Finance Act 2010 Explanatory Notes

Part 1 – The Tax

2.Part 1 sets out the circumstances in which the charge to BPT arises, defines key terms and sets out anti-avoidance provisions.

3.Paragraph 1 imposes the charge to BPT. BPT arises on the aggregate of the amounts of chargeable “relevant remuneration” (defined in paragraph 4) “awarded” (defined in paragraph 6) during “the chargeable period” (defined in paragraph 8) to or in respect of “relevant banking employees” (defined in paragraph 9) of a “taxable company” (defined in paragraph 3) by reason of their employment as relevant banking employees. Relevant remuneration is “chargeable” only to the extent that it exceeds £25,000.

4.Paragraph 2 sets the rate of BPT at 50 per cent.

5.Paragraph 3 defines a “taxable company”. Taxable companies will include banks resident in the UK and relevant foreign banks trading in the UK. Members of banking groups will also be taxable companies if they are investment companies resident in the UK or financial trading companies, as will building societies and UK resident investment companies or UK resident financial trading companies of a building society group. Part 3 of the Schedule defines the terms used in paragraph 3.

6.Paragraph 4 defines “relevant remuneration”. Relevant remuneration includes anything that constitutes earnings under section 62 of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) in relation to the employee’s employment by the taxable company as a relevant banking employee or benefits which do not themselves constitute earnings provided by reason of that employment but does not include “excluded remuneration”. The employee’s income tax position is irrelevant for the purposes of determining whether or not anything is relevant remuneration.

7.Paragraph 5 defines “excluded remuneration”.

8.Paragraph 5(1) provides that “excluded remuneration” means: any regular salary, wages or benefits; anything where a contractual obligation to pay or provide it to the employee arose before 12.30 pm on 9 December 2009; shares awarded under an approved share incentive plan and share options granted under a Save As You Earn (SAYE) option.

9.Paragraph 5(2) defines the meaning of “regular” in relation to salary, wages or benefits. Regular means the amount of salary, wages or benefits that cannot change because of the performance of the employee, the company or the business of any person connected with the taxable company.

10.Paragraphs 5(3) and (4) set out that a contractual obligation entered into prior to 9 December 2009 to pay or provide something to the employee will not be taken to arise for the purposes of BPT until the amount to be paid or provided becomes fixed. A contractual obligation is taken to arise even if payment or provision is dependent on compliance with any condition.

11.Paragraph 6 defines “awarded”.

12.Paragraph 6(1) provides that relevant remuneration is awarded when either a contractual obligation to pay or provide it arises during the chargeable period or that the relevant remuneration is paid or provided during the chargeable period without any such obligation having arisen during that period, subject to paragraph 6(3).

13.Paragraph 6(2) provides that paragraph 5(3)(a) (which sets out when a contractual obligation to pay or provide something will be deemed to arise for the purposes of BPT) applies for the purposes of paragraph 6(1) as it applies for the purposes of paragraph (5)(1)(b).

14.Paragraph 6(3) provides that relevant remuneration is not to be taken to be awarded during the chargeable period if: it is required to be paid or provided at intervals, is in respect of performance or similar considerations relating to times after the chargeable period and where payment is not being made to reduce the liability to BPT.

15.Paragraph 6(4) provides that paragraph 5(4) (which provides that a contractual obligation to pay or provide something is taken to arise even if it depends on the employee complying with any conditions) applies for the purposes of paragraph 6 as it applies for the purposes of paragraph (5)(1)(b).

16.Paragraph 7 defines the “amount” of remuneration.

17.Paragraph 7(1) provides, subject to paragraphs 7(2) to 7(4), how the amount of relevant remuneration is to be established.

18.Paragraph 7(2) provides for a situation in which relevant remuneration is awarded to the employee under a contractual obligation and the amount is not fixed at the time of the award. In these circumstances, a reasonable assumption should be made at the time the award is made as to what the amount will be when it is paid or provided.

19.Paragraph 7(3) provides that, where the market value of any relevant remuneration at the time of award exceeds or would exceed what would otherwise be its amount, the market value figure should be used in calculating the amount of relevant remuneration.

20.Paragraph 7(4) provides that where relevant remuneration is subject to any restrictions; the amount of remuneration is calculated as if the restrictions did not exist.

21.Paragraph 7(5) defines “restriction” as any condition, restriction or other provision that causes the value of the relevant remuneration to be reduced.

