Following our previous Fried Frank memoranda on the topic of the UK's bank payroll tax (11th December and 21st December 2009), the UK tax authority, HM Revenue & Customs ("HMRC"), has on 12th March 2010 issued a series of further clarifications and limitations on the scope of the tax.

These are a welcome development, as many groups were still unclear as to whether their bonus arrangements were caught by the new provisions. The further proposals are as follows:

1. Capital Resources Tests – more firms excluded from scope of tax

A firm that:

  • is not a deposit taker; and
  • whose capital resources requirement - as defined in the UK Financial Services Authority ("FSA") Handbook - is less than £100 million

will be excluded from the scope of bank payroll tax.

2. Further Specific Exclusions

Two additional specific exclusions will be introduced to exclude firms carrying out regulated activities solely in relation to spread betting, or solely in relation to commodities. These exclusions will apply to companies outside banking groups which are not otherwise excluded from the scope of bank payroll tax.

3. Banking Groups – exclusion where substantially non-banking income

A group will not be a banking group for the purposes of bank payroll tax where 90 per cent or more of the group’s trading income in the last period of account ending no later than the end of the chargeable period is derived from one or more of the following excluded activities:

  • insurance activities
  • asset management activities activities
  •  income derived from companies that are not financial trading companies (or would not be were they UK-resident), except where that income is derived from lending activities or from dealing on own account.

This is a summary of the new proposals, and the full text of the revised draft legislation is not yet available.