UK: "Bank" Payroll Tax

Last Updated: 18 December 2009
Article by Nicholas Stretch, Paul Edmondson and Keith Gregory

On 9 December 2009, the Chancellor of the Exchequer announced a "bank" payroll tax on certain discretionary "banking" bonuses paid by "banks" between 9 December 2009 and 6 April 2010. The levy is 50% of the total bonus amount paid, although contractual amounts already agreed and bonuses below £25,000 are not caught.

Draft legislation accompanied the announcement, but there is considerable uncertainty as to which companies are caught by the levy because the definition of "bank" is much broader than might be expected. The drafting of legislation itself is unclear on many other points too, including on what a "bonus" actually is.

This article considers relevant issues for financial services companies at the moment. However, there is a significant amount of lobbying and further Treasury announcements are expected. We will keep you informed of these as and when they are made and produce a fuller summary when the legislation is in a more advanced form.

To view the article in full, please see below:

Full Article

On 9 December 2009, the Chancellor of the Exchequer announced a "bank" payroll tax on certain discretionary "banking" bonuses paid by "banks" between 9 December 2009 and 6 April 2010. The levy is 50% of the total bonus amount paid, although contractual amounts already agreed and bonuses below £25,000 are not caught.

Draft legislation accompanied the announcement, but there is considerable uncertainty as to which companies are caught by the levy because the definition of "bank" is much broader than might be expected. The drafting of legislation itself is unclear on many other points too, including on what a "bonus" actually is.

This article considers relevant issues for financial services companies at the moment. However, there is a significant amount of lobbying and further Treasury announcements are expected. We will keep you informed of these as and when they are made and produce a fuller summary when the legislation is in a more advanced form.

1. An overview - What is bank payroll tax and when it is payable?

Bank payroll tax is payable

  • by a "taxable company"
  • when its "relevant banking employees"
  • are "awarded" during the "chargeable period" (i.e. between 9 December 2009 and 6 April 2010)
  • "relevant remuneration" above a £25,000 threshold

These terms are separately explained below. There are a considerable number of anti-avoidance provisions.

The tax is payable by the taxable company, not the employee, at a rate of 50% on all relevant remuneration awarded to each of its "relevant banking employees" above £25,000. The tax is payable on 31 August 2010. However, a further sting in the tail is that it is not corporation tax deductible and is in addition to any income tax and NICs which are payable.

2. Which companies are caught?

One of the surprises on closer analysis of the relevant legislation is that it is not just banks which are affected, although the explanatory memorandum just refers to "banking groups, banking entities and building societies".

There are three types of companies which are caught as a "taxable company".

2.1 The employing company is a UK resident bank or a relevant foreign bank

This definition covers far more companies than would normally be considered banks.

A company will be a UK resident bank if it is an authorised person under FSMA, which is UK tax resident and trading, and whose activities either include accepting deposits (where any activity is enough) or consist "wholly or mainly" of one or more of:

  • dealing in investments as principal
  • dealing in investments as agent
  • arranging deals in investments
  • safeguarding and administering investments, or
  • regulated mortgage contracts

Insurance companies, investment trusts, OEICs, friendly societies and credit unions are excluded companies and cannot be UK resident banks (or relevant foreign banks) (but, oddly they can still be taxable companies under other tests).

A company will be a "relevant foreign bank" if it is non-UK resident with a trading branch in the UK for tax purposes, which is authorised under FSMA (which includes "passported" into the UK from an EEA or relevant treaty state) and whose UK branch conducts any of the above activities to the required extent (i.e. "wholly or mainly", other than accepting deposits, where any activity is enough).

Although "wholly or mainly" is used in various places in existing tax legislation, nowhere is there a clear definition and this will have to be resolved in due course.

2.2 The employing company is a company in the same group as a UK resident bank or relevant foreign bank

A company in the same group as one of the above companies may also be caught. In broad terms (and there is considerable detail and so this definition is an oversimplification), a company will be caught if:

  • it is an over 50% subsidiary and in the same group as a UK resident or relevant foreign bank, and
  • it is an authorised person under FSMA or a company dealing in securities or (if it is a UK company) a company whose business consists wholly or mainly of, and the principal part of whose income is derived from, the making of investments.

