Bank payroll tax - HMRC manual now published


Both a payment of the relevant amount of tax and a statutory return of relevant information will have to be made by 31 August 2010.

The manual sets out information about the companies and employees now affected. It also addresses in some detail the different types of remuneration caught and also remuneration excluded because it did not fall within the chargeable period between 9 December 2009 and 5 April 2010. This could either be because it had already been agreed or, alternatively, because it is treated as awarded after 5 April 2010. Finally, and this may be of most interest to relevant companies, it sets out how companies will be expected to report and pay the tax.

We have addressed the tax in various earlier alerts, in particular the declining number of companies caught. For a link to a summary of bank payroll tax, please click here.

Key points from the manual are:

  • Taxable companies. Only certain financial activities are caught. In most cases, the overall balance of the relevant financial activities which companies undertake will be clear. However, where it is not and the issue is determined by whether or not the company is wholly or mainly pursuing these activities, HMRC guidance indicates that activities should be weighed on the basis of income for relevant activities.
  • Relevant banking employees. Not all employees of a taxable company are caught: Whether an employee is a relevant banking employee in most cases depends upon the employee’s activities, and so similar issues arise there. The general preference seems to be to adopt a time based approach.
  • Market value options. The guidance confirms that while the award of options is relevant remuneration, their value for bank payroll tax purposes can be accepted as nil as there is no intrinsic value (HMRC does not treat the accounting approach to options as one which should be used for bank payroll tax purposes). It is easy to apply this to options granted with exercise prices equal to the closing share price on the day before grant, but where the exercise price is calculated over a 3 day or longer period, and so could in fact be at a substantial discount to the prevailing market price on the day of grant, the position might have to be examined more closely.
  • LTIP awards. Most share awards for larger companies are not in fact now made as market value options but as rights to receive free shares subject to satisfying certain conditions. They can be structured in a number of ways. It seems from the Revenue guidance that the starting point for the taxable amount of these awards will normally be the value of the underlying shares at the date of award with discounts for the fact that performance conditions may cause the full number of shares not to be received. However, discounts are not permitted for the fact that awards are forfeited if employees leave. What the guidance does not really address, however, is that different types of awards may have different treatment. However, HMRC’s attitude to both LTIPs and market value options show that companies’ accounting records alone are not enough to determine the tax.
  • The impact of discretion. A bank payroll tax point normally arises if there is a contractually binding arrangement which arises in the chargeable period covered by the tax. The guidance gives various examples of how the existence of subsequent employer discretion for awards already made impacts on this. Generally, it seems that HMRC’s view is that if it was a contractually binding award made before 9 December 2009 and the employer may adjust the award in certain circumstances, then a bank payroll taxpoint will only arise if discretion is exercised and value is received. However, there is not complete clarity on this.
  • Administration of the tax. This is the most interesting part of the manual.
  • Payment. Group payments are possible. Payments must be made by 31 August 2010 to a central point, not the company’s normal payment point for corporation tax and PAYE.
  • Returns. Each taxable company however needs to make a return, even if that is a nil return, on or before 31 August 2010. Returns need to be delivered to HMRC, 22 Kingsway, London WC2B 6NR. If a company wants to file electronically, they need to give advance notice of their intention to do so.
  • Contents of return. Returns will not be sent to suspected taxable companies. It is up to relevant companies to submit returns. Aside from relevant company information, the key surprise is that companies have to submit not just the aggregate of chargeable relevant remuneration (which excludes regular salary, all-employee share awards and amounts below £25,000) but also remuneration which is excluded because it was awarded, or the contractual obligation to pay it arose, prior to 9 December 2009. This is something companies may not have anticipated and will require careful adding-back.

Only aggregate information is required together with the number of employees affected. No individual data needs to be disclosed on the return.

The total of any chargeable loans, future arrangements and also any estimated amounts also needs to be given (presumably this last point will trigger particular HMRC attention).

HMRC has not created a statutory return for bank payroll tax purposes so taxable companies may submit the required information in whatever format they choose. HMRC has however created a stencil that taxable companies may wish to use, which can be assessed by clicking here.

  • Challenges and changes. HMRC may challenge a return and the status of underlying remuneration until 31 August 2011 assuming the return is delivered on or before 31 August 2010. Amendments may be made by companies, but penalties and interest charges may arise. Companies are required to keep relevant records until 31 August 2016.