Tax code may become law if banks resist

THE GOVERNMENT&rsquo;S code of practice for banks on tax could become law if financial institutions do not behave in a manner consistent with the voluntary scheme, Treasury sources said yesterday.<br /><br />The code, unveiled by financial secretary to the Treasury Stephen Timms last week, asks banks to act in a manner consistent with &ldquo;both the letter and the spirit&rdquo; of taxation law, as part of a concerted effort to crack down on tax avoidance.<br /><br />But reports emerged yesterday that companies were already seeking inventive ways to bypass tax legislation such as the new 50p top rate of tax for those earning &pound;150,000 or more.<br /><br />Accountancy Grant Thornton has been touting what it calls a &ldquo;growth securities ownership plan&rdquo; to City firms that it says could &ldquo;deliver a potential tax saving of 40 per cent&rdquo; on remuneration.<br /><br />A spokesman for the company played down suggestions that its products were specifically targeted at escaping the new top rate of tax.<br /><br />But a Treasury source warned that if banks did not comply with the intentions of the government on tax &ndash; namely taking steps to cut down on avoidance &ndash; within the 12-week consultation period, the government could take further steps.<br /><br />&ldquo;We&rsquo;re optimistic that banks will abide by the code, but if they don't, we will look at ways to get tougher, including legislation, to ensure that they do,&rdquo; he said.<br /><br />John Whiting, a tax policy director at the Chartered Institute of Taxation, said financial institutions were already considering ways to avoid income tax on remuneration, such as handing out capital awards that would only be subject to 18 per cent capital gains tax.<br /><br />&ldquo;We&rsquo;re entering an era where there are going to be more taxes, so people are going to look at how not to pay if they don&rsquo;t have to,&rdquo; he added.