Bank corporation tax surcharge

Bank corporation tax surcharge 

What is it?

The bank corporation tax surcharge is an additional tax on banking profits calculated on the same basis as corporation tax. It was introduced in 2016 at a rate of 8 per cent on profits over £25 million. The rate is scheduled to fall to 3 per cent from April 2023.[1]

 

What’s the problem with it?

Bank profits are a measure of a bank’s efficiency with the resources it employs. Using profits to measure the special risks to taxpayers from the banking sector is an arbitrary and therefore distortionary approach which weakens the sector, deterring investment and destroying jobs. Profitability in the sector should be encouraged, not penalised. Given the importance of banking and financial and business services in general to the British economy, this is a reckless approach to good tax design.

Different rates always give rise to tax avoidance opportunities which in turn breeds economically wasteful complexity from the inevitable anti-avoidance measures which are introduced to prevent the avoidance. Avoidance measures have already been introduced to this effect.[2]

 

What should be done?

The bank corporation tax surcharge should be abolished immediately, leaving the bank levy to reflect the special risks arising from the banking sector until they can be fully addressed by regulatory powers for the Bank of England.

 

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[1] HM Treasury, Autumn Statement 2022, November 2022, p. 51.

[2] HM Revenue & Customs, Policy paper: Bank Corporation Tax surcharge, 8 July 2015, www.gov.uk/government/publications/bank-corporation-tax-surcharge/bank-corporation-tax-surcharge, (accessed 7 November 2022).

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