaries of banking groups will be affected, as well as whether non-banking financial groups such as independent stockbrokers and asset management firms might be caught.

Q. IS THERE A WAY FOR COMPANIES TO GET AROUND THE NEW RULES?
A.Accountants have described the swoop on bonuses as “draconian” after identifying ways in which the Treasury has sought to block off the loopholes – for example by blocking payment through intermediaries, hitting non-domiciled individuals contracted to a foreign bank as well as a UK subsidiary. It also seems that banks will be retrospectively charged if they temporarily hike salaries to compensate for smaller bonuses, although this is one area on which banks such as Barclays will be eagerly awaiting clarification today.

Q. HOW WILL IT AFFECT THE GUIDELINES ON BONUSES THAT ARE ALREADY IN PLACE?
A.This is one of the key questions to which the British Bankers’ Association hopes to get an answer from HM Revenue & Customs today. The government is expected to clarify the position it will take in the case of those banks which have already implemented the guidance given by the G20 on bonuses earlier in the year, which stipulates that a large proportion of a bonus should be paid out in shares which are deferred over 3 years. Senior City figures are concerned that if banks are expected to pay 50 per cent tax on the deferred and equity-based component, that the levy will affect their competitiveness for far longer than just the one-year life of the tax.