BPTM3065 - Relevant remuneration: excluded remuneration: bonus pool: example 1
Example 1 - Announcement before 9 December 2009
Suppose a taxable company (C) announced on 1 Feb 2009 that 10% of its profits for the year ending 31 December 2009 would be allocated to a bonus pool to be shared between employees in employment on 31 December 2009. C is required to distribute the full amount of the bonus pool by payments to qualifying employees but the remuneration committee has discretion to determine how much each employee should receive with the amounts to be determined at a meeting of the remuneration committee on 1 March 2010 and immediately notified to the employees.
In considering, for the purposes of paragraph 6(1) whether something is relevant remuneration awarded during the chargeable period you should consider whether it is excluded remuneration in relation to a relevant banking employee. Anything in the case of which a contractual obligation to pay or provide it to or in respect of the employee concerned arose before the beginning of the chargeable period will be 'excluded remuneration'. (Paragraph 5(1)(b))
A contractual obligation to pay or provide something to or in respect of the employee does not arise until the total amount of things to be paid or provided to or in respect of a number of employees including the employee is fixed or is capable of becoming fixed without the exercise of discretion by any person. (Paragraph 5(3)(b))
If C announced in February 2009 that the 'bonus pool' for the accounting (calendar) year 2009 will be 10% of profits (however defined), and specified who will be eligible to be considered for a bonus (in this example, all those in employment on 31 December 2009), you should normally accept that this will be 'excluded remuneration' by virtue of paragraph 5(3)(b). The obligation to fund a 'bonus pool' to be used for the award of remuneration to a specified group of employees, which includes the employee concerned, will be a contractual obligation for the purposes of bank payroll tax if the total amount is fixed (or capable of becoming fixed) without the exercise of discretion by any person. Whether the possibility exists for the exercise of discretion by any person is a matter of fact and law.
Any amount awarded out of the 'bonus pool' during the chargeable period to the employee concerned will be 'excluded remuneration' and will not, therefore, constitute the award of relevant remuneration by virtue of paragraph 6(1).