UK Bank Payroll Tax

In his Pre-Budget Report on 9 December, 2009, the UK Chancellor of the Exchequer, Alistair Darling, announced that there will be a new punitive tax imposed on remuneration - principally discretionary bonus payments - paid by certain financial institutions.

The details of the charge are as follows:

It will apply to remuneration:

• of employees of "taxable companies", being in general terms (a) a UK bank or the UK branch of a foreign bank, (b) a building society, (c) a UK investment company or UK financial trading company which is a member of a banking group or building society group, or (d) a UK branch of a foreign financial trading company in a banking group;

• where such employees are resident in the UK in the tax year 2009-10, or perform their duties wholly or partly in the UK at any time in the relevant tax year;

• where the remuneration has not previously been contractually agreed (so guaranteed bonuses agreed prior to the announcement are not affected);

• awarded between 9 December 2009 and 5 April 2010; and

• to the extent it exceeds £25,000.

It should be noted that the full definition of what constitutes a "taxable company" for these purposes is complex. It can potentially catch, for example, foreign companies regulated under the UK Financial Services and Markets Act 2000 ("FSMA") which engage wholly or mainly in specified activities, such as arranging deals in investments, as part of a trade carried on through a UK branch.

The tax will not apply to regular earnings, i.e. salary payments, or to certain HM Revenue & Customs approved share incentive awards.

Any taxable company awarding remuneration caught by these new proposals will be subject to a 50% tax on the total excess of all such payments over £25,000 per employee. Such tax, which is not deductible against earnings for the relevant company, is due on 31 August 2010.

Any client who is concerned should speak to one of their Fried Frank London contacts for further advice, particularly if they are authorised to carry on regulated activities under FSMA and/or may be considered to be in a banking group.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.