Publications

23 Dec 2009

HMRC provides clarity about scope of UK bankers' bonus tax

Tax Alert

Earlier this month, in its Pre-Budget Report the UK announced a one-off 50 percent tax on certain discretionary bonuses in the financial services industry, a development we reported in our Alert of December 11. There, we noted that the tax is to apply to "taxable companies" as defined in the draft legislation published by HM Treasury.

On the face of it, this definition covered far more than banks and building societies: any UK resident company, or non-UK resident company carrying on a trade in the UK through a permanent establishment, if authorized under the Financial Services and Markets Act 2000 and whose activities include accepting deposits or certain other regulated activities, including administering investments, falls within the definition of a "bank," as does (broadly) any company within the same group.

The definition would catch, for example, many financial services and investment businesses which do not carry on traditional banking activities.

The potential scope of the charge, and the uncertainties surrounding the definition of "taxable company," provoked widespread concern among many organizations and led to a joint meeting last week between the Treasury/HM Revenue and Customs (HMRC) and various interested groups, including the Investment Management Association and the British Venture Capital Association.

Revised Definition of "Bank"

The upshot of those discussions is an announcement from HMRC acknowledging that the original definition of "bank" in the draft legislation did not effectively exclude all the groups to which the legislation is intended to apply. The HMRC announcement states that certain additional companies will therefore be excluded from the scope of the tax:

• in the case of a company which is not a deposit-taker but which carries on relevant regulated activities, the tax will only apply if the company is a full scope BIPRU 730k firm (or which would be one if its head office were in the UK)
• prime brokers, even if full scope BIPRU 730K firms, will be excluded from the tax, as will non-banking financial services groups who would be within the rules as originally drafted only because the structure includes a company with a banking activity (where that is a minor activity within the group as a whole). In the latter case, the bank itself will be within the rules, but the rest of the group will not
• certain other companies will also be excluded, such as managers of pension schemes and companies whose activities consist wholly or mainly in acting as the operator of a collective investment schemes.

However, subject to seeing the revised draft legislation, it would appear that the following (among others) are potentially still caught:

• any company which is a deposit-taker
• any building society and
• an investment company or financial trading company within a banking group. This means that, for example, asset managers, and possibly private equity fund managers, within banking groups may still be caught. This may, however, be clarified in the revised draft legislation.

To view the announcement, click here.

FAQs Published

HMRC has also subsequently published some responses to frequently asked questions. These cover a number of areas such as:

• whether certain awards made pursuant to arrangements entered into pre and post December 9, 2009 are caught;
• the treatment of certain share incentive awards, such as restricted stock; and
• the treatment of individuals on secondment to the UK in certain circumstances.

To read the full set of FAQs, see here.

For further information about the proposed Bank Payroll Tax, please contact:

In the US:

Bruce Wein

Thomas Dick

In the UK:

Richard Woolich

Paul Rutherford

or your usual DLA Piper contact.