Autumn Statement – what’s in it for banks?

Wed 23 Nov 2016

The British Bankers’ Association pointed out in September how banks in the UK were contributing over £30 billion to the Exchequer and had been subjected to ‘five new bank specific tax measures in as many years.’ The good news is that no new round of bank taxation has been announced – however nor has any significant mitigation of existing measures.

The Autumn Statement documents state that ‘The government will continue to consider the balance between revenue and competitiveness with regard to bank taxation, taking into account the implications of the UK leaving the EU.’ This could mean that the bank bashing has stopped.

Reform of loss relief – relief for losses incurred by banks before 1 April 2015 was restricted by Finance Act 2015 to 50% of profits, and by Finance Act 2016 to 25% of profits. The Autumn Statement documents make clear that ‘the amount of profit that banks can offset with losses incurred prior to April 2015 will continue to be restricted to 25% in recognition of the exceptional nature and scale of losses in the sector.’

In other words, the comparatively more generous 50% loss restriction anticipated in Finance Bill 2017 (in relation to general corporate taxpayers for losses incurred after April 2017) will not modify the more stringent 25% limit for banks’ pre-April 2015 losses. This means that if the changes in Finance Bill 2017 are enacted as expected, banks’ loss relief will be a mixed picture as follows:

These complex rules for banks’ loss relief, coupled with the falling corporation tax rates, could have an adverse effect on deferred tax asset recognition which could result in DTA write-offs.

Tax deductibility of corporate interest expense – the Autumn Statement documents state that ‘banking and insurance groups will be subject to the rules in the same way as groups in other industry sectors.’ This suggests, surprisingly, that there will be no special exemption for banking groups – and perhaps means that banks will have to rely on the general assumption that banks are normally net receivers of interest. This could turn out to be an unreasonable assumption in some cases. We will have to await the publication of the Finance Bill.

Bank levy reform – From 1 January 2021, the bank levy charge will be restricted to UK balance sheet liabilities (as announced in Summer Budge 2015). Consequently, the government has now announced there will be an exemption for ‘certain UK liabilities relating to the funding of non-UK companies’ and an exemption for ‘UK liabilities relating to the funding of non-UK branches.’ Details will appear in the government’s response to the consultation, with legislation expected in Finance Bill 2017-18.

For more information contact Ian Thomson (ian.thomson@mazars.co.uk), Stephen Brown (stephen.j.brown@mazars.co.uk)  or Paul Clement (paul.clement@mazars.co.uk).