The New Bank Payroll Tax

A new tax known as ‘bank payroll tax’ has been introduced. It applies to banks, building societies and financial businesses and in each case, their holding companies, as well as UK branches of foreign banks that provide a bonus exceeding £25,000 to a banking employee directly or through an intermediary. The bank payroll tax will have effect from 9 December 2009 until 5 April 2010 for all discretionary and contractual bonus awards and is payable by the institution to which the bank payroll tax applies. Furthermore, the tax is not deductible in calculating the profits of that institution. There are exceptions for: (i) contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at 9 December 2009; and (ii) regular salary, wages or benefits. However where a contractual obligation to pay or provide the bonus arises on or after 9 December 2009, it will be subject to the bank payroll tax. The rate that applies is at 50 per cent. The draft legislation has targeted anti-avoidance measures and various other provisions to ensure that these rules are not circumvented.

National Insurance Contributions

The announcement made in last year’s Pre-Budget Report of increases in NIC from April 2011 has been revised to make the increase 1% instead of 0.5%. This means that the employer rate of NIC will be 13.8% for 2011/12 and not 13.3%. The employee main rate will be 12% and employee rate over the upper limit will be 2%.

Income Tax

For the 2010/11 tax year, all allowances and thresholds will be the same as 2009/10. The 50% tax rate will apply to income over £150,000 from 6 April 2010 as announced in this year’s Budget.

Pensions: Restricting Tax Relief for High-Income Individuals (Anti-Forestalling)

The pensions anti-forestalling measure will be amended with immediate effect to introduce a new income threshold of £130,000. This will create a “second phase” anti-forestalling effect for those with income between £130,000 and £150,000, with all references in the original legislation in FA 2009 to 22 April 2009 being amended to 9 December 2009 in respect of these newly affected taxpayers. It has also been announced that the legislation due to commence in 2011 will treat employer contributions as part of income for the purposes of that legislation, but only where the income excluding employer contributions is more than £130,000. This has only been the case up until now if there is a post Budget Day salary sacrifice arrangement in place. The definition of “relevant income” for the £150,000 test in the new legislation will therefore be amended form that applying currently under the anti-forestalling rules.