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How Much Tax Did Deferred Bonuses Save UK Employees in 2013?

Friday, 20 September 2013

Payment of top rate income tax can seriously reduce the actual net receipts of employee bonuses for high earners. It was little wonder then that many financial firms decided to pay out bonuses for 2012 after April 2013, when the UK government decreased the top rate tax from 50 pence to 45 pence.

The Office for National Statistics (ONS) reports that many UK insurance and financial services firms deferred their annual bonus season from the traditional December to March window until April 2013. This deferral allowed UK firms to avoid paying £1.3 billion in taxes by eluding the previously higher top rate of tax.

Bonus Culture in the UK

Employee bonus payments increased across the UK economy by 1 per cent in 2013, totalling £36.9 billion, averaging approximately £1,400 per employee. The insurance and financial services industries composed £13.3 billion of the total UK economy bonus payments. Bonus culture remains alive and well in the UK.

Nonetheless, there is a significant differential between public and private sector bonuses. While the average public sector employee received a bonus of £300, the average private sector employee received a bonus payment six times higher, approximately £1,700. Education, social work, and health sectors paid out the lowest, at approximately £100 per employee.

The financial and insurance industries significantly skew the UK-wide averages. If these industries are removed from the average calculations, including removing part-nationalised banks, then the average public sector bonus drops to equal the lowest paid bonuses at £100 per employee.

Increasing Salaries

In response to possible European Union bonus caps, financial services employees’ salaries have increased overall by 20 per cent. Nearly 65 per cent of firms have raised salaries for over 30 per cent of senior management in a bid to prevent losing valued employees to non-European Union firms not subject to the cap.

Despite these tax reductions and overall increases, the Chartered Management Institute has found that female managers received an average bonus of £3,029, which is paid out at only half the average bonus of their male counterparts, who received an average bonus of £6,442. This bonus discrepancy is in addition to the existing gender pay gap of nearly 25 per cent; the average salary for a female UK manager is £29,667 whereas the average salary for a male UK manager is £38,169.

Incentivizing Employees

Increasing salaries and moving bonus season to take advantage of lower taxes has resulted in a savings of £1.3 billion in taxes, or an additional bonus to employees. Bonuses and other reward schemes can be a great way to incentivize employees but firms should address gender pay discrepancies to retain top level talent.

Businesses looking to introduce bonus schemes, change bonus structures or bonus payment methods should seek expert advice; for more information contact Peter Gourri today by email or telephone 0207 611 4848.

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