The surcharge levied on bank profits will come under review later in the year, in light of planned changes to corporation tax.
Chancellor Rishi Sunak today said the additional bank surcharge of eight per cent on profits would be reviewed because the increase in the main corporate tax to 25 per cent would make UK taxation of banks “uncompetitive”.
The government believes that the combined level of bank taxation would be too high, and as a result the surcharge will come under review.
Isabelle Jenkins, leader of financial services at PwC UK welcomed the review: “The banking sector was watching closely to see whether the government would recognise the potential detrimental impact such a move would have on international competitiveness for banks operating in the UK if the 8 per cent banking surcharge currently in place is retained alongside this increase in the headline rate,” she said.
“The sector will therefore welcome the recognition of this issue by the Chancellor in his speech and the clear indication that the government considers the overall tax rate for banks will be too high if there is no action taken. We await the outcome and proposals of the Government review which is expected to be announced in the autumn.”
The government said it would set out in the autumn how it intends to make changes to the bank surcharge and that the changes would be legislated in the Finance Bill 2021-22.
“The banking sector will be hugely important to credit creation in the coming months in generating growth as the UK economy starts to recover from the pandemic. The government’s clear recognition of the need to review the bank surcharge is therefore to be welcomed,” Jenkins added.
Corporation tax will rise from 19 per cent to 25 per cent by 2023 for UK companies with annual profits of £250,000 or higher.
However a new “super deduction” will also see companies wipe out their tax bills by investing in property, plant and equipment for the next two years.
Companies with profits of less than £50,000 will remain on the 19 per cent corporation tax rate, while there will be a sliding scale for companies with profits between £50,000 and £250,000.