OXFORD: The revenue effect of a new restriction on the use of carried forward losses for UK banks is similar to a 36 percent increase in the bank levy, according to accountancy firm EY.
Chancellor George Osborne’s 2014 Autumn Statement included plans to limit to 50 percent the amount of profit in established banks that can be offset by carried-forward losses. During his Statement speech on December 3, Osborne described the current system, whereby banks can offset all their losses from the financial crisis against tax on profits in years to come, as “totally unacceptable.”
According to Osborne, “the banks got public support during the crisis and they should now support the public in the recovery.”
Anna Anthony, Head of Financial Services Tax at EY, commented: “In the short term it is likely to represent a significant cash tax cost, and the ongoing recognition of deferred tax assets will need to be considered. To put the point in context, last year major banks paid GBP2.2bn (USD3.4bn) in bank levy in the UK. The Chancellor hopes to raise an average of GBP800m a year from the measures on bank losses. Therefore, the revenue effect of the measure is similar to a 36 percent increase in bank levy in cash terms.”
Wayne Weaver, banking tax partner at Deloitte, explained that the changes will ensure that banks pay some corporation tax when they make profits. He added that “some banks will now need to reassess the value of their deferred tax assets for accounting and regulatory capital purposes, although recent regulatory changes mean that the capital impact should be less severe than in previous years.”
The British Bankers’ Association (BBA) confirmed that it will work with the Treasury to implement the new rules. BBA Chief Executive Anthony Browne said: “It is absolutely right that this important industry pays its fair share in tax, but it is important to note that where banks have offset losses they have done so legally, just as all other businesses can.”
