BKM409200 - Banking surcharge: commencement rules: accounting periods straddling 1 January 2027 and 1 April 2028
The changes detailed on this page are set out in Clause 7 of the Finance Bill 2026-27, which is subject to Royal Assent. The changes, set out in the Budget Resolution published on 28 October 2026, have provisional statutory effect under the provisions of the Provisional Collection of Taxes Act 1968.
As announced at Budget 2026, from 1 January 2027 the surcharge rate will temporarily increase from 3% to 6%. From 1 April 2028 the rate will revert to 3%.
If a banking company has an accounting period which straddles 1 January 2027, this is to be split into two separate accounting periods – one ending on 31 December 2026, and one commencing on 1 January 2027. Similarly, where an accounting period straddles 1 April 2028, the period is to be split into two, with one period ending on 31 March 2028 and one commencing on 1 April 2028.
The surcharge profits of a straddling period are apportioned to the two separate accounting periods on a time basis or, if that produces a result which is unjust or unreasonable, on a just and reasonable basis. The surcharge allowance available for each notional accounting period is calculated proportionally on a time basis, in accordance with subsections 269DE(5) and 269DJ(4) of CTA 2010.
Quarterly Instalment Payments (QIPs)
Where a banking company has an accounting period which straddles 1 January 2027 (a “January 2027 straddling period”), one or more of its instalment payments in respect of that straddling period may have been due and payable before the rate change was announced on 28 October 2026. Where this is the case, the amount of any instalment payment payable on or before 28 October 2026 for a January 2027 straddling period is determined as if the rate change had not been made.
This means that instalment payments for January 2027 straddling periods payable before 29 October 2026 will not reflect the increase in the surcharge rate. In such cases, the difference between the amounts paid and the amounts which would have otherwise been due (having regard to the rate change) is added to the company’s first instalment which is due and payable after 28 October 2026.
Example
Company A is a banking company with a 12 month accounting period ending on 31 March 2027. Its QIPs are calculated and paid based on its estimated surcharge profits for the period (exceeding the allowance) of £200 million.
Company A’s instalments for the period are due and payable on 14 June 2026, 14 September 2026, 14 December 2026 and 14 March 2027. Company A’s first and second payments were therefore due and payable before 29 October 2026.
At the time of making the first and second instalment payments, Company A would have expected its surcharge liability for the period to be £6,000,000, being £200,000,000 x 3%. The first and second payments would have therefore each included a payment of £1,500,000 in respect of the estimated surcharge liability for the period.
However, following the announcement of the rate change at Budget 2026, and assuming the surcharge profits are apportioned on a time basis, Company A now estimates its surcharge liability for the period as £7,479,452, calculated as follows:
| Notional period | Surcharge profits exceeding the allowance | Rate | Liability |
|---|---|---|---|
| 1 April 2026 to 31 December 2026 (275 days) | £150,684,931 | 3% | £4,520,548 |
| 1 January 2027 to 31 March 2027 (90 days) | £49,315,068 | 6% | £2,958,904 |
Each of Company A’s instalments for the period should therefore be £1,869,863 rather than £1,500,000. However, the amount of the instalments payable before 29 October 2026 are not affected by the rate change and so they continue to be determined as if the rate change had not been made. The effect of this is that, for each instalment payment before 29 October 2026, £369,863 has been left out of account. Company A is therefore required to catch up the difference between these amounts in its first instalment after 28 October 2026. The difference is £739,726, being two times £369,863.
Company A’s first instalment after 28 October 2026 is its third instalment, due and payable on 14 December 2026. The total amount of that instalment is determined based on the rate change which applies from 1 January 2027, plus the amounts left out of account in the previous two instalments. Company A will therefore have a total instalment of £1,869,863 plus £739,726 due and payable on 14 December 2026.
Company A’s final instalment is due and payable on 14 March 2027. Assuming there have been no changes to its estimation of its surcharge profits for the accounting period, a final instalment payment of £1,869,863 will be due, bringing its total payments in line with its liability for the period.
| First instalment | £1,500,000 |
| Second instalment | £1,500,000 |
| Third instalment | £2,609,589 |
| Final instalment | £1,869,863 |
| Total | £7,479,452 |