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Banks respond to Government's 'super tax' pledge

Banks respond to Government's "super tax" pledge

Banks are considering their response to Governments one-off payroll tax levy of 50 porecent that will apply to bankers' bonuses over £25,000 and the options available to affected employers.

Jon Terry, partner and head of reward, PricewaterhouseCoopers LLP, commented: "Bankers are innovative and creative people and will be looking hard at mitigating the impact of this new levy. However, specific anti-avoidance rules and the Banking Code of Conduct will make it particularly difficult. A bonus payment of £100,000 previously cost a bank £81,200 after National Insurance and Corporate Tax deductions whereas the equivalent payment will now cost £131,200. Despite being faced with a 60% increased post-tax cost, many banks are likely to seek to meet expectations of employees where performance has been strong in the interests of retaining talent and long-term stability. This could be to the short-term detriment of shareholders.

"Alternatives to absorbing the new tax charge include not paying a bonus at all for 2009, increasing salaries to make up any shortfall, possibly changing the way bonuses are delivered, reviewing contractual binding entitlements and awarding larger discretionary bonuses in respect of performance year 2010 - but there are consequences to each of these options. For example, increasing base pay will inevitably lead to an increase in fixed costs, which could impact on the competiveness of those organisations and reducing potential awards for 2009 may make employees even more mobile.

"The introduction of the levy once again raises the issue of an uneven international playing field. In the event of the new tax levy reducing bonuses for those based in London, other financial centres will become more attractive for employees. On the other hand, if companies decide to press on and pay competitive levels of bonus and to suffer the new tax, the cost of doing business in the UK becomes greater.

"This type of targeted legislation is always difficult to implement exactly as intended. The devil as always lies in the detail."

11 December 2009

 

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Created on: 11-Dec-09 15:55

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