'Huge upswing' in firms paying bonuses early to beat 50% tax rate

SCOTTISH companies have been rushing to pay bonuses early ahead of the new 50 per cent top rate of tax being levied on high-earners in the new tax year.

But one accountancy figure says it should not be seen as breaking the spirit of Chancellor Alistair Darling's plans, but should be viewed "dispassionately" as companies doing their best by employees.

David Gwilliam, regional managing partner for Scotland and northern England at Baker Tilly, said there had been "a huge upswing" in companies accelerating bonus or dividend payments so that they fall in this year and are liable for less tax. Evidence was strong in the accounting industry that the pace of such "early" payments of bonuses had quickened sharply in the past six weeks, Gwilliam said.

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"Around about Valentine's Day, for some reason, appeared to be the catalyst for companies cottoning on about the 50 per cent tax and what to do about it, he said. "There has been a substantial move to accelerate remuneration bonus payments. For those organisations where the new 50 per cent tax rate is relevant to employees you are talking about a very large percentage (paying early], certainly more than half."

Gwilliam said Baker Tilly and other accountancy firms believed companies had decided that the tax rise on people earning 150,000 or more was unlikely to be reversed even if there was a change of government. He said businesses felt that if the Conservatives took power their priority would be reversing the increase in national insurance rather than direct taxation.

Gwilliam said such legal ways around the 50 per cent tax rate for one year would provoke "a mixed reaction, depending on which take you have on this".

But he added: "The man in the street might (be disapproving] when it is being portrayed as 'bad bankers' again. But it should also be looked at dispassionately, as legally ordering one's affairs."

One insider at Her Majesty's Revenue & Customs said: "Common sense would suggest it would be against the spirit of the change to bring forward remuneration payments like this.

"But it is legally okay if the payment falls within the relevant tax year, and everyone is well aware here of the extensive publicity the practice has got of companies bringing payments forward."