Brown goes after the bonus boys

Gordon Brown has won a crucial legal battle in his bid to recoup hundreds of millions of pounds in allegedly unpaid taxes from City bonuses.

The new ruling makes it easier for the Chancellor to prevent City firms using employee benefit trusts (EBTs) to avoid tax when paying large bonuses to bankers and brokers.

Investment banks have commonly set up EBTs in order to reward high-flying employees with shares in them. These shares pay out cash in dividends, which attract lower tax rates than a conventional bonus. The tax savings are twofold: employees avoid paying national insurance, and employers lessen their corporation tax bill. However, Revenue & Customs officials have long regarded EBTs as potentially illegitimate tax loopholes.

Earlier this month, the House of Lords endorsed this view in relation to a slightly different form of EBT than that used by City firms. But tax experts predict this courtroom victory will encourage the taxman to take legal action against other EBTs.

'This ruling will strengthen the Revenue's hand in making sure that EBTs are being used in ways that it finds acceptable, said John Whiting, a tax partner at accountants PricewaterhouseCoopers. 'We've seen a lot of aggressive policing from the Revenue of EBTs that are in many cases perfectly innocent.'

The development will be welcomed by Brown, who has promised to crack down on tax evasion and avoidance. It is thought to cost the public purse tens of billions of pounds annually.

In recent years, the government has closed numerous tax loopholes. It recently acquired new powers to share information with foreign countries about bank accounts held abroad by Britons.