New Year, New Taxes

With the start of the new tax year we will see a reduction of the top rate of income tax. From 6^th April, the top rate of tax is set to fall from 50% to 45%. Since this news was announced by Chancellor George Osborne in last year’s budget, many banks and institutions have been considering deferring the payment of this year’s bonuses until the new tax year in order to avoid paying tax at the higher rate and enable them to exploit the new tax cuts. This move would enable banks to make a huge saving on the post-tax income of high earning employees.

HM Revenue & Customs are said to be looking at this issue of deferring bonuses very closely, and any worker who does not receive bonuses this year as determined in their contract could face the risk of incurring a ‘punitive fine’. To avoid any problems, changes will need to be made to employee’s contracts regarding when bonuses are paid. Employees will need to waiver their bonus for the current tax year until the following year.  However it may be very easy to get these details incorrect and so businesses will need to be careful as any errors in deferring bonuses could lead to a costly punishment on their behalf.

With so much negative publicity recently surrounding tax avoidance, such as the Starbucks tax scandal, as shown in the clip below, it is likely that many banks will reject this move in order to avoid criticism and the risk of provoking anger from the rest of society. Goldman Sachs has already decided against deferring its bonuses this year following much criticism surrounding the speculative move.