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.
These changes are not unexpected. The Chancellor had previously announced a review of the banking surcharge was being undertaken. That review was announced alongside the proposal to increase the main rate of corporation tax from 19% to 25% from 1 April 2023 onwards. Absent any changes, that would have increased the top marginal tax rate charged on banking companies from 27% today to 33% in 2023.
The two headline changes announced today were:
The Chancellor stated the intention was to ensure that the UK banking sector maintained its international competiveness.
Banking companies, including building societies.
The changes will apply from 1 April 2023 onwards. Proposed legislation will be included within Finance Bill 2021-2022.
Most smaller banks and building societies, which have surcharge profits below the £100m threshold, will cease to pay any surcharge at all. However, those groups with surcharge profits of above £100m will incur an additional 1% tax when compared to the amount they would have incurred prior to the increase in the main rate of corporation tax. In other words, the combined rate of corporation tax and bank surcharge will increase to 28% from April 2023 compared with the current level of 27%.
Whilst the UK banking sector will welcome these changes, there is no saving overall. The increase in corporation tax rates means banks, like all other corporation taxpayers, will in future incur more taxation than they do under the tax rates that apply today.
There will be consequential tax accounting complications for banking companies, especially those with profits around the £100m threshold, which may find themselves falling in and out of surcharge year by year.