Sainsbury's to pay bonuses early to beat tax increase

More UK firms expected to accelerate payouts ahead of April tax hike for top earners

J Sainsbury is set to beat the UK's tax hike on high earners next month by paying its bonuses early, with experts saying more companies were preparing to do the same.

The supermarket group is trialling a "new award timetable" to pay its 1,200 senior managers three months earlier than usual. This will see the pay awards taxed under the current rate of 40 per cent and avoid the rise to 50 per cent for those earning over £150,000 which is introduced on 6 April.

A spokesman said Sainsbury's believed bonuses "work best when they are delivered as close as possible to the performance period for which they relate".

The supermarket group thought it was "fairer to the individual for the proportion of their bonus awards that are based on Sainsbury's financial performance to be paid, and therefore taxed, in accordance with the rates that applied across the financial year in which they were earned".

More of the UK's top firms are expected to make similar announcements. Bill Dodwell, a tax partner at Deloitte, said: "Many companies have already been doing this, whether they have announced it or not is another matter." He added that others were considering "pre-paying" some of next year's salary to beat the tax change. "There is a fair bit of risk with that," he cautioned: "If there are performance issues, the employee leaves or, in extreme cases, dies the company will have already paid out the money."

Last week, Charlie Mullins, who founded the UK's largest independent plumbing company, Pimlico Plumbers, warned the increased tax rate could force British entrepreneurs abroad.

"Why would an entrepreneur want to build a business in the UK when the only incentive for success is higher tax penalties that only succeed in driving them out of town?" he said. "This country is becoming an entrepreneurial desert."

The move by Sainsbury's could infuriate the City, as bankers had been warned by the Treasury about getting around the bonus "supertax" last year.

Proponents of the City already fear that the financial centre has lost competitiveness in its ability to attract the brightest talents to the UK. It emerged last week that once the new tax rate hike is introduced, London will have the highest tax burden of the major financial centres around the world for most financial services employees. Bankers earning a remuneration package of £1m currently pay less tax than cities including Geneva, Paris, Frankfurt and New York. Recent figures compiled by KPMG show the UK's capital would be the least competitive of eight financial centres after April 6.

Some firms have taken innovative measures to beat the tax. Stockbroker Hargreaves Lansdown raised its interim dividend by 50 per cent to protect private shareholders. The group said the tax and uncertainties around the general election meant "the board has resolved that it is appropriate to pay as much dividend as possible prior to the end of the current tax year."

Tullett Prebon was one of the first major City firms to offer its employees the possibility to relocate following news of the one-off bonus "supertax" in December as well as the 50 per cent rate of income tax. Yet Terry Smith, chief executive of Tullett, said fewer of its brokers than expected were likely to flee following a Court of Appeal ruling against Robert Gaines-Cooper, a British entrepreneur based in the Seychelles. The court found he was still liable to pay UK tax despite being in the country for less than 91 days as the country was still "the centre of gravity of his life and interests".