There has been a debate in the press recently about hedge fund managers leaving the UK because of high taxes. Recently, an FT article published on 1 October explained that the hedge fund exodus is likely to cost the Inland Revenue £500 million. In fact, almost half of that figure was derived from an estimate of taxes that could have been collected on the earnings of two prominent fund managers. The question is whether these two fund managers are an exception or whether many more will follow.
In a response to that article Joe Seet, Senior Partner at Sigma Partnership, a business advisory and compliance accounting firm, points to the importance of London for most asset management firms as the dozen or so professionals they employ, on average, cannot afford to move away from the cluster of expertise there is in London. Only very large firms may be inclined to set up satellite offices outside of the UK.
Putting aside a desire to move to the Far East for business reasons, a move out of the UK for tax considerations alone may not be justified as shown by KPMG’s Individual Income Tax and Social Security Rate Survey 2010. A comparison of income tax and social security rates in countries in the same time zone as the UK shows that an employee in the UK fares much better than in Belgium, Sweden and the Netherlands and is in roughly the same situation as an employee in Germany or in France. The difference with Switzerland in terms of net income, after tax and social security, is only between 10 and 15% – even on earnings as high as £1 million.
However, the most interesting point of the survey is the level of employer Social Security contributions due in most countries in the same time zone as the UK. The UK, with a level of between 2.9% and 6.6%, depending on the size of the income, is at a fairly low level compared to France and Belgium at around 20% and 13% respectively. Germany is at between 4.8% and 14.4%, depending on the size of the income, and Switzerland is also at a higher level than the UK. In addition to this, personal and domestic considerations as well as immigration requirements of the host country have to be taken into account when moving out of the UK.
Surely, these are issues that employers will want to contemplate before sending staff overseas.
