A record high of £14.6bn of corporation tax (includes Bank Levy), was paid by the financial services sector in the UK last year, up 24% from the £11.8bn paid in the previous year (2015-16), says Moore Stephens, the Top Ten accountancy firm.
The sharp jump illustrates the importance of the sector to overall Government revenues. 27% of the total UK corporation tax receipts was paid by the financial services sector in the last year, up from 16% in 2011/12.
Moore Stephens says the high share of tax paid by financial services (FS) raises two significant points:
- the need to ensure any Brexit deal puts the safeguarding of FS as a priority – or risk undermining Government spending.
- whether the FS sector is now overburdened by tax in the UK to the point that it risks making the UK unattractive as a FS centre.
In the run up to Brexit, many banks are reviewing what type of presence they have in the UK. The UK’s competitively low corporation tax has traditionally been a major plus, however the gap in tax rates with other major economies is narrowing. Last year, the Trump administration implemented a major overhaul of the US tax system, reducing the main rate of US federal corporate tax from 35% to 21%. Canada and Australia are also reported to be reviewing their corporation tax rates.
The current rate of UK corporation tax is 19%, and is due to be lowered to 17% by 2020, although the Bank Levy does raise that figure for the UK’s systemic banks. The Bank Levy was introduced in 2011 as a means for the Government to offset the cost of the financial crisis, but has now been supplemented by the Bank Surcharge.
David Kinsella, Business Tax Director at Moore Stephens, says: “The financial services sector is an enormous engine driving the UK economy and paying for Government spending. But place it under too much of a tax burden and you threaten it.
“Nobody argues that the financial services sector shouldn’t be paying its fair share of tax, but go too far and we risk losing out to other jurisdictions.
“The impact of any Brexit deal remains to be seen but the results do illustrate the importance of the UK continuing to be an attractive setting for financial services business going forward.”