Banks’ tax contribution climbs to £34.2 billion, PwC finds

Published at 12:19 PM on 09 November 2016

 

· £17.4 billion was paid by UK banks in year to 31 March 2016, and £16.8 billion by foreign banks

The total tax contribution of the UK banking sector climbed to £34.2 billion in the year to 31 March 2016, a 9.3 per cent increase on the £31.3bn in 2014.

UK banks generated just over half of the total tax contribution at £17.4 billion (50.9 per cent) while foreign banks contributed £16.8 billion (49.1 per cent), PwC analysis commissioned by the BBA found.

Employment taxes made up £17.8 billion (52.0 per cent) of the overall total. Foreign banks account for 29.3 per cent of workers in the study but 54.5 per cent (£9.7 billion) of employment taxes.

Irrecoverable VAT was the second largest tax (13.2%), with 76.1% paid by UK based banks in the study. Total irrecoverable VAT was estimated as £4.2bn.

For every £1 of corporation tax, the banking sector in the UK paid £4.84 of other taxes borne – banks’ own contribution in taxes that impact their results.  


Andrew Packman, tax partner at PwC, said:


"This study shows that the banking sector's contribution is broader than corporation tax. The bank levy, employment taxes, irrecoverable VAT, business rates and stamp duty all have an impact. 

"As scrutiny of banking sector taxation continues unabated, robust data is vital to ensure that the contribution of the sector is understood and to inform policy discussions over bank taxation. In addition to the direct contribution in taxes, there is an indirect contribution from companies in the banks’ supply chains and a further benefit to the economy from spending by bank employees, so the true contribution will be in excess of the £34.2bn shown in the report."


The contribution in taxes made by the banking sector in 2016 was £2.9bn higher than the TTC in the first study (£31.3bn). TTC of the UK banking sector represents 5.5% of Government receipts.


Isabelle Jenkins, UK head of banking and capital markets at PwC said:

“While this report quantifies the current Total Tax Contribution of the banking sector, the future contribution to the public finances is in doubt. Increased capital and liquidity requirements as a result of tightening regulation, coupled with persistent low interest rates have led to a structural change in the sector compared with the pre-crisis era. Falling levels of return on equity and gross value added call into question the sustainability of tax payments from the sector in the future.”


The increase in the sector’s total tax contribution was almost entirely driven by corporation tax and the bank levy. Changes to the restriction of loss relief and deductibility of compensation payments led to corporation tax climbing to £3.2 billion, an increase of 100 per cent on the previous study in 2014 (£1.6 billion). Further changes are still to come into effect, including an additional eight per cent surcharge tax on bank profits from 1 January this year which will not be reflected until next year’s survey.

Meanwhile, receipts from the bank levy rose to £3.4 billion, up 54 per cent on the £2.2 billion total in 2014, as a result of rate increases.

 ENDS

Download 2016 Total Tax Contribution UK banking sector 0811

Notes to editors

2016 Total Tax Contribution of the UK banking sector as a percentage of total UK tax receipts
£’bn Extrapolated to UK banking sector

Corporation tax- 3.2
Bank levy- 3.4
Employment taxes borne- 4.3
Irrecoverable VAT- 4.2
Other taxes borne- 1.1
Employment taxes collected- 13.5
Other taxes collected- 4.5
Total Tax Contribution- 34.2


· Data for the 2016 study was provided by 36 banks, up from the 29 organisations that participated in 2014. 14 UK banks and 22 foreign banks took part in this year’s study.
· Study participants accounted for 83 per cent of the wider sector’s employment taxes, 90.9 per cent of bank levy receipts, and 70.7 per cent of corporation tax.  The data was extrapolated to give a figure for the entire UK banking sector that makes 2014, 2015 and 2016 results comparable like for like.
· The accounting period for the majority of participants was year ended 31 December 2015 and there are a number of measures, including the corporation tax surcharge and further restrictions on brought forward losses not reflected in the results
· Taxes borne are the company’s own contribution in taxes that impact their results, e.g. corporation tax, employer NIC, irrecoverable VAT and Bank Levy.
· Taxes collected are those that the company administers on behalf of Government and collects from others, e.g. income tax deducted under PAYE, tax deducted at source, stamp duty reserve tax. Taxes collected will have an administrative cost for the company and will also have an impact on the company’s business.
· ‘UK bank’ refers to a bank which is headquartered in the UK.  A ‘foreign bank’ is headquartered outside the UK

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 223,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details.

©2016 PwC. All rights reserved.

 


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About PwC

At PwC, our purpose is to build trust in society and solve important problems. We’re a network of firms in 157 countries with more than 208,000 people who are committed to delivering quality in assurance, advisory and tax services. Find out more and tell us what matters to you by visiting us at www.pwc.com.

PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see www.pwc.com/structure for further details. © 2016 PwC. All rights reserved

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