9th November 2016

Banks’ tax contribution climbs to £34.2 billion

  • £17.4 billion was paid by UK banks in year to 31 March 2016, and £16.8 billion by foreign banks
  • Banking sector’s total tax contribution rises by almost 10 per cent on 2014, and now accounts for 5.5 per cent of Government receipts
  • Corporation tax doubles to £3.2 billion; bank levy up 54 per cent to £3.4 billion

New figures published today show that the total tax contribution of the UK banking sector climbed to £34.2 billion in the year to 31 March 2016, a 9.3 per cent increase on the corresponding figure for 2014 (£31.3 billion).

A new report – commissioned by the BBA and based on independent PwC analysis – has found that UK banks paid just over half of the total tax contribution at £17.4 billion (50.9 per cent) while foreign banks contributed £16.8 billion (49.1 per cent).

The increase in the sector’s total tax contribution was almost entirely driven by corporation tax and the bank levy. Changes to the restriction of loss relief and deductibility of compensation payments led to corporation tax climbing to £3.2 billion, an increase of 100 per cent on the previous study in 2014 (£1.6 billion). Further changes are still to come into effect, including an additional eight per cent surcharge tax on bank profits from 1 January this year which will not be reflected until next year’s survey.

Meanwhile, receipts from the bank levy rose to £3.4 billion, up 54 per cent on the £2.2 billion total in 2014, as a result of rate increases.

Employment taxes remained flat and made up £17.8 billion (52.0 per cent) of the overall total. Foreign banks account for 29.3 per cent of employees in the study but 54.5 per cent (£9.7 billion) of employment taxes.

Commenting on the report, BBA Chief Executive Anthony Browne said:

“The UK’s success as a world leading financial centre has been underpinned by a reputation for a fair, stable and transparent tax system. This enables businesses to plan and invest with confidence for the long term.

“Banks are committed to paying their fair share and have been subject to five bank-specific tax measures since 2010. They now pay almost four times the combined cost of putting on the 2012 Olympic and Paralympic Games each year.

“HMRC’s own data and PwC’s independent work both show that the tax take from banks is at its highest level since 2006. This comes at a time when banks’ revenues are under increasing pressure due to a tough economic environment and uncertainty.

“It is more important than ever that the UK remains a competitive place to do business for both domestic and foreign banks, with a propionate and stable tax environment. This matters because banking is the UK’s leading export industry, employs over half a million people right across the UK, two thirds of which are based outside London.”

Irrecoverable VAT paid by banks was estimated at £4.2 billion – accounting for over a quarter (25.9 per cent) of taxes paid directly by banks. Unlike most other sectors, VAT paid by banks cannot be recovered in full and is therefore a cost to the bank. The amount of irrecoverable VAT paid by the sector has increased significantly since 2011 due to increases to the rate as well as increased investment across the sector in IT and infrastructure.

The average total tax rate (TTR) rose from 37 per cent in 2014 to 46.4 per cent in 2016. The TTR is a measure of the cost of all taxes borne in relation to UK profitability before all of those taxes.

ENDS

Notes to editors

For more information, please contact the BBA press office on 020 7216 8989.

2016 Total Tax Contribution of the UK banking sector as a percentage of total UK tax receipts

Extrapolated to UK banking sector (£’bn)
Corporation tax 3.2
Bank levy 3.4
Employment taxes borne 4.3
Irrecoverable VAT 4.2
Other taxes borne 1.1
Employment taxes collected 13.5
Other taxes collected 4.5
Total Tax Contribution 34.2

  • Data for the 2016 study was provided by 36 banks, up from the 29 organisations that participated in 2014. 14 UK banks and 22 foreign banks took part in this year’s study.
  • Study participants accounted for 83 per cent of the wider sector’s employment taxes, 90.9 per cent of bank levy receipts, and 70.7 per cent of corporation tax.  The data was extrapolated to give a figure for the entire UK banking sector that makes 2014, 2015 and 2016 results comparable like for like.
  • The accounting period for the majority of participants was year ended 31 December 2015 and there are a number of measures, including the corporation tax surcharge and further restrictions on brought forward losses.
  • Taxes borne are the company’s own contribution in taxes that impact their results, e.g. corporation tax, employer NIC, irrecoverable VAT and Bank Levy.
  • Taxes collected are those that the company administers on behalf of Government and collects from others, e.g. income tax deducted under PAYE, tax deducted at source, stamp duty reserve tax. Taxes collected will have an administrative cost for the company and will also have an impact on the company’s business.
  • ‘UK bank’ refers to a bank which is headquartered in the UK.  A ‘foreign bank’ is headquartered outside the UK.