Bank Levy: changes to the scope and administration
Published 13 September 2017
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Who is likely to be affected
Banks and building societies liable to pay the Bank Levy.
General description of the measure
From 2021, the Bank Levy will be chargeable only on the UK balance sheet equity and liabilities of banks and building societies. Broadly, this means that overseas activities of UK headquartered banking groups will no longer be subject to the Bank Levy.
The measure also provides for the amount of UK equity and liabilities subject to the Bank Levy to be reduced in various circumstances, for example where a UK bank holds certain types of ‘loss absorbing’ investments in an overseas subsidiary.
In addition, various other changes and administrative simplifications to the Bank Levy will apply from 2018, including the process under which groups nominate a member to meet their Bank Levy obligations and to rules governing the shared liability of group members for Bank Levy amounts.
Policy objective
These changes are part of a wider package of measures that will provide a sustainable basis for raising revenue from the banking sector in the long-term, while recognising developments in the regulatory and resolution regimes that apply to banks. The measure also includes changes to simplify the administration of the Bank Levy.
Background to the measure
The Bank Levy was introduced in 2011. Its purpose is to ensure that banks and building societies make a fair contribution, reflecting the risks they pose to the financial system and the wider UK economy. The Bank Levy was also designed to create appropriate incentives to encourage banks to move away from riskier funding models.
Summer Budget 2015 set out a long-term plan for taxation of the UK’s financial services industry. This balanced the need to ensure that the financial sector remains robust, highly competitive and open for business against the ongoing need for banks and building societies to make an appropriate tax contribution that reflects their unique risks to the UK financial system and wider economy.
The plan included the introduction of a new 8% Corporation Tax surcharge on banking sector profits from 1 January 2016 and a phased reduction of the Bank Levy rate between 2015 and 2021. In addition, to reflect significant changes in international regulation and resolution planning that are reducing the risk of overseas banking operations to the UK, a change in the scope of the Bank Levy was announced. The Bank Levy will therefore only be chargeable on UK balance sheet equity and liabilities from 2021.
In December 2015, the government published a consultation setting out objectives for the change to the scope of the Bank Levy from 2021, as well as proposals for delivering these objectives in legislation.
In December 2016, the government responded to this consultation and set out detailed proposals for changes to the Bank Levy, as well as areas in which it believed further work and discussion with interested parties was necessary.
Detailed proposal
Operative date
New rules on joint and several liability of group members will have effect for periods of account ending on or after 1 January 2018.
Changes in relation to the nomination of a group’s responsible member will have effect on and after the date of Royal Assent to Finance Bill 2018.
Other changes will have effect for periods of account ending on and after 1 January 2021.
Current law
Schedule 19 to Finance Act 2011 (Schedule 19) sets out the scope of the Bank Levy for UK and overseas banks - including (at Part 4 of Schedule 19) the equity and liabilities on which Bank Levy is chargeable. Part 4 includes detailed provisions concerning the calculation of amounts on which the Bank Levy is chargeable. This includes rules that allow liabilities to be removed from the chargeable scope of the tax when they are ‘netted’ against assets recognised on a Bank Levy payer’s balance sheet, under a netting agreement.
The current law provides separate calculation methods for UK banking groups, overseas banking groups, relevant non-banking groups and banks or building societies that are not members of groups. Bank Levy is chargeable on the worldwide balance sheets of UK banking groups. By contrast, overseas banking groups and relevant non-banking groups calculate Bank Levy amounts due with reference to the activities of only certain group members (for example, relevant UK sub-groups and UK resident entities or branches).
Elsewhere, Part 6 of Schedule 19 concerns the collection and management of the Bank Levy and provides joint and several liability of certain group members for Bank Levy amounts due. Part 6 also requires the annual nomination by a group of a ‘responsible member’ who will be responsible for meeting the group’s Bank Levy obligations.
Proposed revisions
Winter Finance Bill 2017 will include a rewrite of Part 4 of Schedule 19. This will provide a single set of Bank Levy rules that will apply from 2021 for all Bank Levy payers.
Revisions to Part 4 will provide that, broadly, the Bank Levy will only apply to the UK-based equity and liabilities of:
- members of banking groups that are:
- UK sub-groups
- UK resident entities
- relevant foreign banks with permanent establishments in the UK
- members of relevant non-banking groups that are:
- UK sub-groups with a UK resident bank as its parent entity
- UK resident banks
- subsidiaries of UK resident banks
- relevant foreign banks with permanent establishments in the UK
- non-group entities that are:
- UK resident banks or building societies
- relevant foreign banks with permanent establishments in the UK
Equity and liabilities attributable to non-UK resident entities will usually be outside the Bank Levy charge.
