HM Revenue & Customs has provided some further clarification on the operation of the bank payroll tax announced in the Pre-Budget Report on 9 December 2009. The additional comments, in the form of an update to the Frequently Asked Questions document on the HMRC website, were released earlier this month.
The key points to note are:
1. There are currently no plans to publish further draft legislation before the Finance Bill 2010. At present, the date of the 2010 Budget is unknown, and it is therefore difficult to speculate on when a Finance Bill is likely to be published.
2. Further guidance will be issued on the definition of ‘banking group’ and on how the proposed exclusion of standalone pure brokerage businesses will work. This follows the Treasury’s admission at the end of last year that the draft legislation published on 9 December 2009 treated as a ‘bank’ a much wider range of companies than intended. The undertaking to provide further guidance is welcome, however, there is no timetable for when it will be made available. Given the large number of companies which remain potentially caught by the bank payroll tax, it is hoped that additional clarification on these key points will be provided very shortly.
3. HMRC has confirmed that the term ‘wholly or mainly’ in the context of determining whether a company’s activities consist wholly or mainly of relevant regulated activities is to be interpreted as meaning 50% or more of trading income. This seems to indicate that it will not normally be necessary to consider other criteria, such as the number of employees engaged in particular activities.
4. For international employees who may have more than one workplace in 2009/10, the bank payroll tax will apply if an employee performed banking duties in the UK and spent more than 60 days here during 2009/10. HMRC has confirmed that the 60 day threshold is to be counted as for residence purposes, meaning that a day is counted as a day of presence if the employee is present in the UK at midnight.
5. There is some further guidance on the meaning of ‘banking employee’. In particular, HMRC does not consider that the following amount to a banking employment:
- providing non-financial insurance services to external policyholders;
- operating a collective investment scheme for external investors;
- dealing and arranging deals as agent, rather than for own account, as part of the discretionary management of the assests of external clients, or of insurance companies which are members of the same banking group.
An employee engaged in any activity which is wholly or mainly subordinate to the above would also be considered as a non-banking employee. Again, the phrase ‘wholly or mainly’ is interpreted to mean more than 50%, although in most cases HMRC is not expecting a detailed time analysis of the activities actually undertaken to be required.
Unsurprisingly, there will be penalty provisions, both for making an incorrect return and for filing a return late. Bank payroll tax will be due on 31 August 2010, and interest will be charged on late payment. HMRC will have the power to issue assessments to bank payroll tax on companies it believes to be within the scope of the rules but who fail to deliver a return, or who deliver an inadequate return.