Former Labour Chancellor Alistair Darling introduced the UK’s “payroll tax”, a one-off levy. According to Chancellor Darling, the banks in UK and even the foreign banks that currently operate in UK will pay a one-time levy of 50 percent. This one-time 50 percent are to be paid by the banks on any discretionary bonuses of more than 25k pounds. When the company will be giving bonus to their employees, they will be paying the tax, and the employee who will receive the bonus will also pay the tax.
The effectivity of the levy started December and is to end on April, but the government might decide to extend it if the banks are postponing the bonus payments. As estimated by the government, about more or less 20,000 bankers will be affected by this levy. With this levy program, it can guarantee that the income tax rate in the UK will increase as of April.
When the new UK Bank bonus levy started, it made tremendous reactions by the businessmen, employees, and the entire world. There are those say that it is about time and some say that it is not fair. Obviously, the banks and bank employees are not very happy about the new levy, and the bankers think it may give a bad impact on the image of London as a global financial center, and those who desire to build a business in UK may have a second thought. This might make London less attractive to businesses.
How this levy will work? If the employee will receive the bonus of 100k pounds, bank will have to pay the government the tax of 50k pounds immediately. The employee will pay 40K pounds income tax and 12,800 pounds for National Insurance. To total, the taxes the government will receive from the 100k pounds bonus will result in over 100k pounds.
Former Chancellor Alistair Darling defended the new implemented tax, according to him that this levy will try to motivate banks to hold up their capital base instead of giving abundant bonuses to their employees. Darling said the new “super tax” on bank bonuses will stop banks using profit to large bonuses to bankers. He emphasized that the banks have to end up paying generous bonuses to some employees who are already highly paid, and the bank should try to rebuild their financial strength and increase lending. So Chancellor Darling had given the banks the choice, to either use their profits to build up their capital base or insist on paying bonuses or pay the 50 percent levy tax.
Some of the countries find this new super tax a thought to consider. There are some countries who desire to follow what the UK government had started to implement the “payroll tax”. Of course, the bankers are worried about the reactions of the people regarding this matter.