In our last UK tax Fried Frank Memorandum of 11 December, 2009, we gave an overview of the bank payroll tax proposed by the UK Government. In the days following the announcement of that measure, there has been a significant amount of unease amongst the financial community in the UK about the scope of the draft legislation imposing the measure.

In particular, because the scope of the measure was defined by reference to the carrying on of certain FSA regulated activities, asset managers (such as private equity and hedge fund managers, as well as private wealth managers and brokers) were concerned that their operations would be caught in addition to traditional investment and retail banking functions.

On 18 December, 2009, the UK's HM Revenue & Customs ("HMRC") released a press statement in which it proposed to amend the draft definitions:

A firm which is not a deposit taker will now only qualify as a "UK bank" for these purposes if it is a "full scope BIPRU 730k investment firm"(and whose activities consist wholly or mainly of relevant regulated activities), or would be but for the fact that its head office is not in the United Kingdom. Almost all financial companies in this category carry out proprietary trading — buying and selling shares on their own account.

Further exclusions have been added for certain categories of regulated businesses, including certain prime brokers, those only carrying on relevant regulated activities on behalf of an insurance company in the same group, or those acting purely as a manager of a pension scheme or as the operator of a collective investment scheme.

As a result of these amendments it seems likely that the new tax will not now extend to most asset management firms (including managers of, or advisers to, private equity firms), nor to most brokers or private wealth managers. Any firm which engages in active trading of securities should review the revised legislation carefully, when available, to check the scope of the new rules.

We are happy to assist any client who remains concerned about the implications of the new tax.

A copy of the announcement can be found at:

http://www.hmrc.gov.uk/pbr2009/bank-payroll-18-12.htm

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.