- HMRC is on the lookout for errors
- Fines for both employees and employers likely
Banks and financial institutions planning to defer bonus payments to their employees to help them avoid paying tax at 50% may need to amend contracts if they are to avoid fines from HMRC, warns GQ Employment Law, the specialist employment law firm.
GQ Employment Law says that many financial institutions are still considering deferring bonuses so that their employees can take advantage of the cut in the top rate of tax from 50% to 45% on April 6th.
GQ Employment Law says that employers who want to defer those bonuses until the next tax year will need to get their employees to relinquish their right to the bonus by signing a waiver. This would mean that if the employee is made redundant or resigns before the 6th of April, they could lose all entitlement to that bonus. Similarly if the employer becomes insolvent the employee might also lose their entitlement to that bonus.
Aon is just one of the businesses thought to be considering deferring bonus payments for tax reasons.
GQ Employment Law says that banks and financial institutions who do not defer bonuses properly run the risk of incurring penalty charges from HMRC of 70% – 100% of the tax underpaid (as well as interest charges).
Darren Isaacs, Partner at GQ says: “The fall in the top rate of tax will make a huge difference to the post tax income of high earning employees.Â Many employers will consider it natural that they help their most valued employees take advantage of a completely legal tax planning opportunity.”
“It may not be popular with politicians or the Governor of the Bank of England, but it is a very sensible option for employers considering the best interests of their employees and their business.”
“The problem is that it is very easy to get the details wrong and expose the business and its employees to punitive fines from HMRC.Â HMRC has said that it will be looking at this issue very closely, so any errors by businesses deferring bonuses are likely to lead to costly wrangles with the taxman and fines.”
Goldman Sachs recently reversed its decision to defer staff bonuses this year under public pressure instigated by Bank of England Governor Mervyn King.
Darren Isaacs continues: “Larger financial institutions may back down from deferring employee bonuses because of intense public and political pressure and pay their bonuses as usual, but many mid-sized and smaller City businesses will still be deferring employee bonuses.”