UK Government's Bonus Tax Risks Open Warfare with the City

The UK government's announcement of a bonus tax that will force banks and building societies to be taxed at a rate of 50pc on any cash or share bonuses paid out over £25,000 has left the City in anger and surprise. The new "bank payroll tax" will also have to be paid on top of the 40pc income tax levied on the employee, making the effective tax rate a punitive 68pc. The government expects to raise £550m from the levy, but bankers believe the real number of affected employees is likely to be far higher, possibly exceeding 100,000.

Key Takeaways:

The UK government has introduced a bonus tax that will tax banks and building societies at a rate of 50pc on bonuses over £25,000, in addition to the 40pc income tax on employees.
The effective tax rate on bonuses is estimated to be 68pc, making it one of the highest in the world.
Banks and building societies estimate that around 20,000 employees will be affected by the tax, but experts believe the real number could be far higher, possibly exceeding 100,000.
The tax will affect not just investment bankers, but also managers and senior staff working in retail banking who receive bonuses above £25,000.
Around 100 banks and building societies are likely to be captured by the move, including UK and overseas banks with UK operations.
Treasury minister Paul Myners has estimated that there are 5,000 bankers paid more than £1m, which means tens of thousands of bonuses in excess of £25,000 will be paid.
The move could lead to a fresh deterioration in relations between politicians and the banks, with some banks warning that the tax could drive business overseas.

Statistics:

The UK government expects to raise £550m from the leverage tax.
The effective tax rate on bonuses is estimated to be 68pc.
Around 20,000 employees are estimated to be affected by the tax, but the real number could be far higher.
5,000 bankers are paid more than £1m, making tens of thousands of bonuses in excess of £25,000 likely to be paid.
The tax will affect around 100 banks and building societies.
The tax will be levied at a rate of 50pc on any cash or share bonuses paid out over £25,000.

Sources:

Byline: Lucy Farndon
The Daily Mail, London
Published on Dec. 10, 2009 (date may have been added by you, but it was present in the original source)
Distributed by McClatchy-Tribune Information Services.