On December 10, UK Chancellor of the Exchequer (the equivalent of finance minister) Alistair Darling presented his "Pre-Budget Report." Normally this report is used as an advertising trailer for the main budget speech the following March. But this year, with Britain expected to be headed for a general election in May, the report was a political statement with serious implications for British taxpayers. The most politically contentious aspect of the new budget is a proposed bank payroll tax. The move is a reaction to the outrage in the UK and elsewhere at the last recession and credit crunch - attributed to banks and financial institutions which collapsed after making reckless loans and investments. Only a year after being bailed out with large amounts of taxpayers' money, a number of bank executives began paying themselves large bonuses. Politicians on all sides of the political spectrum felt something had to be done. Consequently, as an apparent act of vengeance, the UK chancellor announced a new bank payroll tax. This will be a windfall tax payable by the bank itself, not the employee. The rate of tax will be 50 percent. This tax will affect bonuses paid directly, or via an intermediary, that exceed Â£25,000. Not only banks will be affected: all the main UK commercial banks and Building Societies (savings and loan associations) are going to be affected. So are branches of foreign banks and financial trading companies in the UK, asset managers, hedge funds, private equity and other similar businesses. It is unclear whether any Israeli financial institutions in London will be affected. The tax will apply to all discretionary and contractual bonus awards from December 9, 2009 to April 5, 2010. A bonus is defined as including cash, benefits or loans. The tax will be payable on August 31, 2010. There will be an exception for contractual bonus entitlements where the payer has no discretion as to the amount of the bonus because of a contractual obligation existing at the time of the Chancellor's announcement on December 10. The legislation is expected to include anti-avoidance provisions, for example through the use of loans or employee benefit trust schemes and making arrangements for future payments. The tax will not be deductible as an expense or taken into account when calculating the bank's profit or loss for corporation tax or income tax purposes. Will it work? The UK government estimates that it will raise just Â£550 million, which is a lot less than 50% of the Â£6 billion that the City of London was reportedly expected to pay in bonuses this year. Presumably, some will be deterred from paying bonuses. Other banks may perhaps reduce bonuses and increase base pay. In other cases, executives may feel the need to relocate away from the UK. On the other hand, if this is a one-time tax which expires next April 5, some may just pay the tax and hope it isn't extended. The above analysis is based on the proposals announced by the government, but it remains to be seen what the proposal will look like when it is finally enacted by parliament. Imitation, it is said, is the sincerest form of flattery. The day after Darling's announcement, news services reported that President Sarkozy is planning to insert a similar 50% bank payroll tax in the French budget bill. And the US press took a keen interest in the UK measure, as the US had earlier in the year proposed its own tax on bankers' bonuses. What else is in the pre-budget report? Following are a few highlights: â€¢ Personal income tax - As previously announced, a 50% income tax rate will apply to income over Â£150,000 from April 6, 2010. For those who fall in this category specialist advice may be worthwhile. â€¢ National insurance - National insurance rates will increase from April 6, 2011 by an additional 0.5% over and above the rate increases announced in the Pre Budget Report 2008. For example, the Class 1 employer rate will rise to an incredible 13.8% (compare to 5.43% in Israel). â€¢ Pensions - With regard to pensions, changes will affect individuals with incomes of Â£130,000 or over who, on or after 9 December 2009, change: (1) their normal pattern of regular pension contributions; or (2) the normal way in which their pension benefits are accrued. Specialist advice should be obtained. â€¢ Inheritance Tax - The promised increase in the nil rate band in 2010-11 to Â£350,000 has been withdrawn. It will remain at current levels, Â£325,000. Legislation is also to be introduced to cover the avoidance of inheritance tax using certain trust arrangements involving property. This will only affect transactions entered into after December 9, 2009. (Israel, by the way, has no inheritance tax). â€¢ Electric vehicles - From April 6, 2010 the company car tax charge for company car users who drive a car propelled solely by electricity will be reduced to 0%. And those who purchase a new electric van after April 6, 2010 (income tax payers) or April 1, 2010 (corporation tax payers) will be able to claim a 100% capital allowance (depreciation). â€¢ Corporation tax rates - The planned increase in the small companies' corporation tax rate from 21% to 22% has been postponed for the 2010/11 tax year. The main rate of corporation tax remains at 28%. A 10% rate is planned for certain "patent box" companies from April 2013 (still not as good as zero in Israel for "privileged enterprises"; 25% for regular companies). â€¢ Research & development - R&D tax relief is available in the UK to companies that invest in qualifying research and development. It works by uplifting the expenditure by as much as 75% when calculating the amount of tax relief you get. If it creates a loss as a result you can claim discounted cash credits rather than carry that loss forward. Until now, to qualify for R&D relief, intellectual property associated with an R & D claim had to be owned by the company making the claim. This restriction is to be abolished for accounting periods ending on or after December 9, 2009. (Comment: in Israel R&D expenditure is deductible, and R&D grants - typically 50% - are available). â€¢ VAT - The standard VAT rate goes back from 15% to 17.5% on January 1, 2010. (in Israel - 16.5%). As always, consult experienced tax advisors in each country at an early stage in specific cases. email@example.com, firstname.lastname@example.org Barry Soraff is a Partner at Raffingers Stuart in Essex. Leon Harris is an international tax specialist at Harris Consulting & Tax Ltd., in association with Lion Orlitzky & Co. (Moore Stephens Israel).