As you will know, the UK’s top rate of income tax is being reduced from 50p to 45p from April 2013.
The lower rate will come too late to benefit anyone who’s already been allocated a bonus for 2011. However, it could possibly benefit people at Macquarie and Nomura, where 2011 bonuses are only announced from April 2012 onwards. Despite legal challenges, they may yet have their bonuses structured to take advantage of the income tax reduction next year.
Equally, the possibility of saving employees thousands of pounds in tax may inspire banks to delay paying 2012 bonuses until the rate reduction has been implemented.
“If businesses can avoid awarding bonuses until April 2013, they’re going to,” says Mike Warburton, tax specialist, at Grant Thornton.
However, Sophie Dworetzsky, a tax specialist at law firm Withers, cautions that the disguised remuneration rules could make it difficult for banks to defer bonuses until income tax falls in April 2013. These rules are drafted extremely broadly, says Dworetzsky, and effectively mean that any bonuses already accrued for 2012 must be paid as normal and not altered to reduce taxation.
Meanwhile, there was no mention in the budget speech of the problems faced by bankers whose cash bonuses are deferred but who accrue an immediately payable tax liability. London-based bankers can at least console themselves with the thought that this is an issue in Switzerland too. Swiss newspaper Tagesanzeiger reports today that the country’s bankers are finding themselves obliged to sell stock prematurely in order to meet upfront tax payments on deferrals.
This is a particular issue for Credit Suisse bankers, says Tagesanzeiger: they were taxed two years ago when they received stock bonuses and Credit Suisse shares were 55 francs. Now, Credit Suisse stock is only worth 27 francs. If CS bankers sell their stock to pay their taxes, they are losing twice.
Overall, the UK budget is expected to people in the highest income decile. However, as the chart below - taken from the budget document - shows, individuals in the second lowest income decile will be hit the most.