As you will have gleaned if you read our live blog of the PBR, or have had any exposure to the outside world in the past three hours, Alistair Darling has imposed a windfall tax on bonuses.
The salient points are as follows:
- Any bonus worth more than 25k which is paid between now and April 5th 2010 will go into a pool.
- Banks (rather than bonus recipients) will then be taxed 50% on the value of that pool.
Needless to say, there are loopholes. Banks can simply raise salaries. They can also delay the bonus payment date: tax specialists say any sensible organization will simply defer bonuses until April 5th. In doing so, they'll increase their liability for corporation tax if their year end falls after March 31st 2010. However, corporation tax is only 28% and as we mentioned earlier, many banks are exempt from corporation tax due to recent years' losses.
Equally interestingly, Tina Riches, technical director at the Chartered Institute of Taxation says the new tax will only apply to discretionary bonuses.
This means that guaranteed bonuses, or bonuses based on a percentage share of profits (such as those enjoyed by the likes of Todd Edgar & Co. at BarCap, who are reputedly receiving up to 15% of any profits they make), won't be covered.
The Telegraph says hedge funds and interdealer brokers won't be covered by the tax, although the definition of a banker appears to be rather wide and is apparently subject to change at the whim of HMRC.
Doubts are already being raised over the ability of the tax to raise the 500m Darling's hoping for. "There are clever people working in banks and the government will raise much less than 500 million," Stephen Herring, senior tax partner at BDO Stow Hayward told Citywire.
"This is more a political move than a practical one," says Riches.