Budget 2020 – Financial Services tax update from the 2020 budget

Wed 11 Mar 2020

What does the #Budget2020 mean for Financial Services businesses?

There were a number of measures announced in the Budget that relate specifically to financial services businesses. Other more general measures were also announced that apply to those businesses, depending on the nature of their activities or the assets they employ in them.

Measures specific to the financial services sector

Firstly, life insurers writing BLAGAB will not be subject to the capital loss restrictions that will be applied to companies in general from April 2020. The government has included a carve-out within the provisions for ring-fenced BLAGAB losses to be used against future BLAGAB profits.

The financial services sector has also been exempted from the implementation of the new digital services tax, which is a welcome break for the financial services sector as so much of their business is done through online marketplaces now.

The government intends to introduce a levy on firms that are subject to Money Laundering Regulations, to help fund the government’s plans to tackle economic crime, as detailed in the Economic Crime Plan 2019 – 2022. This would impact many firms such as financial services institutions and professional services firms. Further information will be published later this Spring as part of a consultation.

Banks with annual taxable profits above £25m pay an 8% bank profit surcharge on top of the 19% corporation tax they pay. From 11 March 2020, elections to transfer capital losses from non-banking group companies into banking group companies will no longer be effective in reducing in-year chargeable gains subject to the 8% bank profits surcharge (they were already ineffective in off-setting chargeable gains arising in subsequent years). Consequently, such elections will only be effective to relieve tax on gains within the banking group at the 19% corporation tax rate, not at the combined 27% rate.

In the context of mitigation of the effects on businesses due to the coronavirus, the Chancellor referred to the Bank of England’s announcement of a term funding scheme to encourage banks to lend to small and medium sized businesses, guaranteed by central bank reserves.

General measures applicable to the financial services sector

As expected, the rate of corporation tax will not, for the time being, be reduced below its current rate of 19%.

Longer term measures designed to spur increased investment by UK businesses will benefit financial services businesses.

The increase in the Structures and Buildings Allowance (‘SBA’) from 2% to 3% a year benefits businesses investing in new non-residential structures and buildings. Qualifying buildings include offices, retail space and other business premises and could be an attractive incentive in making investment decisions.

To incentivise UK innovation activity by large businesses, the Chancellor has raised the rate of the tax credit available in respect of R&D expenditure – RDEC increases from 12% to 13%. In the financial services sector, this should be an attractive factor in making decisions to invest in new technologies, such as specialised software and IT systems.

Gibraltar based financial services firms operating in the UK will be relieved to know that the government intends to introduce a new long-term framework between the UK and Gibraltar to provide mutual market access.  In a consultation paper issued today the government has proposed a new Gibraltar Authorisation Regime (GAR) which will offer wholesale and retail market access to the UK for Gibraltar firms.  If implemented, GAR will require Gibraltar firms to comply with UK standards as they are and as they develop over time.  This will introduce a greater degree of alignment between the Gibraltar regulatory regime and the UK regulatory regime than is currently required by current EU regulation since the UK has introduced more robust regulatory standards than those required by the EU in certain areas. 

What did not happen?

There were no changes to Insurance Premium Tax after the consultation last summer. This may still come later in the year after HMRC publishes the results of its consultation with a further one to follow.