Banks Score £100 Million Tax Saving on Employee Bonuses
Two leading investment banks have achieved tax savings of almost £100 million after the Court of Appeal accepted that schemes designed to avoid payment of Income Tax (IT) and National Insurance Contributions (NICs) on employee bonuses lawfully achieved their desired results.
Each bank had entered into carefully planned tax avoidance schemes by which bonuses worth a total of more than £180 million were given to staff as shares in the form of ‘restricted securities’. The schemes were said to avoid both IT and NICs by virtue of exemptions contained within the Income Tax (Earnings and Pensions) Act 2003.
The amount of tax and NICs at stake was close to £100 million and HM Revenue and Customs (HMRC) argued that both schemes were ineffective. The two schemes were structured somewhat differently and the Upper Tribunal accepted that whilst one of the schemes was effective, the other was not.
The unsuccessful bank appealed. In allowing the appeal, the Court of Appeal performed an in-depth analysis of both schemes, which related to the 2003/2004 tax year, and found that each of their structures came within the ‘highly prescriptive’ exemptions provided for by Sections 425 and 429 of the Act.
HMRC are taking an increasingly adversarial approach to any tax avoidance that can be considered to be abusive.