Powers to amend key definitions for banking companies
Published 3 March 2021
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This publication is available at https://www.gov.uk/government/publications/powers-to-amend-interpretation-and-other-provisions-relating-to-banks/powers-to-amend-key-definitions-for-banking-companies
Who is likely to be affected
Banking companies and groups that include a banking company (banks), within the charge to UK Corporation Tax and the scope of the Bank Levy.
General description of the measure
There are bank-specific tax rules: the Bank Levy, the bank Corporation Tax surcharge (Surcharge), the Code of Practice on Taxation, the bank loss relief restriction, and the restriction on tax relief for banks’ compensation payments (Compensation Restriction), all of which apply to banks, as defined within their respective legislation.
These rules apply to banking companies or groups, the definitions of which are contained within the legislation of each of these rules. Parts of these definitions rely on terms contained within the Financial Conduct Authority’s (FCA) current Handbook. These terms will cease to exist following the introduction of the new Investment Firm Prudential Regime (“IFPR”) from 1 January 2022. The FCA is currently consulting on the proposed IFPR rules.
This measure updates the powers in the bank-specific tax rules to make amendments to those rules by regulations made by statutory instruments.
The definitions will be updated by regulations after the IFPR rules are finalised.
Policy objective
This measure will ensure that the bank-specific tax rules will continue to operate as intended following the introduction of the IFPR.
The bank-specific tax rules contain definitions that reference terms defined in the current FCA Handbook. Those terms will be replaced when the IFPR is introduced, and therefore the definitions in the bank-specific tax rules will need to be amended to ensure that these rules continue to be effective.
The updated powers will have limited retrospective power, that will ensure that no bank within the population at 31 December 2021 will cease to be within the scope on 1 January 2022, if amendments have not taken effect from that date.
Background to the measure
This measure was announced alongside the announcement of the Financial Services Bill in Budget 2020.
Detailed proposal
Operative date
The measure will take effect on the date of Royal Assent to Finance Bill 2021.
Current law
The bank levy is included in Schedule 19 to Finance Act 2011. The current power to make consequential changes is included in Part 9 of Schedule 19.
The Surcharge and bank loss relief restriction are included in Part 7A of Corporation Tax Act 2010. The current power to make consequential changes is contained in Chapters 2 and 4 of this Part.
The Compensation Restriction is included within Chapter 9 of Corporation Tax Act 2009, from sections 133A to 133N.
Proposed revisions
Legislation will be introduced in Finance Bill 2021 to amend the powers in Part 9 of Schedule 19 to Finance Act 2011, section 133N of Corporation Tax Act 2009, and Chapters 2 and 4 of Part 7A of Corporation Tax Act 2010.
The definitions in the bank-specific tax rules rely on terms in the FCA Handbook, which will be removed following the introduction of the IFPR.
The updated powers will allow HM Treasury to make amendments to these definitions by regulations made by statutory instrument once the IFPR rules are finalised.
The government will consult on these regulations later this year.
Regulations made, on or before 30 June 2022 under these updated powers may have retrospective effect from 1 January 2022 to ensure that no bank falls out of charge, and they may contain transitional provisions. Any such regulations must be laid before and approved by a resolution of the House of Commons.
Summary of impacts
Exchequer impact (£m)
| 2020 to 2021 | 2021 to 2022 | 2022 to 2023 | 2023 to 2024 | 2024 to 2025 | 2025 to 2026 |
|---|---|---|---|---|---|
| - | 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 continuing costs.
This measure is not expected to impact on civil society organisations.
Customer experience is expected to stay broadly the same because this is an amendment to existing powers to make regulations by statutory instruments.
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 Robby Wells on Telephone: 03000 530 261 or email: robby.wells@hmrc.gov.uk.