Finance firms escape supertax
Revenue changes definition of 'bank' to exclude stockbrokers, asset managers and insurance companies from bonus levy
Stockbrokers, asset managers and insurance companies will be exempt from the government's supertax on bonuses after HM Revenue & Customs was forced to alter its definition of a bank following complaints from firms who believed they had been wrongly targeted by the levy.
The chancellor, Alistair Darling, announced a one-off supertax of 50% on the bonuses of tens of thousands of bankers in the pre-budget report earlier this month, in an effort to discourage the industry from making large-scale and politically unpopular rewards this year.
The one-off supertax on banks should not apply to other financial firms in the City, HMRC has acknowledged. Photograph: David Levene
But HMRC said that it had been forced to take another look at the wording of the draft legislation after receiving a number of complaints about the definition of a "bank".
"In particular we have received representations that the definition of a bank inadvertently catches companies which would not be regarded as a bank from a commercial or legal perspective," it said.
"Having considered these, we think that the diversity of regulated investment activities undertaken by non-banking financial service groups in the UK means that the original definition of a 'bank' did not effectively exclude all the groups we intended to exclude. This resulted in a number of corporate groups inadvertently being brought within the definition of a 'banking group', and therefore within the scope of the bank payroll tax."
The alteration, announced late on Friday night, means that the tax now applies to retail and investment banks (including building societies), and to banking groups, but it does not apply to non-banking companies outside of banking groups such as insurance companies, asset managers and stockbrokers. This latest development supports the theory that the legislation was hurriedly put together in the days before the PBR because of the public reaction to a leaked proposal.
The tax has been met with anger in the City and Darling has been warned of a mass exodus of high-flying bankers to countries with a less punitive tax regime. Many banks have been looking at other means of paying staff to get around the new tax, including significant increases to the basic salaries of staff.
Michael Wistow, head of tax at City law firm Berwin Leighton Paisner, said the "clarification, snuck out after the close of play, will be well received by the City". But he added: "It is still of note that our traditional policy ally, the US, has steered clear of announcing its own 'supertax' and our nearest European financial services competitor, Frankfurt, is benefitting from Merkel tax cuts."
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