TAX NEWS - January 2010

United Kingdom: Special tax on bankers' bonuses

The U.K. tax authorities have issued a clarifying statement on the scope of draft legislation to enact the special tax on bankers' bonuses announced in the Pre-Budget Report. As introduced, the tax will broadly apply to employees performing "banking services" who are either U.K. resident or perform U.K. duties and are awarded a bonus between 9 December 2009 and 5 April 2010 (unless the payer has no discretion as to the amount of the bonus due to a contractual obligation existing as at 9 December 2009). The tax liability will fall on the bank and will be chargeable at a rate of 50% on the amount by which the bonus exceeds GBP 25,000. The payroll tax will be payable on 31 August 2010 and will not be deductible when calculating the bank's taxable profits or losses.

The recent statement clarifies which types of financial institution are to be brought within the tax. To ensure the tax applies as originally intended, the draft legislation will be amended, inter alia, to limit the definitions of "U.K. resident bank" and "relevant foreign bank," so that, for a nondeposit taker, they only apply to an entity that is, under the Financial Services and Markets Act, a "full scope BIPRU 730k" firm (and whose activities consist wholly or mainly of relevant regulated activities). Broadly speaking, this should mean that banks, building societies and investment firms that trade their own capital are included. Independent asset managers, most stockbrokers and insurance companies should not generally be caught. Institutions that may be affected will need to check their regulatory status carefully as this determines whether or not the institution falls within the scope of the new tax.