Seb Tubb, Tax Partner at Mazars

Commenting on the implications of the Pre-Budget Report announcements on 9th December for the banking, building society and finance sector, and in particular the impact of the banking payroll tax, Seb Tubb, tax partner at Mazars in Milton Keynes, says:

“While it is understandable that tax needs to be raised from the finance sector to help pay for the budget deficit, an overall tax rate of over 100% on banking bonuses is going to severely restrict the ability of the UK banking sector to attract the right talent. Whatever you think of bankers, they are vital to the success of the economy. It remains to be seen how the government will attack the immensely difficult task of defining what a banking bonus is in order to prevent avoidance.

“The 50% tax is in addition to existing taxes, so a bank paying bonuses of, say, £1m caught by the 50% tax will now have a tax and an NI liability of £628k and the employees £410k. The employees will receive £590k, HMRC more than £1m.

“With the new 50% income tax rate band commencing in April 2010 and the increases in NI contributions announced for April 2011, this is a further measure which will reduce the attractiveness of the UK as a place to carry out banking business. It gives further advantage to France and Switzerland.

“Banking businesses will need to seriously consider whether they continue to do business in the UK. There will be particular emphasis now on deferring the payment of bonuses until after 5 April 2010. By doing this, the bank will at least be able to benefit from the full payroll deduction as no tax deduction appears due for the bank payroll tax itself.”

If you would like to speak to Seb in relation to banking payroll tax, please email Seb.Tubb@mazars.co.uk

Posted Friday December 11^th 2009
By Rachael Bonfield