This leads to some odd consequences as currently drafted.

2.3 The employing company is a building society or a company in a building society group which is a UK resident investment company or UK financial trading company

In practice, the legislation has the potential to catch:

  • Banks
  • Building societies
  • Stockbrokers and dealers
  • Other brokers (including insurance brokers)
  • Hedge funds and other private equity houses
  • Independent financial advisers
  • Investment managers
  • Operators of Multilateral Trading Facilities
  • Other types of company (including insurance companies and open-ended investment companies) which are in a group with any of the above

3. Which employees are caught?

You need to look at the status of employees receiving "bonuses".

The legislation only catches bonuses awarded to employees with duties which are "wholly or mainly concerned (whether directly or indirectly)" with activities which are relevant activities (see above - accepting deposits, dealing in investments as principal or as agent, arranging deals in investments, safeguarding and administering contracts, mortgages). This is clearly intended to be a limitation, but quite what is intended is unclear – are HR and IT directors caught, for example?

Additionally, in order for the tax to apply, the employee must either be resident in the UK or perform any (our emphasis) of his duties in the UK in the 2009/10 tax year. Merely spending one day working in the UK could therefore have (or more likely, have had) important cost implications.

4. What "remuneration" is caught?

This definition of remuneration is much wider than a "bonus" as popularly defined. It also potentially includes all salary, bonuses, employee share scheme awards, pension contributions and other benefits-in-kind, even loans, although in some cases there are clear valuation issues in working out what the amount of remuneration could be. The main exclusion here will be "regular" wages/earnings/benefits to reflect that the tax is only intended to tax "discretionary" bonuses.

Secondly, relevant remuneration up to £25,000 per employee is excluded from the scope of the legislation, with £25,000 having been set by the Government as a suitable limit on bonuses this year.

5. Awarded in the chargeable period

Once you have identified a relevant company, relevant employees and remuneration, you then need to look at when the relevant remuneration was awarded.

The tax only applies to relevant remuneration awarded between 9 December 2009 and 6 April 2010. Remuneration which had already been awarded before or which is awarded after the relevant period is therefore not caught.

The fact that an employee has to remain in employment after the date of an award does not prevent a contractual obligation arising at that stage (so leaver provisions are ignored for the purposes of whether something has been awarded for the purposes of bank payroll tax), but a contractual obligation only arises if the amount is "fixed or capable of becoming fixed without the any person exercising discretion."

How this particular test applies to even relatively straightforward deferred remuneration is difficult to determine and a number of scenarios need to be agreed with the Revenue.

Companies which are due to award bonuses after the relevant period on the basis of an established precedent are, currently, in the clear, but any deliberate delay of bonuses until after 5 April 2010 is likely to fall foul of anti-avoidance legislation and give rise to a payment of tax. Equally, the Government has reserved the right to extend the relevant period if pay practices do not conform with its expectations and/or pay restraint measures still to be announced in the Financial Services Bill have not yet taken effect.

At the moment, there seems to be some lobbying so that those with 31 March 2010 year ends, who would normally pay bonuses in May 2010, are also automatically caught.

6. Are there ways to avoid the tax liability?

If "banks" do not award bonuses in the period, then no charge arises, which is a choice openly given by the Treasury to the banks. However, for a bonus programme successfully to be pulled or scaled back, there can be no arrangement (whether enforceable or not) to pay the relevant sums in the future, in addition to having to address the difficult employment law and employee relation issues this raises in the interim.

7. What is the future?

All the professional tax adviser bodies and industry groups are urgently requesting clarification of the legislation from the Treasury and Revenue. Pending this, which should emerge shortly, it seems premature for any non-banks to take any action – particularly since anti-avoidance steps are counteracted under this legislation. However, banks themselves and their groups should probably budget for the worst and start identifying the following:

  • which group companies/businesses are caught – the "wholly or mainly" test
  • which employees are caught
  • identifying remuneration which is not caught – in particular, contractual bonuses
  • should bonus programmes be adapted.

It is likely that the Treasury/Revenue will produce a substantial amount of guidance on this as well as publish the necessary regulations for the detailed collection of the tax.

The relevant draft legislation can be found by clicking here (

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 17/12/2009.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.