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As expected, the Chancellor announced changes to the banking surcharge as part of his Growth Plan today. 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 that the planned 5% reduction in the surcharge rate from 8% to 3% from 1 April 2023 will not go ahead. This was coupled with the Chancellor’s announcement that the planned 6% increase in the corporation tax rate from 19% to 25% from 1 April 2023 will also not go ahead.
The £75m increase in the annual surcharge allowance to £100m from 1 April 2023 will go ahead as planned. This means that those companies with profits below the £100m threshold will cease to pay any surcharge at all.
Banking companies, including building societies.
The Growth Plan documents published today do not explicitly comment on the timing for enactment of the changes in law. The increase in the corporation tax rate (and the corresponding reduction in the banking surcharge) was enacted to apply from 1 April 2023. The timing of the legislation required to reverse the increase (and the consequential amendments to the banking surcharge) is yet unknown.
The increase in the surcharge allowance is available to all banks but should be particularly helpful for smaller banks and building societies, since those that have surcharge profits below the £100m threshold will still cease to pay surcharge next year. Companies which remain within the banking surcharge will have a combined corporation tax and surcharge rate of 27%. This is the same rate as applies today, but 1% less than what had previously been planned for next year.
The UK banking sector, in particular the smaller banks and building societies, will welcome the retention of the higher surcharge allowance. Some banking companies with profits around the surcharge allowance threshold may find themselves falling in and out of surcharge year by year, which will cause tax accounting complications.