Respite for Big Banks

Respite for Big Banks

Wed 08 Jul 2015

The Summer Budget brought some respite for big banks from the ever increasing Bank Levy. In recent Budgets, increases in the Bank Levy seem to have been used to plug holes in spending elsewhere, and to score political points. The Chancellor today though announced that it would be reduced from 0.21% to 0.10% over the next 6 years. Importantly, to counter the threat of relocation by international banks headquartered in the UK, a change in the scope of bank levy is proposed from 1 January 2021, whereby UK headquartered banks are to be levied on their UK balance sheet liabilities.

However, today also marked the introduction of the Bank Surcharge which looks to tax an inflated profit at 8% in addition to Corporation Tax on the actual taxable profit. This marks an increasing trend by the government to try to tax fictional amounts as though they were taxable profits. Most recently we have had Diverted Profits Tax (DPT) which looks to tax amounts that the government defines as having been potentially “diverted” from the UK at 25%.

The Bank Surcharge starts its calculation of “profit” with the actual taxable profit to which banks will need to add any group relief that they have received from non-banking entities along with any relief obtained from offsetting brought forward losses thereby resulting in immediate cash outflow to the exchequer.

The result is that banks could effectively be taxed in future in the UK at an amount above 30% on their normal taxable profits on the same day that the Chancellor announced further reductions down to 18% for other companies from 2020. The surcharge will also apply to any CFC charges in the UK in addition to Corporation Tax. The one positive aspect of the new Bank Surcharge is the announcement that it will be treated as though it were corporation tax so it will be possible to claim Double Taxation Relief (DTR), as opposed to DPT which was designed to avoid being eligible for DTR. With some banks already publicly considering their position in the UK, these announcements may not collectively dampen the speculation around banks looking to exit.

For further information please contact Ali Kazimi, Banking Tax Partner at


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