22.Paragraph 8 defines the “chargeable period”. The chargeable period begins at 12.30 pm on 9 December 2009 and ends on 5 April 2010.

23.Paragraph 9 defines “relevant banking employee”.

24.Paragraph 9(1) provides, subject to paragraph 9(7), that an employee of a taxable company is a relevant banking employee if they are employed in “banking employment” and resident in the UK in the 2009-10 tax year, or their banking employment duties are performed wholly or partly in the UK in that year.

25.Paragraph 9(2) defines “banking employment”. It is employment which is wholly or mainly concerned, directly or indirectly, with activities to which paragraph 9(3) applies.

26.Paragraph 9(3) applies to activities that are “listed regulated activities” or consist of the lending of money or of dealing in currency or commodities as principal.

27.Paragraph 9(4) defines what is meant by “listed regulated activities” by reference to the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.

28.Paragraph 9(5) provides that an activity is not a listed regulated activity in relation to an employee of a taxable company in two situations. First, where the taxable company is an insurance company or a member of the same group as an insurance company and the activity is carried on wholly on behalf of the insurance company. Second, where the activity is such an activity by virtue of article 21 or 25 of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001 (dealing in investments as agent or arranging deals in investments) and is carried out as part of, or wholly in support of, the taxable company or a company within the same group as a taxable company and the activities consist of being a discretionary investment manager (defined in the Handbook of Rules and Guidance made by the Financial Services Authority (“FSA Handbook”)) for clients who are not linked entities. “Linked entity” is defined by paragraph 44(11).

29.Paragraph 9(6) exempts an employee of a taxable company who spends no more than 60 days in the UK in the 2009-10 tax year from the definition of relevant banking employee of the taxable company for the purposes of BPT.

30.Paragraphs 9(7) and (8) set out whether or not any particular day should be included when calculating whether or not the individual has been present in the UK for no more than 60 days.

31.Paragraph 10 applies to a situation in which an employee has multiple employments.

32.Paragraph 10(1) provides that the £25,000 limit that applies to chargeable relevant remuneration applies whether or not the employee has more than one relevant employment with a taxable company.

33.Paragraph 10(2) provides that where relevant remuneration is awarded to a relevant banking employee during the chargeable period by a number of “associated taxable companies” the £25,000 threshold is to be divided by the number of taxable companies. This prevents employers splitting the contracts of employees in order to reduce liability to BPT.

34.Paragraph 10(3) defines what is meant by “associated taxable companies”.

35.Paragraph 11 covers payments made to intermediaries. It applies where an individual personally performs banking services (services wholly or mainly concerned (directly or indirectly) with activities to which paragraph 9(3) applies) for a taxable company, but the contract for these services involves another person (“the intermediary”). If the individual would be a relevant banking employee if the contract were with the taxable company, the individual will be treated as such and any award of relevant remuneration will be chargeable to BPT.

36.Paragraph 12 applies to arrangements for future payments. If an arrangement is made during the chargeable period by reason of the employee’s employment as a relevant banking employee of the taxable company for money or other benefit to be paid or provided after the chargeable period which would be relevant remuneration awarded to the employee if it were paid or provided during the chargeable period, the making of the arrangement is to be regarded as the awarding of relevant remuneration.

37.Paragraph 13 makes provisions in relation to loans. It applies where a “relevant loan” (one made to reduce a liability to BPT, any other tax, or national insurance contributions) is provided during the chargeable period to or in respect of a relevant banking employee. It also applies where a contractual obligation to provide such a loan arises during the chargeable period. In these circumstances, the amount of the loan, or the amount that is reasonable to assume will be loaned, is treated as relevant remuneration. This is an anti-avoidance measure to prevent loans being given to employees in place of a bonus.

38.Paragraph 14 sets out anti-avoidance provisions. These apply where “relevant arrangements” (either making a payment or providing a benefit outside of the chargeable period or providing any reward that equates in substance to relevant remuneration) are entered into during the chargeable period and the main purpose, or one of the main purposes of doing so is a “relevant tax avoidance purpose” (one designed to reduce the charge to BPT). In these circumstances liability to BPT is to be determined as if the amount involved were paid or provided during the chargeable period, or as if the reward were given in the form of relevant remuneration during the chargeable period.

39.Paragraph 15 provides that BPT is not deductible when computing profits or losses for income tax or corporation tax purposes.

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