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HMRC internal manual

Corporate Finance Manual

Understanding corporate finance: the legal and regulatory framework: regulated entities: banks

Definition of a bank

For regulatory purposes, a bank is a person who has permission from the FSA, under Part 4 of FSMA2000, to carry on a regulated activity of accepting deposits.

As a matter of general law a bank is defined by what it does. It

  • accepts money, collects cheques for customers and places them to their credit;
  • honours cheques for customers when presented, and debits customer accounts accordingly;
  • keeps current accounts, or something of that nature in which the debits and credits are entered.

These factual tests were established in a non-tax case, United Dominions Trust Ltd v Kirkwood (1 All ER 968). Although a bank is entitled to use the money to lend on to customers, money lending by itself is not banking. For the taxation of moneylenders see the Business Income Manual (BIM62201). The Court found that UDT did not pass the factual tests but was nevertheless a bank because it had the reputation and standing of a bank in the City of London. This demonstrates that banking is not just a question of passing a number of factual tests - there must also be a perception of the company as a bank.

For certain purposes the question of what is a bank has been settled by ICTA88/S840A and ITA07/S991. This says that a company is a bank if it is regulated as a bank by the FSA and defines bank for the following purposes:

ITA07/SS878 & 879 Deduction of tax from interest
ICTA88/S234A Information relating to distributions
ITA70/S750 Obligation to provide information (banks excluded)
ICTA88/S816 Obligation to provide information (applies to banks)
ICTA88/SCH20/PARA7 & 10 Certain deposits with banks are qualified investments
ITA07/S558 & S561; TMA70/S17 Returns from banks
TMA70/S18 Obligation to supply information (banks excluded)
TMA70/S24 Obligation to disclose particulars (banks excluded)

HMRC maintains a list of recognised banks - CFM14070.