Measure

Bank Surcharge Rates

The measure

The Chancellor today announced changes to the banking surcharge. This surcharge applies to the profits of corporation taxpayers who meet the definition of a ‘banking company’. It therefore applies to relatively few companies. 

The headline change announced today was: 

  • Surcharge Rate: a temporary 3 percentage point increase in the surcharge rate, from 3% to 6% for 15 months from 1 January 2027 to 31 March 2028. 

The measure is projected to raise approximately £1.5 billion additional tax over the 15-month period. 

The surcharge allowance of £100m remains unchanged. 

 

Who will be affected?

Banking companies, including building societies. 

 

When will the measure come into effect?

The changes will apply from 1 January 2027 to 31 March 2028. Proposed legislation will be included within the forthcoming Finance Bill.

Our view

The recurrent speculation that banks would be the subject of increased taxes in this Budget has proved correct. As expected, the increase has come in the form of a rise in the surcharge rate, as opposed to a moratorium on the use of carried forward tax losses, a windfall tax on ‘excess profits’ of the type seen across Europe in the last few years or an increase in the bank levy. 

Consideration will need to be given to whether it is necessary to re-measure deferred tax assets (DTAs) and deferred tax liabilities (DTLs) in entities subject to the bank surcharge following the relevant trigger point under the applicable accounting standards (e.g., substantive enactment under IFRS or enactment under U.S. GAAP). Consideration will also need to be given to any potential disclosure obligations in advance of the trigger point for re‑measurement.

The valuation of temporary difference DTAs may also be relevant for Common Equity Tier 1 (CET1) capital purposes under the Basel 3 framework, where there is scope under the applicable threshold tests for recognition of temporary difference DTAs as a component of CET1.