Banker tax – further details (updated with bonus maths) | FT Alphaville

Banker tax – further details (updated with bonus maths)

From page 48 of the pre-Budget report, unveiled on Wednesday (emphasis ours):

Box 3.2: Banking Bonuses

The Government attaches great importance to tackling the remuneration practices that contributed to excessive risk taking by the banking industry. The Government has made clear that the sector the needs to develop sustainable long-term remuneration policies that take better account of risk and facilitate the build up of loss-absorbing capital. However, evidence suggests that some may be intending to pay bonuses for the current year that are not consistent with a prudent approach to risk.

The Government today announces that where bank (and building society) employees are awarded discretionary bonuses, in whatever form, above £25,000 in the period from the Pre-Budget Report to 5 April 2010, the banks paying these bonuses will pay an additional bank payroll tax of 50 per cent on the excess bonus over £25,000. The tax will not be deductible in computing the taxable profits of affected companies.

This tax will encourage banks to consider their capital position and to make appropriate risk adjustments when settling the level of bonus payments above the threshold, which is at the level of median earnings in the UK. If banks choose to make awards that are not consistent with a prudent approach to risk, it is only fair that they contribute more to the public finances, in a year when profits have been facilitated by significant taxpayer support for the banking sector as a whole.

It is intended that in the longer term, remuneration practices will be changed as a result of corporate governance and regulatory reforms, as outlined later in this chapter. The one-off bank payroll tax will apply until 5 April 2010, but the Government will consider extending the period of the charge so that the tax remains in place until the relevant provisions of the Financial Services Bill come into force. Where there is evidence of avoidance schemes being put in place, the Government will take action to close those schemes.


Some bonus maths from a City trader:
(typos, spelling, calculation errors not ours)

Here is the working of the new bonus scheme:                                    Just for example: The bank pays you $100,000, then the bank pays $50,000 to the Treasury, then you get paid $50/- (Remeber, from your original $100/-) and you  pay 50% on that….hence, if you clear $100/-, you’ll get $25/-…                                                                                              Is there any reason why Messrs GS, UBS, Deutsche, BOA, BNP (all strong British Companies) will have ANY reason whatsoever, to stay in the UK…                                                                                                Thank you, its been marvelous, good night….

Related links:
Banks hit by 50% tax on bonus payouts – FT
Darling raises NI from 2011 – FT
Banker tax unveiled – FT Alphaville