As part of these changes, groups will also be able to disregard from their Bank Levy calculation any equity and liabilities attributable to overseas branches of UK entities. Legislation will set out a method for calculating the equity and liabilities that can be disregarded in this way.
The revisions also introduce new features designed to simplify the calculation of the Bank Levy. For example, groups will be permitted to choose whether to calculate the equity and liabilities of a sub-group member as part of a wider calculation for the whole sub-group, or on a stand-alone basis.
A new deduction from a group’s equity and liabilities that are chargeable to the Bank Levy will be available for certain loss-absorbing instruments issued by an overseas subsidiary of a UK resident group member. Full details of the deduction, and the instruments that will be eligible, will be set out in secondary legislation, once the appropriate regulatory standards are in place.
The ‘netting’ rules for UK and overseas groups will also be modified, so that amounts owed to any member of the group (whether within or outside the scope of the Bank Levy) can form part of a netting agreement. This will establish a single set of netting rules for both UK and overseas groups.
Revisions to Part 6 of Schedule 19 will replace the current requirement that groups annually nominate a ‘responsible member’ to meet their Bank Levy obligations with an option to automatically renew an entity’s responsible member status. The joint and several liability rules in Part 6 will also be updated, consistent with ring-fencing, which requires large UK banks to separate retail banking activity from the rest of their business. This change will limit the extent to which certain members of a bank’s ring-fenced group will be liable for the Bank Levy debts that are attributable to non-ring-fenced entities.
Elsewhere, redundant provisions relating to joint ventures will be removed from Part 5 of Schedule 19.
Summary of impacts
Exchequer impact (£m)
| 2016 to 2017 | 2017 to 2018 | 2018 to 2019 | 2019 to 2020 | 2020 to 2021 |
|---|---|---|---|---|
| + 415 | + 555 | + 365 | + 225 | + 105 |
These figures are set out in Table 2.1 of Summer Budget 2015 as ‘Banks: 8% Corporation Tax Surcharge and changes to Bank Levy’ and have been certified by the Office for Budget Responsibility. They represent the combined Exchequer impact of ‘Bank Corporation Tax Surcharge’ and ‘Bank Levy: rate reduction’. The specific component covered in this note has an associated cost to the Exchequer which is incorporated into these figures.
More details can be found in the policy costings document published alongside Summer Budget 2015.
Economic impact
This measure is not expected to have any significant macroeconomic impacts.
Impact on individuals, households and families
The measure concerns changes to the Bank Levy, which is paid only by banks and building societies. No impact is expected for individuals.
The measure is not expected to impact on family formation, stability or breakdown.
Equalities impacts
The measure concerns changes to the Bank Levy, which is paid only by banks and building societies. No impact is expected for individuals.
Impact on business including civil society organisations
The Bank Levy applies to a small number of banks with chargeable equity and liabilities of £20 billion or more. The changes will reduce the Bank Levy payable by certain banks, by focusing the charge on UK (rather than worldwide) balance sheets. The greatest positive impact is expected to be for UK banking groups that have overseas business activities. The measure is expected to level the playing field between UK and foreign banking groups and reduce the impact of the Bank Levy on these overseas activities.
The joint and several liability rules will also be updated to limit the extent to which members of a bank’s ring-fenced group will be liable for the Bank Levy debts of non-ring-fenced entities.
One-off costs are expected to include initial set-up and familiarisation with the measure in the run-up to the changes taking effect. Ongoing savings are expected from simplification of the administration of the Bank Levy, due to the removal of the obligation on Bank Levy paying groups to nominate a responsible member each year. HM Revenue and Customs (HMRC) will continue to work with banks and their representatives to identify any further impacts in the run-up to these changes taking effect.
There is no impact on civil society organisations.
Operational impact (£m) (HMRC or other)
There will be negligible operational impact for these changes.
Other impacts
Other impacts have been considered and none have been identified.
Monitoring and evaluation
The impacts of these changes will be monitored and evaluated on an ongoing basis through analysis of Bank Levy receipts and information submitted by Bank Levy payers.
Further advice
If you have any questions about this change, please contact either:
John Mcloughlin
Email: john.mcloughlin@hmrc.gsi.gov.uk
Telephone: 03000 585217
Steven Tovey
Email: steven.tovey@hmrc.gsi.gov.uk
Telephone: 03000 542532
Declaration
Mel Stride MP, Financial 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.