This year's Pre-Budget Report announced the Government's intention to introduce a one-off "Bank Payroll Tax", at the rate of 50%, to the extent a company falling within the ambit of draft legislation pays a bonus in excess of £25,000. The draft legislation caused some concern among the investment funds sector, as the legislation was drafted by reference to certain regulated activities not carried out exclusively by banks.

A link to our earlier briefing on the issue can be found here.

In welcome news for the investment funds sector, the Government has confirmed that the definitions of 'bank' and 'banking group' for the purposes of Bank Payroll Tax will be narrowed, to reflect the fact that the Government intends the tax only to apply to retail banks, investment banks, building societies and genuine banking groups. The amendments should mean that the tax will not apply to non banking companies outside of banking groups such as asset managers and stock brokers.

A link to the Government announcement can be found here.

Proposed amendments

HM Revenue & Customs has conceded that the definition of a 'bank' contained in the draft legislation released in conjunction with the Pre-Budget Report 'inadvertently catches companies which would not be regarded as a bank from a commercial or legal perspective'. The definitions of ‘bank’ and ‘banking group’ in the draft legislation will be amended as follows:

  • The definition of ‘UK resident bank’ and ‘relevant foreign bank’ will be restricted so that, for a non-deposit taker, the rules only apply to a person which is a full scope BIPRU 730K investment firm (and whose activities consist wholly or mainly of relevant regulated activities) (a 'BIPRU 730 firm'). The main difference between BIPRU 730 firms and other types of investment firms is that they regularly deal on own account or underwrite issues of financial instruments on a firm commitment basis, ie activities characteristic of investment banks. They may also operate multilateral trading facilities. Such a firm is required to have a base capital requirement of €730,000. As amended, this would catch larger investment firms, and is a welcome narrowing of the ambit of the rules.
  • The list of 'excluded companies' (and so not required to apply the new rules) will be extended to include:
    • A company in a group that is not a deposit taker and is only carrying on relevant regulated activities on behalf of an insurance company in the same group.
    • A company that does not carry on any relevant regulated activities otherwise than as a manager of a pension scheme.
    • A company whose activities consist wholly or mainly in acting as the operator of a collective investment scheme (within the meaning of Part 17 of Financial Services and Markets Act 2000).
    • An exempt BIPRU commodities firm.
  • The following will be expressly excluded from the scope of the tax
    • prime brokers who are BIPRU 730 firms
    • companies in what HM Revenue & Customs refers to as 'non-banking financial service groups' that are characterised by the draft rules as ‘banking groups’ because the group structure includes a company with banking activity, even though that is a minor activity within the group as a whole. In this case, the 'banking' arm will remain within the rules but the non-banking companies within the group will be excluded. This should be particularly welcome news for asset management companies within groups that include entities carrying out banking activities.

An asset management company within a group which includes companies carrying out banking activity which equates to more than a minor activity within the group as a whole should not be caught by the new rules provided its employees are not wholly or mainly engaged in 'banking activities' (as defined in the original draft legislation).


Subject to seeing amended legislation, the proposed changes are welcome and should help to remove most concerns in this area for the investment funds sector. The proposed narrowing of the definition of a 'bank' and a 'banking group', together with the requirement for an employee in receipt of a bonus to be engaged in banking activities, should mean that most companies in the sector should fall outside the scope of the new tax.

Going forward

The Government has confirmed that it is still consulting with interested parties about the details of the proposed legislation.