Darling To Attack City Bonus Culture In Pre-Budget Report

by Robert Lee, Tax-News.com, London

28 October 2008

Chancellor of the Exchequer Alistair Darling is expected to use the upcoming pre-Budget report to announce changes to approved share schemes as a way to counter the City bonus culture, according to tax experts at accountants and business advisers PKF.

Employment Taxation and Rewards partner at PKF, Philip Fisher, believes that increasing the value limits for Company Share Option Plans would cost no additional tax revenue for three years and would perhaps be a less controversial move than widening the eligibility criteria for the more flexible Enterprise Management Incentives scheme.

Mr Fisher commented: “A direct attack on the City bonus culture is much more likely than a wider overhaul of tax allowances. The Chancellor has already announced that executives in the newly ‘nationalised’ banks should get share incentives rather than cash bonuses in future and a new special rate of income tax or NIC (National Insurance contributions) on large cash bonuses cannot be ruled out.

“However, if the Chancellor is prepared to give tax allowances a radical overhaul as he did with capital gains tax in the last Pre-Budget Report, then he may restructure these as ‘tax reducers’ to give the lower paid extra benefits. Altering the tax and national insurance contributions (NIC) rates for very high earners could also allow the Chancellor to raise additional revenue without having to take the politically damaging step of putting up the basic or higher rates of income tax.

Philip concluded: “With the stock market at its most volatile for many years and with growing talk of recession, the Chancellor’s Pre-Budget Report announcements are likely to have an immediate impact on asset values and the wider economy so he will need to choose his words with great care.”

PKF posited that other changes to personal tax measures might include the up-rating of some exemptions and allowances to soften the blow of a recession. The Chancellor is also expected to clarify the rules surrounding the taxation of non-domiciled individuals. But after many years of tinkering with the capital gains tax and inheritance tax systems, the government is not thought likely to announce further changes in these two areas of taxation.

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