As part of today’s UK Pre-Budget Report, the Chancellor of the Exchequer, Alistair Darling, announced two important measures targeting the banking sector. The first is the introduction of the much-heralded bank bonus tax, which will apply with immediate effect until April 5, 2010, to bonuses over £25,000. The second is the introduction of the Code of Practice on Taxation for Banks, which was originally published in draft form in June of this year.

This memorandum summarizes some of the key elements of these measures.

1. Bank Payroll Tax

Summary

Legislation in the Finance Bill 2010 will introduce a new “bank payroll tax” set at a rate of 50%. It will be payable by a bank, on the amount of a bonus to which an employee engaged in banking business is entitled, to the extent that the bonus exceeds £25,000. The tax will apply to bonuses awarded to the employee after the time of today’s announcement up to April 5, 2010. It is intended that in the longer term the remuneration practices of banking businesses will be changed as a result of corporate governance and regulatory reforms.

(more…)