The reactions are coming in to the Chancellor's widely trailed proposal for a one-off tax on bonuses in the banking sector. Unsurprisingly the CBI warns that the "threat of an exodus of talent is real" while the TUC describes Darling's proposal as "at the modest end of what he could have done". Bankers have "no divine right to giant bonuses every year," says TUC General Secretary Brendan Barber.
But how will the tax actually work and are there any loopholes?
A guidance note now up on the Revenue and Customs website says that the levy will be a 50% payroll tax on the amount of a bonus to which a banking employee is entitled where this exceeds £25,000.
It is payable by banks (not individuals), which are defined as "banks, financial businesses and holding companies in banking groups, building societies, financial businesses and holding companies in building society groups and UK branches of foreign banks".
It will apply to bonuses effective from 9 December 2009 to 5 April 2010, so targets the traditional January bonus round in the finance sector.
In his FT blog, Chris Giles says he is "not too concerned about the tax on banker's bonus pools", suggesting that "banks will simply defer the bonuses on an informal basis until after the election when bankers will get the money they believe is rightly theirs".
However the BBC's Robert Peston (who had the full details of the scheme first thing this morning) points out that if bonuses are deferred until the next tax year then they will be hit by the introduction of the new 50% income tax rate. Moreover the Chancellor is threatening to extend the scheme beyond 5 April 2010 and plans to set up anti-avoidance measures.
It covers "all discretionary and contractual bonus awards" so would seem to capture most types of bonuses in its sights.
But there is an important exception for "..contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at the time of the Chancellor's announcement."
With the bonus round already starting, it will be interesting to see how many bonuses have already been agreed and set out in contractual terms and therefore might come within this loophole - my guess would be rather a lot.
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