There has been a “dramatic” fall in corporation tax paid by UK banks, despite growing profits, according to research by Cambridge Judge Business School.
Total UK corporation tax receipts from the banking sector declined from £7 billion in 2005/06 to £1.3bn in 2011/12 and £2.3bn in 2012/13 — or a fall from about 20% of total UKCT receipts in 2005/06 to just 4% by 2011/12.
Using a sample of the six largest UK banks (HSBC, Barclays, Royal Bank of Scotland, Lloyds, Standard Chartered and Nationwide), the study found that operating profit of those banks actually increased slightly between 2005-07 and 2010-12, from £139bn to £143bn.
The banks have been subject to a bank levy in recent years, based not on profits but on the balance sheet of equity and borrowing. The study found that so far, the levy has generated less revenue than forecast and has filled only a modest part of the gap in UK corporation tax receipts.
While profitability of major UK banks recovered to levels seen before the financial crisis, there has been a sharp fall in banking corporation tax receipts by the UK Treasury,” said Geoff Meeks, Professor of Financial Accounting at Cambridge Judge.
“The exact reasons are difficult to pinpoint due to incomplete and patchy disclosure requirements on banks, which we believe obstruct analysis. In particular, there’s a paucity of required disclosure on the distribution of large banks’ profits and tax between national jurisdictions.”
