City firms who are planning to defer bonuses payments until after 6 April in order to avoid the 50% tax rate are being warned that staff must be prepared to put their bonus at risk, or they could face substantial fines, states Harris & Co Chartered Accountants Northampton.
GQ Employment Law says that banks and financial institutions must carry out the proper bonus deferral payment procedures and may need to amend contracts if they are to avoid penalty charges from HMRC, which could be as much as 70% - 100% of the tax underpaid, with interest charges on top.
The law firm said that firms who wish to defer their bonuses until the next tax year will need to get their employees to relinquish their right to the bonus by signing a waiver.
GQ says this could mean that if the employee is made redundant or resigns before 6 April, they could lose all entitlement to that bonus. Similarly, if the employer becomes insolvent the employee might also lose their entitlement to that bonus.
GQ partner Darren Isaacs said:
‘The problem is that it is very easy to get the details wrong and expose the business and its employees to punitive fines from HMRC. The Revenue has said that it will be looking at this issue very closely, so any errors by businesses deferring bonuses are likely to lead to costly wrangles with the taxman and fines.’