Amendments to the surcharge on banking companies
Published 27 October 2021
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This publication is available at https://www.gov.uk/government/publications/amendments-to-the-surcharge-on-banking-companies/amendments-to-the-surcharge-on-banking-companies
Who is likely to be affected
Banking companies including building societies (banks) within the charge to UK Corporation Tax (CT).
General description of the measure
The bank Corporation Tax Surcharge (Surcharge) is a charge of 8% on the profits of banks, payable in addition to CT. The Surcharge profits are calculated on the same basis as for CT, but with some reliefs denied. Groups with banking companies (banking groups) have an allowance of £25 million, which can be assigned to banks within the group. The surcharge is charged on any surcharge profits that exceed this amount.
This measure amends the rate at which the Surcharge will be charged, setting it at 3% from 1 April 2023, and increases the Surcharge allowance available for banking groups from £25 million to £100 million.
Policy objective
Following the announced increase in the CT rate to 25% from April 2023, this rate change seeks to maintain the contribution to the Exchequer from the banking sector at a sustainable level that does not have an adverse effect on the UK’s ability to attract and retain internationally-mobile business and jobs. Banks will continue to pay a higher rate of tax on their profits than other companies, and more than they do now, with their combined tax rate on profits increasing from 27% to 28%.
The change to the allowance will increase the amount of profits that banks can make before they start to pay the Surcharge. This will support growth for small and mid-sized banks within the domestic banking sector and promote competition to the benefit of consumers.
Background to the measure
A review of the Surcharge was announced at Spring Budget 2021 following the announcement of the increase to the CT rate from 19% to 25%, from April 2023.
Following an extensive review, the rate of Surcharge will be set at 3% and the Surcharge allowance increased to £100 million. This will help ensure that the sector remains internationally competitive, whilst also promoting growth within the sector. Banks will still pay more tax than other companies on their profits, and more than they do now.
Since 2010, banks have been subject to sector-specific taxes. As a result they have made an additional contribution to public finances, reflecting the risks that they pose to the UK financial system and wider economy and recognising the costs arising from the financial crisis. When this rate change is taken alongside the increase in the headline rate of corporation tax from 19% to 25% from April 2023, banks will be taxed at a combined rate of 28% on their profit.
Detailed proposal
Operative date
This amendment will have effect for accounting periods beginning on or after 1 April 2023. Where a company’s accounting period straddles 1 April 2023, the period will be split on a time apportionment basis and the Surcharge will apply at 3% to the profits of the notional period commencing on 1 April 2023. The allowance will be split on a time apportionment basis so that the increased allowance applies to the notional period commencing on 1 April 2023.
Current law
Current law is included in Chapter 4 of Part 7A of the Corporation Tax Act 2010 (CTA 2010), with the rate set at section 269DA of CTA 2010, and the rules for the allowance between sections 269DE and 269DK CTA 2010.
Proposed revisions
Legislation will be introduced in Finance Bill 2021-22 to amend Chapter 4 of Part 7A CTA 2010.
From 1 April 2023, the rate applied to Surcharge profits will be 3%, and the allowance will be £100 million.
Where a company’s accounting period straddles 1 April 2023, the period will be split on a time apportionment basis and the Surcharge will apply at 3% to the profits of the notional period commencing on 1 April 2023.
Where a company’s accounting period straddles 1 April 2023, the period will be split on a time apportionment basis, and the Surcharge will apply on the profits of banking companies in a group above their share of the pro-rated allowance for each notional period.
Supplementary Controlled Foreign Companies (CFC) charge
The appropriate rate to apply in charging the CFC charge for a banking company is a rate equivalent to the total of the UK main rate of CT and the rate for the Surcharge.
Where such a company’s accounting period straddles 1 April 2023, the period will be split on a time apportionment basis.
Summary of impacts
Exchequer impact (£m)
| 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 | 2026 to 2027 |
|---|---|---|---|---|---|
| — | -220 | -830 | -975 | -995 | -1,020 |
These figures are set out in Table 5.1 of Budget 2021 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2021.
These costings account for the impact of amending the surcharge only, and thus exclude the revenue raised from the increase in Corporation Tax announced and set out at Spring Budget 2021. Overall, banks will pay more tax as a result of changes announced this year
Economic impact
This measure is expected to have a small positive impact on business investment.
The terms used in this section are defined in line with the Office for Budget Responsibility’s indirect effects process. This will apply where, for example, a measure affects inflation or growth. You can request further details regarding this measure at the email address listed below.
Impact on individuals, households and families
This measure is not expected to impact on individuals as it only affects banks. There is expected to be no impact on family formation, stability or breakdown.
Equalities impacts
It is not anticipated that there will be impacts on groups sharing protected characteristics.
Impact on business including civil society organisations
This measure is expected to have a negligible impact on approximately 100 banks affected by the bank Surcharge.
One-off costs for these businesses will include familiarisation with the new rules and updating systems and software. There are not expected to be any continuing costs. Customer experience is expected to remain broadly the same as this measure does not alter how banks interact with HMRC.
This measure is not expected to impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There are no financial consequences for HMRC.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The measure will be kept under review through communication with affected taxpayer groups.
Further advice
If you have any questions about this change, please contact the Financial Services Policy Team Email: financialservicesbai@hmrc.gov.uk.