Policy paper

The Taxation of Banks (Amendments to the Corporation Tax Act 2009, the Corporation Tax Act 2010 and Finance Act 2011) Regulations 2022

Published 15 March 2022

Who is likely to be affected

Banking companies and groups that include a banking company, within the charge to Corporation Tax.

General description of the measure

There are a number of bank-specific tax rules, the:

• Bank Levy, the bank Corporation Tax surcharge
• Code of Practice on Taxation for Banks
• bank loss relief restriction
• restriction on tax relief for banks’ compensation payments

These rules apply to banking companies or groups, the definitions of which are contained within the legislation for each of these rules. These definitions rely on terms contained within the Financial Conduct Authority’s (FCA) Handbook. Some of these terms are no longer current following the introduction of the new Investment Firm Prudential Regime (IFPR) on 1 January 2022.

This instrument makes technical changes to the bank-specific tax rules to ensure that those companies and groups currently defined as banking companies or banking groups within the respective legislation continue to be so defined.

Policy objective

This measure will ensure that the bank-specific tax rules continue to operate as intended following the introduction of the IFPR.

The bank-specific tax rules contain definitions that reference terms defined in the FCA Handbook. Some of those terms were replaced or removed when the IFPR was introduced. This measure amends the definitions in the bank-specific tax rules to ensure that those rules continue to be effective.

The bank-specific tax rules were introduced between 2010 and 2015. To be within the bank-specific tax rules, a firm needs to fall within certain regulatory definitions and to be undertaking relevant regulated activities. In 2017, the FCA started to regulate firms operating an organised trading facility. This activity is added to the list of relevant regulated activities.

Background to the measure

The regulation making powers used in this measure were introduced by section 134 of Finance Act 2021. A tax information and impact note was published on 3 March 2021 and gives further information on the background to the regulation making powers.

Draft regulations were subject to consultation from 30 November 2021 to 14 January 2022.

Detailed proposal

Operative date

This measure will take effect on 5 April 2022.

The updated definitions in the bank-specific tax rules will apply retrospectively from 1 January 2022.

The amendment to add operating an organised trading facility to the list of relevant regulated activities will have effect prospectively, from 5 April 2022.

Current law

The Bank Levy is included in Schedule 19 to the Finance Act 2011. Definitions for the Bank Levy also apply for the Code of Practice on Taxation for Banks.

The Surcharge and bank loss relief restriction are included in Part 7A of the Corporation Tax Act 2010.

The Compensation Restriction is included within Chapter 9 of the Corporation Tax Act 2009, from sections 133A to 133N.

Proposed revisions

The current definitions in the bank-specific tax rules rely on terms in the FCA Handbook which have been replaced or removed following the introduction of the IFPR.

These regulations update the definitions of banking company in Chapter 9 of the Corporation Tax Act 2009, Part 7A of the Corporation Tax Act 2010, and Schedule 19 to the Finance Act 2011. The updated definitions are either self-standing or refer to terms used in the Financial Services and Markets Act 2000 or the current FCA Handbook. The revisions aim to ensure those firms that were subject to the bank-specific tax rules on 31 December 2021 will continue to be subject to them from 1 January 2022.

In addition to this, the list of relevant regulated activities will be updated to add the activity of operating an organised trading facility.

Summary of impacts

Exchequer impact (£m)

2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026	2026 to 2027
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

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 the estimated 350 banks affected by the bank-specific tax rules.

One-off costs for these businesses will include familiarisation with the new rules. There are not expected to be any further one-off costs or continuing costs.

Customer experience is expected to stay broadly the same because the changes made by these regulations do 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 has 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.

Declaration

John Glen MP, Economic Secretary to the Treasury, has read this tax information and impact note and is satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impacts of the measure.