Taxman set to pounce on City's huge bonuses

Hundreds of City whizzkids have been awarded the highest Christmas bonuses on record, and many have become instant millionaires. The bad news is that the taxman waiting in the wings is determined to have a seasonal slice of any bonus, be it a box of chocolates or a pounds 1m cheque.

Some 1,500 City bankers and brokers are basking in the rewards for a bumper year in the Square Mile. Each has scooped more than pounds 500,000. The bonuses are 40 per cent up on last year and are estimated to total pounds 750m.

An Inland Revenue spokeswoman spelled out that regardless of whether the gift was in cash or kind, it should be taxed. "If people get a gift or bonus because of their job, it is taxable, even if it is a box of chocolates," she said.

The stock market hit new heights in 1996, with the main FTSE index of the top 100 companies closing at another new peak on Friday. This attracts runs up huge commission earnings for share dealers and professional fund managers.

Another reason for the bonus bonanza is that pounds 42.6bn has been spent this year by companies on takeovers and acquisitions, up pounds 2.3bn on 1995. Each deal generates lucrative fees and bonuses for corporate financiers in merchant banks and advisers in law firms, accountancy practices and public relations consultancies.

Individuals can bid up their pay packet by playing off one potential employer against another. Last week, a woman handed in her notice at one investment bank and was immediately offered twice her salary to stay on. However, she left for an even better deal elsewhere.

The corporate largesse is evident in brisk business for Porsches and Rolls-Royces and a roaring trade in frivolous but expensive Christmas gifts at stores such as Harrods, in Knightsbridge, London. House prices are spiralling upwards and fine art dealers and auction houses are enjoying the benefits of the bonus handouts.

On a more modest scale, Marks & Spencer employees will be paid the equivalent of four week's pay tax-free. However, Inland Revenue staff are a bonus- free zone. "We get nothing, not a sausage," said the spokeswoman.