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Goldman eyes tax delay on UK bonuses

Goldman's approach mirrors its recent opportunistic move in the US to release bonuses to staff on December 31.

Story highlights

  • A banker paid a £100,000 bonus on top of a £150,000 salary would save £5,000
  • About half of the top 20 banks in the City considered delaying UK payouts, in line with Goldman's move
  • Bankers said the only other institutions planning delayed payouts were small operators

Goldman Sachs is among a handful of banks considering delaying UK bonus payouts until after April 6 when the top rate of income tax falls from 50 to 45 per cent.

The bank's plan, which relates to bonuses paid for performance in 2009, 2010 and 2011, rather than new awards, is expected to prove controversial despite being perfectly legal.

Up until recently many banks and other large companies had been toying with the idea of delaying bonuses from their traditional payout dates in January, February and March until after the April 6 step-down in the tax rate.

But the vast majority of banks have concluded in recent weeks that amid a hostile attitude towards anything that looks like tax avoidance, it would be reputationally damaging to press ahead with such a plan.

About half of the top 20 banks in the City had considered delaying UK payouts, in line with Goldman's move, according to bank insiders and pay consultants. Moving bonus dates forward and back by a few weeks to optimise tax liabilities saved individuals -- and cost the government -- at least £16bn in 2010, when payouts were brought forward to avoid the new 50 per cent rate, introduced in April of that year, according to the Office for Budget Responsibility.

Insiders at Credit Suisse, which will also pay prior-year deferred bonuses to UK staff after April 6, said the bank had followed a similar timetable for the past two years, so the scheduling was not motivated by the cut in the 50 per cent tax rate. Bankers said the only other institutions planning delayed payouts were small operators, such as boutique merger and acquisitions advisory firms.

Goldman's approach mirrors its recent opportunistic move in the US to release bonuses to staff on December 31, hours before Congress voted to increase taxes for anyone earning more than $400,000 a year as part of the fiscal cliff deal.

The 50 per cent tax rate, introduced by the last Labour government in 2010, applies to anyone earning over £150,000. A banker paid a £100,000 bonus on top of a £150,000 salary would save £5,000 in tax if his or her bonus was pushed back beyond April 6.

"I don't think many, if any, banks will end up [delaying] their bonus payments," said Bill Cohen, partner at Deloitte. "It would be sensible housekeeping rather than aggressive tax planning. But there is a growing concern about the reputational damage of large firms being seen to avoid tax."

Banks' change of heart follows the political attack on Starbucks late last year, when it emerged that the coffee chain paid very small amounts of tax in the UK despite having a large operation in the country. The political backlash prompted the company to pledge a voluntary £20m tax contribution.

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