Bankers battle to avoid 50p tax on bonuses

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City accountancy firms are putting proposals to investment banks that would see high-earning bankers avoid the full impact of the new top rate of income tax on their bonuses.

The accountants Grant Thornton are believed to have contacted clients offering ways of cutting employees' tax contributions by as much as 40 per cent. There are other accountancy firms offering similar services and the fact that the service is being touted in a year that will see some bankers receive huge payments after a busy few months in the City is likely to cause consternation at the Treasury.

It comes in the week that Alistair Darling will publish his White Paper on banking reform, much of which is expected to concentrate on the way bankers' bonuses are paid.

The Chancellor said in an interview with The Independent last week that many bankers needed to be "brought back down to Earth". He followed that comment over the weekend by saying that "we need to learn lessons from the financial crisis in which banks behaved in a kamikaze manner and the regulatory system failed.

"Far too many people in boardrooms did not know, nor understand what was happening in their institutions."

The remarks come ahead of Wednesday's White Paper when the Government is likely to call for greater curbs on excessive City pay, and adopt the recommendations of Lord Turner, the chairman of the Financial Services Authority (FSA), who has said that banks' pay policy should be subject to regulatory risk assessments.

There has been disquiet in the City, and many think that the Government is now attacking the banking industry for political capital. Many believe the process started with the introduction of the 50p upper rate of income tax to be paid on salaries in excess of £150,000 from next April.

Grant Thornton's proposals come as a number of banks and other City firms are preparing to return to paying huge bonuses on the back of a surge in business.

As corporate clients have sought to shore-up balance sheets in the wake of the recession, the banks have cashed in. Many are also trying to tie customers into paying more fees by agreeing to refinance debt or confirm credit lines on the condition that the banks act as advisers for any lucrative merger and acquisition deals that follow in the future.

Bankers are typically paid a basic salary and in the past earned huge amounts of money taking a cut from the fees the banks earn for advising on and underwriting new deals. Goldman Sachs, which has now repaid the money it borrowed under the US government Tarp support scheme for the American financial services industry, is reported to be prepared to set aside as much as $20bn to pay staff.

The Treasury said yesterday that along withHerMajesty’s Revenue and Customs(HMRC), it is cracking down on any tax avoidance schemes. Last week the Government published its banking Code of Conduct, with Stephen Timms, the Financial Secretary, warning it would not tolerate the emergence of tax avoidance schemes.

“While banks play a vital role in the UK and are important contributors of tax, it is clear that many continue to be involved in tax avoidance that goes well beyond reasonable tax planning. The code is part of the work to minimise tax avoidance and ensure that large businesses such as banks have a clear understanding of the behaviours the tax authorities expect from them,” he said.

“As part of the consultation we will be talking directly with banks to develop a shared understanding of the principles that underpin the code and, in particular, what it will mean in practice for banks. This is vital to ensuring that the code plays a part in changing the behaviour of banks and in turn minimising the loss to taxpayers through tax avoidance.”

Francesca Lagerberg, the head of tax at Grant Thornton, yesterday said she was unaware of the source of the 40 per cent saving claim and added that the firm was not seeking to engineer tax avoidance schemes. “These proposals, from us and all the other accountancy firms, are not the aggressive schemes that were sometimes employed a few years ago. There is no tax structure in place that will help bankers avoid the top rate of the income tax and other charges,” she said.

“We are offering bespoke solutions to companies that want to incentivise employees. It often involves government-sponsored schemes such as salary sacrifice practices. The last thing our clients want to spark is an investigation by HMRC into clients’ remuneration polices.”

A spokesman for BDO Stoy Hayward, another accountancy group, confirmed that the firm was also offering similar services to banks but also stressed that it was not trying to engineer tax avoidance schemes.