It’s not just bankers seeking a way round bonus tax

Building society staff, stockbrokers, and even some financial advisers could be hit by the new 50 per cent levy on bankers’ bonuses, according to tax experts – but they may be able to receive extra payments if they share their roles, or increase their basic salaries.

In the pre-Budget report (PBR), chancellor Alistair Darling announced that, from now until at least April 2010, banks will have to pay a 50 per cent levy on all bonuses of more than £25,000 awarded to “relevant banking employees” who carry out “relevant regulated activities”. Since then, the Treasury has backed away from applying the levy to investment and hedge fund managers working within banks. Further clarification is now expected from HM Revenue & Customs.

However, tax lawyers have pointed out that, in addition to conventional banking functions such as acquiring deposits and dealing in mortgages, the draft legislation applies to dealing in investments as principal or agent, arranging deals in investments, or safeguarding and administering investments.

“It refers to banks but then goes on to define them as any authorised institution – all the way from Goldman Sachs to stockbrokers registered with the Financial Services Authority (FSA),” said Chris Groves, partner at Withers. Tony Bernstein, tax partner at HW Fisher, warned: “In theory, stockbrokers, private equity funds and others could be liable for this tax.”

Even non-bank employees may be affected if their work is “mainly” carrying out the named banking activities. “If you work for a stand-alone business not part of a banking group, such as an asset management house, it depends on whether you do more than half of your work in regulated activities,” said Jon Terry, partner and head of reward at PwC.

Only employees of insurance companies, investment trusts and open-ended investment companies are explicitly excluded from the levy in Treasury documents.

Other financial services companies have spent the days since the PBR seeking clarification of the new rules. “We’ve got through talking to 100 clients in the past 24 hours – banks, fund managers, and brokerage houses,” said Terry. “They all asked three questions, ‘Are we caught, which individuals, and what can we do to mitigate the liability?’ ”

Anti-avoidance measures have been introduced to prevent bonuses being arranged now and paid later. However, some payments will escape the levy. Regular salary or benefits, share awards under approved schemes, approved share options, and contractual obligations do not count towards the £25,000.

Employers may, therefore, be able to award salary rises instead of bonuses, and backdate them. “I think that is where the wriggle room is: ‘the excluded remuneration’ – there is scope on salaries,” said Jeremy Cape, tax partner at Denton Wilde Sapte. But Nick Bacon, of KPMG, said salary increases would have to be regular, permanent and in line with recommended levels of remuneration in the FSA code of banking practice.

Alternatively, employers may redefine roles, so fewer staff “mainly” carry out banking activities. “If one individual does the activity the majority of their time, it could be that two people do half each,” said Terry.