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Bank levy update
Practical Law UK Legal Update 3-502-9346 (Approx. 3 pages)
This article is part of the PLC Global Finance July 2010 e-mail update for the United Kingdom.
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On 13 July 2010, the UK Treasury published a consultation paper seeking views on how best to implement the new banking levy. This article outlines key details of the levy and the new points arising from the consultation paper.
On 13 July 2010, the UK Treasury published a consultation paper seeking views on how best to implement the new banking levy.
The UK tax will apply to banks, including the UK operations of non-UK banks, which have "relevant aggregate liabilities" on their group's balance sheets of at least GB£20 billion.
"Relevant aggregate liabilities" means the total liabilities and equity shown on the balance sheet, less:
- Tier 1 capital.
- Insured retail deposits.
- Repos secured on sovereign debt.
- Policyholder liabilities of retail insurance business.
Key details of the UK levy are:
- During 2011, the levy will be charged at 0.04 per cent of the relevant aggregate liabilities.
- After 2011, the levy will rise to 0.07 per cent.
- Funding with more than a year remaining until maturity at the balance sheet date will be taxed at half the normal rate.
- No corporation tax deduction will be available for the levy.
The new points arising from the consultation document include:
- Building societies will not be subject to the levy.
- Whether companies are in a banking group will be tested using accounting principles.
- Liabilities and Tier 1 capital will be allocated between branches of a non-UK bank, by way of the capital attribution methodology which some banks already use to calculate the amount of interest which is deductible for a branch.
- A single company in a banking group will be responsible for managing the process of filing returns and paying the levy. Banking groups can choose the identity of this company provided that HMRC agree.
- The levy will be payable in quarterly instalments.
- The legislation will contain an anti-avoidance provision which will result in any transactions or arrangements entered into with the main purpose of reducing liability to pay the levy being ignored.
- Where tax legislation contains a provision which applies where a main purpose is trying to obtain a tax advantage, the rules will be changed so that obtaining a reduction in bank levy will also trigger the provision. For example, interest payable on loans entered into with a main purpose to avoid the levy will not be deductible.
- The Government will be discussing with other governments how to avoid banks being subject to bank levies in more than one jurisdiction on the same relevant aggregate liabilities.
The new levy should be introduced from 1 January 2011. Draft legislation is not expected until the autumn and will be included in the 2011 Finance Bill.