Bank taxation (amendments to the 2009 corporation tax law, 2010 corporation tax law and 2011 finance law) Regulation 2022

Who is likely to be affected

Banking companies and groups which include a banking company, subject to corporation tax.

General description of the measure

There are a certain number of fiscal rules specific to banks: the bank direct debit, the surcharge on the banking corporation tax (Surcharge), the Bank Taxation Code of Practice, the Bank Loss Relief Restriction, and the Tax Relief Restriction for Bank Indemnity Payments (Compensation restriction).

These rules apply to companies or banking groups whose definitions appear in the legislation for each of these rules. These definitions are based on terms contained in the Financial Conduct Authority (FCA) Manual. Some of these conditions will no longer be relevant following the introduction of the new prudential regime for investment firms (IFPR) from January 1, 2022. The FCA published the final rules of IFPR in October 2021.

This instrument amends the bank specific tax rules to update the definitions so that companies and groups currently defined as banking companies or banking groups in the respective legislation continue to be defined as such.

Policy objective

This will ensure that bank-specific tax rules continue to function as intended after the introduction of the IFPR.

The bank’s own tax rules contain definitions that refer to the terms defined in the FCA Manual. Some of these terms will be replaced when the IFPR is introduced. This measure changes the definitions of bank specific tax rules to ensure that these rules continue to be effective.

Bank-specific tax rules were introduced between 2010 and 2015. To comply with bank-specific tax rules, a business must fall under certain regulatory regimes and carry out relevant regulated activities. In 2017, the FCA began to regulate companies operating an organized trading system. This activity will now be added to the list of relevant regulated activities.

Context of the measure

The regulatory powers used in this measure were introduced by article 134 of the 2021 finance law. An information and fiscal impact note, Powers to modify the key definitions of banking companies, was published on March 3 2021 and provides details on the context of the regulation. make powers.

The government published a draft regulation on November 30, 2021 and will consult the relevant stakeholders on this regulation.

Detailed proposal

Effective date

This measure will take effect 21 days after the day of the taking of this act.

The updated definitions in the bank specific tax rules will apply retrospectively from January 1, 2022. The amendment to add the operation of an organized trading facility to the list of relevant regulated activities will take effect as of January 1, 2022. prospective, from 21 days after the date on which this instrument is installed.

Current law

Direct debit is included in appendix 19 of the 2011 finance law. The definitions of direct debit also apply to the Code of Practice on Banking Taxation.

the Surcharge and the bank loss relief restriction are included in Part 7A of the Corporation Tax Act 2010. Compensation restriction is included in Chapter 9 of the Corporation Tax Act 2009, sections 133A to 133N.

Proposed revisions

The definitions of the tax rules specific to the bank are based on the terms of the FCA Manual which will be deleted following the introduction of the IFPR.

This regulation updates the definitions of banking company in chapter 9 of the 2009 corporation tax law, part 7A of the 2010 corporation tax law and in appendix 19 of the finance law 2011. Updated definitions will refer to terms used in financial services and markets. Law 2000 and the update FCA Manual. It aims to ensure that companies subject to bank specific tax rules on December 31, 2021 will continue to be subject to January 1, 2022.

In addition to this, the list of relevant regulated activities will be updated to add the activity of operating an organized trading system.

Summary of impacts

Chessboard impact (millions of pounds sterling)

This measure should not have an impact on the chessboard.

Economic impact

This measure is not expected to have significant economic impacts.

Impact on individuals, households and families

This measure should not have an impact on individuals because it only concerns banks. There should be no impact on the formation, stability or breakdown of the family.

Impacts on equality

It is not expected that there will be any impacts on groups sharing protected characteristics.

Impact on businesses, including civil society organizations

This measure should have a negligible impact on the 350 banks estimated to be affected by the bank specific tax rules.

One-time costs for these companies will include familiarization with the new rules. We do not expect that there will be ongoing costs.

The customer experience is expected to remain broadly the same, as the changes made by these regulations do not change the way banks interact with HMRC.

This measure should not have any impact on civil society organizations.

Operational impact (millions of pounds sterling) (HMRC or other)

There are no financial consequences for HMRC.

Other impacts

Other impacts have been taken into account and none have been identified.

Monitoring and evaluation

The measure will be reviewed through communications with affected taxpayer groups.

Additional tips

If you have any questions about this change, contact the Financial Services Policy team. Email: financialservicesbai@hmrc.gov.uk.

Declaration

John Glen MP, Economic Secretary to the Treasury, has read this tax information and impact note and is confident that, given the available evidence, this represents a reasonable view of the costs, benefits and likely impacts of the measure.