PBR 09: Darling doesn't care if bankers duck bonus tax

The chancellor did as he was expected and attacked bankers' bonuses in this week's pre-Budget report. But the smart thinking says that Alistair Darling doesn't care if the banks attempt to duck the new tax Ð it will fit in with his plans anyway.

The introduction of a 50% rate for a bank payroll tax on bonuses exceeding £25,000, which is aimed at recouping £500m, has already seen

banks look to circumvent the new rules through bonus deferment or turning bonuses into salary.

But Deloitte's head of tax policy, Bill Dodwell, believes that, even if banks planned to help staff avoid the rate, the new legislation would ultimately achieve Darling's desired effect - to make them consider paying bankers on longer-term performance targets. The happy side effect of forcing bonus deferrals means the capital base of the banks will be improved.

"[Darling] wants banks to rebuild their capital base by not paying out bonuses at this stage," said Dodwell.

"Banks with medium-term performance strategies and that give out bonuses in shares won't be affected. Given that it's only effective over a four-month period, I wouldn't be surprised to see little tax collected."

Ian Fleming, a managing director at A&M Taxand, said banks were already looking at tax planning around the new requirements.

"How will the definitions of bank bonuses work in practice?" he said.

Banks will pore over employers' contracts, looking at potentially turning bonuses into salaries, he added.

Smith & Williamson's James Hender believes the tax will fail to scare off bankers from UK shores while satisfying the public's urge for bankers to

be punished. Despite this, advisers would be busy with banks looking to avoid the tax.

"People will undoubtedly look for ways around this, and there's anti-avoidance legislation in place for this. My guess is it's a warning shot to stop them trying to work around," said Hender.

However, Fleming was unimpressed with the new tax, saying it would harm UK competitiveness.

"The overriding concern is how many measures such as this affect the global view of the UK being competitive in financial services."

A viewpoint agreed by BBA chief executive Angela Knight. "Viewed from abroad, London may well look now like a significantly less attractive place to build a business," she said.