UK: Moving To 50% Tax: A New Year's Resolution To Take Action Before 6 April 2010?

Last Updated: 8 January 2010
Article by Nicholas Stretch, Tair Hussain and Isabel Pooley

In our earlier law-now ( click here) (, we set out possible strategies for companies to accelerate employment income for high-earners so that it would be taxed at 40% if paid before 6 April 2010 rather than at 50%.

Since that law-now, several anticipated problems have not emerged (at least not yet), while other practical issues have emerged on the pitfalls and opportunities that are available. The enclosed article gives more details. With most companies now likely only to have one remuneration committee meeting before the end of the tax year, companies need to think about what action to take very soon.

To view the article in full, please see below:

Full Article

In our earlier law-now ( click here), we set out possible strategies for companies to accelerate employment income for high-earners so that it would be taxed at 40% if paid before 6 April 2010 rather than at 50%.

Since that law-now, several anticipated problems have not emerged (at least not yet), while other practical issues have emerged on the pitfalls and opportunities that are available. This article gives more details. With most companies now likely only to have one remuneration committee meeting before the end of the tax year, companies need to think about what action to take very soon.

Revenue views

On 9 December 2009, the Chancellor of the Exchequer published his Pre-Budget Report. Some had feared that he would use this opportunity to clamp down on companies accelerating bonuses etc, to obtain a more favourable tax rate – possibly using a similar approach to the pensions tax legislation, in which increased pension contributions cannot now qualify for full relief for higher earners even though the main part of the relevant legislation does not come into effect until 2011. However, the Pre-Budget Report contained no relevant legislative announcement. While there must clearly still be a chance that an announcement to this effect could be made in the actual Budget – whenever that will be in an election year – this must now be remote. On this basis, fear of reversal on the tax effect of acceleration, thus making any tax planning efforts meaningless, is at least one problem which no longer realistically needs to concern companies.

ABI views

Many share plans contain provisions which do not allow them, or awards under them, to be amended to the benefit of participants without prior shareholder approval. While there are generally de minimis levels which have to be exceeded before these provisions are relevant and maintaining favourable tax treatment for participants is also a permitted exception, companies and advisers have been concerned to know where (notwithstanding scheme rules) the ABI would set its own threshold in requiring prior shareholder approval for accelerating receipt of benefits. Although it chose not to include anything on this in its December 2009 restatement of its share scheme guidelines (where only a minimal change was made), the ABI has indicated that it draws a distinction between allowing the acceleration of a bonus or vesting of a share award where the performance target has been achieved (which it believes is acceptable) and one where the performance target has not yet been achieved (which it believes is not).

For example, with a December year end company which normally only pays bonuses in May on the basis of performance to December, it would be acceptable to pay bonuses early in March as company performance would be known by then. However, a 31 March year end company, which would have to pay a bonus before 6 April 2010 to avoid the 50% tax liability would be in a more difficult position to be sure that it had definitive performance figures to act on (particularly as the figures will not have been audited). A June or September year end company would have even more difficulty. Vesting of share awards with performance conditions can be analysed similarly.

Companies may, however, take their own view on whether they can effectively protect shareholders' interests, including by way of clawback or other means e.g. a forfeitable loan back to the company.

Solutions we have worked on

We have worked with a number of companies now on identifying solutions and practical issues, including:

  • making sure an "unconditional" payment is made in the 09/10 tax year. If it is not, and the payment becomes unconditional in the 2010/11 tax year, the position is that tax is payable at 2010/11 rates.
  • particular issues with loans and clawback/forfeiture.
  • how to estimate performance for the balance of a period or start of a period.
  • shareholder disclosure issues.
  • compliance with the Model Code and reporting requirements.
  • particular issues with employee share plans as opposed to cash plans.
  • avoiding "wasted" tax and NICs if the award is not ultimately earned, yet the tax and NICs have been paid early.
  • for affected financial services companies, interaction with bank payroll tax.
  • employee consent and communication issues.

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 07/01/2010.

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