Taxation of banking

While banks and financial institutions are liable to pay corporation tax on their profits, as other companies, three new taxes have been introduced on the banking sector following the financial crisis in 2008:

• In December 2009 the Labour Government introduced a new bank payroll tax: a special one-off levy of 50% on any individual discretionary bonus above £25,000 to be paid by the bank, not the bank employee. 
• In January 2011 the Coalition Govenment introduced a new bank levy to the balance sheets of UK banks and building societies, and to the UK operations of banks from abroad. Over the 2010-15 Parliament the Coalition Government amended the rates of the levy several times, with a view to maintaining the yield that it had initially anticipated.
• In July 2015 the Conservative Government announced a new bank surcharge – a supplementary 8% charge payable on banking sector profits in addition to corporation tax – alongside a gradual reduction in the rate of the bank levy over the period 2016-21.

In the Spring 2021 Budget on 3 March the Chancellor, Rishi Sunak, announced an increase in the rate of corporation tax from 19% to 25% from April 2023, as part of a series of reforms to corporate taxation. On 27 October the Chancellor presented the Autumn Budget and Spending Review, and in his statement announced the bank surcharge would be set at 3%, so that the overall rate for corporation tax on banks will, in 2023, increase from 27% to 28%.

In its Economic and Fiscal Outlook published alongside the Budget, the Office for Budget Responsibility project that receipts from the bank surcharge will fall from £1.6bn in 2021/22 to £500m a year from 2024/25. Receipts from the bank levy are forecast to remain around £1.3-£1.2m a year from 2021/22.

Statistics on bank taxation and the financial sector

HMRC publish statistics on tax receipts from the banking sector as a whole – that is, PAYE, corporation tax, bank levy and CTS. Since 2011/12 receipts have risen from £20.5bn in 2011/12 peaking at £30.6bn in 2018/19. Over the last three years receipts have dropped to £28.8bn in 2020/21: PAYE and CT receipts from the banking sector, (2021 edition), September 2021 (Table 1).

Key statistics on output, jobs, and trade in UK financial services are presented in Financial services: contribution to the UK economy, Commons Library briefing CBP6193.