Pre-Budget Report: Bank Payroll Tax

Banks, financial institutions and similar businesses that provide a discretionary bonus exceeding £25,000 to an employee will suffer a new bank payroll tax. This will be set at 50%. It will be payable by a bank, on the amount of a bonus which exceeds £25,000.

The new levy applies from 9th December 2009 to 5th April 2010 and will also apply to contractual bonuses where the contractual entitlement arises after 9th December.

This means that, for an employee earning over £150,000 from 6th April 2010, a bonus of £100 will be taxed as follows:

Therefore, at a cost to the bank of £162.80, the banking employee receives £49.00.

Comment: This measure has clearly been introduced to address voter concerns about the level of banker bonuses and was chosen by the Chancellor in favour of a windfall tax on the banks that would have stifled growth. This is specifically a temporary measure so may help encourage the banks to improve their balance sheets over the next year, but is as likely simply to cause them to delay the payment of bonuses for a year and, in the meantime, this does not specifically encourage them to lend more - which is what is required.