Page last updated at 13:45 GMT, Monday, 21 December 2009

Non-banking finance firms to escape bonus tax

Bank notes
The government wants to stop banks paying big bonuses this year

The scope of the bank bonus tax has been clarified by HM Revenue & Customs (HMRC).

HMRC has decided that the tax will not apply to employees of non-banking firms such as insurers, assets managers and stockbrokers.

The 50% tax on bonuses above £25,000, payable by banking employers, was announced in the pre-Budget report.

Some finance firms had complained that the original definition of a bank was drawn too widely.

HMRC admitted the complaints had some merit.

"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.

"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," HMRC said.

Bank bonuses worth more than £25,000 will be taxed
Banks will be charged 50% of the value of the bonus
Bankers themselves will not pay the super-tax
Bankers will still pay income tax on their bonuses as usual
The tax applies to all bonuses awarded up to April 2010

The tax, known formally as the bank payroll tax, came into effect immediately it was announced in the pre-Budget report and covers bonuses paid between then and April 2010.

Chancellor Alistair Darling introduced it to stop banks paying large bonuses to their staff rather than using their profits to build up their reserves.

The bonus tax will now apply to High Street banks, building societies, investment banks and banking groups.

In the wake of the 2008 banking crisis two big banking groups - Lloyds and RBS - are now effectively state controlled, while the whole of the banking system has been kept afloat by the injection of billions of pounds worth of financial support from the taxpayer.

The change in official policy was welcomed by the British Bankers' Association (BBA).

"The British Bankers' Association has been discussing how the bank payroll tax will operate in practice and welcomes moves to clarify who will be caught by the legislation," said a spokeswoman.

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