Goldman bonuses

According to the FT, “Goldman Sachs provoked a furious reaction in Westminster after it emerged that the US investment bank was considering a plan to delay its UK bonus payments” so staff can be taxed at 45% instead of 50%. Other banks have apparently decided not to do this  as they considered this would be too damaging.

The political anger is understandable, but we do have a tax system in the UK where income is taxed when it is received for employment income. The problem here is that it was fairly obvious that taxpayers would advance income (so pay tax early) before the 50% rate came in and seek to defer income from the 50% period to the lower tax rate which will apply from 6 April 2013. In fact I’m sure professional advisory firms are working very hard on this at present.

So is this avoidance or tax planning (and is it aggressive or not so aggressive)?

The issue could have been dealt with if income was taxed on an earned rather than paid basis for the 50% tax period but this is quite challenging to achieve in legislation (simple though it may appear). It does illustrate that our lawmakers in parliament need to spend more time thinking about the purpose of tax law so that taxpayers and their advisers can understand what “the spirit of the law” is as it applies to specific legislation. Given that the financial press identified this issue as a tax planning tool what did Parliament intend when it introduced the 50% rate for a period of time?

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