The extraordinary levels of bonuses in the banking industry, especially during times of financial turmoil has already been the subject of political and economical disputes for several months. The final decision announced by the Chancellor, and emerging details, have sparked intense debate. Although the idea is now garnering increasing support from international leaders. French President Nicolas Sarkozy stated on December 11th, while in a meeting with British Prime Minister Gordon Brown, that he intends for France to implement similar measures in 2010. German Chancellor Angela Merkel, stated that she is sympathetic to Alistair Darling’s attempts, and is awaiting the outcomes of its implementation. Both figures have previously voiced strong support of penalizing bonus payments, and implementing a financial transaction tax. Paul Volcker, former Federal Reserve Chairman and current adviser of US President Obama, has positively characterized the idea as “interesting”.

George Osborne, Shadow Chancellor, has commented on the tax “I’m not going to oppose it; I’m going to see whether it works in practice and we’ll judge it by its results”. Though Boris Johnson, London Mayor has claimed that the tax would heavily penalize the city, turning executives and large corporations away from the City of London and towards competing centers in Asia or US.

In an article co-written by President Nicolas Sarkozy and Prime Minister Gordon Brown, published in the Wall Street Journal on December 10th, they called for a restructuring of banking systems and the strengthening of the international financial systems, to lead to global growth. Commenting on his decision to join the UK in taxing bonuses, President Sarkozy again took up the cause, saying “We want and we wait for others to do the same, because we are in a globalized world”.

Photo by Downing Street

Common media discussion centers around the announcement of a possible one-year only tax on banker’s bonuses, at the PBR. Only payouts exceeding a pre-set threshold are anticipated to be subject to the additional tax measure, which is expected to earn in excess of £1 billion for the year. The proposed tax would be charged on both UK banks and UK based branches of foreign owned banks.

George Osborne, the shadow chancellor, has already given his general support to the idea of a tax on banker’s bonuses. Alastair Darling, in a recent television appearance stated “It wouldn’t be right to be giving further tax breaks to people at the very top. We are not going to be held to ransom by people who believe you can pay extraordinarily high bonuses without regard to what’s going on”.

An increase in UK’s Value Added Tax (VAT) is considered by numerous media sources to be a likely addition to the PBR announcement. The tax receipt rise from such a move is estimated to be £5 billion per annum, at a weekly cost of £1 to the average UK wage earner. Increases to Capital Gains Tax and Inheritance Tax are also expected. Additionally, changes to income taxation, such as an extra high-earner tax band or a lowering of the current top-earner threshold, are suspected to be implemented.

Photo by altogetherfool

The Swinford Toll Bridge in Oxfordshire, England, was built in 1767 by the Earl of Abingdom. The unique tax properties of the structure were granted when it received its own Act of Parliament “An Act for building a Bridge cross the River Thames, from Swinford, in the County of Berks, to Eynsham, in the County of Oxford”. By concessions granted within the act, the toll bridge entitles its owner to exemptions from income tax, inheritance tax, Value Added Tax and capital gains tax, along with exclusive rights to bridge building within a three mile radius of the Swinford Toll Bridge’s location.

Currently, the Swinford Bridge’s tolls are set at GBP 0.05 for cars and GPB 0.50 for trucks. The operation garners an approximated GBP 190,000 per annum. As the no levy is charged at night, an estimated GPB25,000 extra per year could be added in revenues through the installation of automated 24-hour collection machines. Included with the bridge sale was a cottage, 4,36 acres of land, and additional car parks and mooring along the river, which in previously provided its owner an extra GPB6,000 per year. However, a government order issued in 1994 requires the bridge’s owner to provide a total of GPB 650,000 over a period of 25 years, to be used for upkeep and repairs.

Photo by WiggyToo

Originally the NDO program, which ran from September 1st, 2009, required offshore account holders to disclose their obligations before November 30th. Speculation concerning possible extensions to the tax amnesty circulated throughout the media in the last week before the deadline. On November 27th Dave Hartnett, HMRC’s Permanent Secretary for Tax, finally confirmed the updated timeline for the current tax amnesty. He stated that the primary reason behind the changes was the fact that many potential offshore investment holders had not been contacted by their banks in time to utilize the opportunity which the NDO could provide. The HMRC is currently receiving information from 308 banks across the UK in regards to their NDO program.

The new date for disclosure notification has been extended by five weeks, and now the offshore investment holders must notify the HMRC by January 4th, 2010. The date to make a full disclosure and pay all outstanding taxes, duties and penalties remains the same as originally planned, January 31st, 2010. But offshore bank account holders also have a chance to make the final disclosure and pay all taxes, duties and penalties by March 12th if they decide to do so electronically. Individuals who were not contacted in regards to their offshore investments during the HMRC’s previous offshore investment tax amnesty in 2007, will pay a penalty of 10% on taxes owing, along with appropriate interest and the original taxation amount. Those who were previously contacted by the HMRC but did not disclose during their obligations during the 2007 tax amnesty, will face an increased penalty of 20%. Individuals who do not utilize the NDO and are found to have tax liabilities, will risk facing penalties of 30% to 100% and in some cases criminal prosecution.

In a bid to remind offshore investment holders of their obligations, Dave Hartnett said “I strongly urge anyone who has been hiding taxable assets offshore to go on line and register. The NDO is voluntary but from the start of the New Year we will begin to investigate those who were eligible to use the NDO but instead buried their heads in the sand. Don’t let that happen to you”.

Photo by AdamWilcox

The amnesty was initiated on September 1st and the original deadline was indicated to be November 30th, 2009. The new deadline is expected to be January 4th, 2010. Payments associated with the tax amnesty will be due by March 12th, 2010.

The HMRC estimates that there are currently 400,000 offshore bank accounts held by UK citizens, at least 20% of them are assumed to be avoiding their tax obligations. The amnesty provides the offenders with an opportunity to declare their offshore bank accounts, to fulfill their tax obligation, and face an additional penalty of only 10%. Outside of the amnesty, typical HMRC penalties could reach as high as 100% of the unpaid amount.

Explaining the move, a HMRC spokesman said “The reason we have extended the deadline is to allow more time for banks to write to their customers. This is what they have told us they need”. Experts believe that several thousand holders of offshore bank accounts are yet to be contacted by their respective banks and financial institutions.

Photo by AdamWilcox