50% levy on bonuses above £25k

[susie100]

Suprised there is not a thread about this already (although I might have missed it)

Great vote winner, however I am really doubtful it will raise any significant revenue for the government as banks will simply raise basic salaries, turn their trading floors into hedge funds and re-employ people as consultants.

Crazy to be attacking the sector that provides 25% of tax revenues in my view (I am not a banker by the way!) but not applying to other financial institutions such as hedge funds or private equity firms or indeed other industries that pay people £££ such as consultancies. They all benefitted from cheap credit as much as the banks.

What does everyone else think?

it confuses me a bit as surely if banks raise salaries instead of paying bonuses, those salary rises will be subject to income tax and NI so I don't see how banks paying a higher salary rather than a bonus can escape the tax.

I thought bonuses were paid by banks precisely (or at least partly) to avoid calling them salary so CGT could be paid instead.

No bonuses are subject to income tax, same as normal basic salaries.

This is a levy paid ON TOP on the tax by the individual banker.

So you give banker a £100k bonus. The bank pays £50k to the government. The banker also pays 40% tax on the bonus (which he or she would have done anyway!)

ahh i see, so it in effect reduces by 50% the pot that banks have to pay as bonuses in the first place.

well i think that is fair enough then as the bonus pot is so high this year in the first place thanks to us taxpayers.
Nice to think we'll be getting most of it back (in theory!)

Not sure that they would pay all the tax due, someone on one of the other bankers' bonsuses threads said one of the bailed-out banks had brought in one of the big four accountancy firms to tell their staff how to minimise the tax on bonuses.

If it is a one year tax, won't some/most simply defer the bonus until next year as a way of getting 'round having to pay?

I don't understand how some banks that have been rescued by the government/tax payer are even able to pay bonuses. Seems to me a bit of a weird system where productivity is rewarded, but isn't a reflection on the viability of the business.

I think they must have budgeted for avoidance as the bonus pot is £6bn this year. That would raise £3bn in revenue (close to) instead of the £500mn Darling mentioned! It also only lasts until April.

I think it is a canny way of making sure banks pay bonuses after April hence catching more people in the 50% top rate of tax (most banks would have paid in March to avoid this)

What's the definition of 'bank' for this?

i also think this is quite a good way of banks having smaller bonus pots in first place.
If 50% goes straight away in tax, shareholders will say, well lets keep some of this money to shore up the bank rather than lose as tax.

It seems to be to be a good way of culture changing rather then revenue raising (although it will obviously do that too)

Banks need to pay for what they did, but this is populist rubbish.

The bankers will just increase their salaries instead, or defer the bonuses until after April. If it was seriously meant to change behaviour it would be permanent, not a one-off. I think a windfall tax would have been much better.

Of course, the real purpose of the bonus tax is to provide a gimmick so the government can hide the real story: the 1% rise in national insurance etc. It's just like the 50p tax rate - not there to bring in much money, but to use up the newspaper headlines.

The bonus tax is all about politics, not economics.

Snort I can see the KPMG kids grinning from here. It is a vote grabber that won't make much difference to the banks, they will move the money around and recoup it somewhere else.

Though I have to admit it was funny hearing from DH today about the traders throwing their toys out of the pram when it was all at rumour stage. Now that it is clear though everyone has settled again.

DH's employer will probably offer deferred bonuses to those who can wait.

Ooh, good point Susie, that would be jolly clever.

yeah, we need Vince Cable in on this stuff before they put it into practice, to make sure all the loopholes are closed. I wish!

smallwhitecat I can think of 3 ways and am a housewife who used to be a secretary .

Interesting question about what defines a bank. That is how they will avoid this I imagine.

Also interesting that they focused it on all banks not just those who accepted money from the goverment.

They could not do it on individuals because that would have been a breech of their human rights (targetting someone because of their profession, not their income)

Agree mateykatie, this is about populism rather than good economic policy.

The proposals will affect banks, but not hedge funds, fund managers and all the rest of the City that made money in the good times and get big bonuses. If were to raise revenue, you'd think they would have cast the net wider but they didn't.

I work for a bank (not on megabucks before before I get slaughtered) and I earn a standard accountant's salary (that's what I am) if you include my bonus. My base is actually very low. Bonuses are meant to be flexible and mine got completely cut two years ago when my bank wasn't doing well. This year we've seen good profits (I work for a foreign which took no government money) and expected it to return to normal. I didn't cause the credit crunch and I didn't exactly make my fortune over the last few years, but now I'll earn probably about half what my husband earns for doing the same job (he's an accountant too) and working much longer hours. Most of the people working for banks do dull boring jobs like me, they're not all high fliers.

To be honest, I wouldn't mind paying more tax, if I thought this would raise it. The country's in a hole and someone's got to pay for it, but this will just make things worse. Any one who can will just leave the country and most of the banks will think of ways of avoiding it. It's going to be great for Wall Street, Hong Kong and Zurich as everyone flocks there, but terrible for London and the rest of the country.

It is REALLY not fair (I'm not in anyway one of the people in line to get a bonus above £25,000, so this is an academic argument on my part). They say it is to get back revenue as the government bailed banks out. But not all of them. I work for a bank that has not taken a single penny in government money, from any government. And yet it's having to pay for other banks mistakes? It's a bit ridiculous. And why limit this to banks - AIG which is an insurer nearly went under and needed a bail out, in the US car-makers needed government money.

The other issue is with the increase in NI. In one article I read (in The Lawyer) they said that this increase could lead to more redundancies, as employers are forced to stump up this as well.

happysmiley I agree totally. I work in a related industry and know 3 clients who are moving abroad. They see these raises as the thin end of the wedge. So sad that we will lose this competitive advantage and spectacularly short-sighted.

Also agree that a lot of people in the city are not earning mega bucks and often have a lower base than related industries because they are expected to get a bonus.

Not really fair to tax the guy in IT because he is at a bank, but the IT guys at a hedge fund or consultant.

I am pleasantly suprised by the responses to this. I thought I would get FLAMED.

Does this only affect bankers?

Because £25k is not a big bonus imo.

I work for a bank - I'll tell you what will happen, they will just reduce the amount in the pot for the people who get less than 25k which believe me, is most of us.

The people such as Bob Diamond won't be bloody well affected by this, it's us on the front line!

HrrrmphTiggaxx

Serenity - actually all banks are in receipt of public money one way or another, given the govt. has been printing money to keep them all afloat. They have all benefited to a greater or lesser extent.

Only UK banks. No other financial services or industries. It also affects UK based offices of foreign banks. Will be interesting to see what they do.

Still can't get my head around the numbers - is this right? After the first £25k, for every £100 paid in bonus, the bank pays (an extra) £50 and the employee£40 in tax? So the bank pays £150. The employee gets £60 and the government £90. Mmmmmm???......