Chancellor of the Exchequer Rishi Sunak is planning to cut tax surcharges on bank profits in next week’s Budget to help the City of London remain competitive following Brexit.
The surcharge will be slashed from 8% to 3%, the Financial Times reported, citing people briefed on the Budget.
In the March Budget, Sunak announced plans to raise corporation tax from 19% to 25% from 2023, but admitted that if the current bank surcharge rate continued this would “make the taxation of banks uncompetitive and damage one of the UK’s key exports”, the report said.
The corporation tax and surcharge mean banks currently pay 27% tax on their profits, which is broadly in line with other financial centres such as New York and Paris.
According to the FT, the chancellor will say that unless the surcharge is reduced, the overall UK corporation tax rate for banks after 2023 would be uncompetitive, with banks facing a combined rate of 33%.
Instead, from 2023, their combined rate will rise slightly to 28%, made up of 25% corporation tax plus a 3% surcharge.
Sunak will argue that the UK is the only big financial centre to levy a specific surcharge on bank profits, the FT said.
As the Chancellor had already indicated that he would look to ensure banks remain competitive from a tax perspective when compared to international peers, analysts at Shore Capital said, “there is likely to be minimal impact on forecasts or valuations other than perhaps some near-term noise around deferred tax once the proposed change to the surcharge becomes law”.
While a “welcome reduction” for the sector, Deepesh Upadhyay, a tax focused partner at lawfirm Eversheds Sutherland, said, with the increase in corporation tax in 2023, “it is worth noting that UK banks will still end up paying more tax overall (28%). Whilst this rate of tax leaves UK banks in roughly the same position as banks in the US and France, it puts them in a less favourable position when competing with non-bank lenders based in lower-tax jurisdictions.
“With UK banks running on a globalised lending track the more competitive the tax on UK banks, the less they will feel like racing against the competition with stones in their shoes. Anything the Chancellor can do to help UK finance stay competitive in both domestic and global markets will be welcomed.”