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Code of practice on taxation for banks: annual report

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HMRC has published its fourth annual report on the operation of the code of practice on taxation for banks, covering the period from 1 April 2017 to 31 March 2018.

The report states that the code continues to support improved behaviour across the banking sector. Findings include:

  • 315 banks had adopted the code as at 31 March 2018, which included 307 from the year ended 31 March 2017 and eight adopting in the year ended 31 March 2018;
  • seven groups or entities listed as adopters at 31 March 2017 are no longer covered by the code at 31 March 2018, either because they ceased trading or became part of another banking groups;
  • none of the banks which had adopted the code by 31 March 2018 has been found to be in breach during the period covered by this report; and
  • no adopters disclosed any schemes under the DOTAS regime during the period covered by this report.

Most concerns over compliance discussed with HMRC’s customer compliance managers in 2017/18 were addressed without the need for escalation. Interventions completed in the reporting year prevented tax losses of around £170m. No new initial concerns were raised in 2017/18.

Where there is an ongoing criminal investigation relating to a tax matter, such as failure to prevent the facilitation of tax evasion, HMRC will normally postpone any consideration of whether a bank has breached the code until the criminal proceedings conclude. This is to prevent the investigation and proceedings from being prejudiced.

Following a consultation in 2017/18 on the business risk review (BRR) process carried out by HMRC’s large business directorate, an enhanced BRR will be piloted during 2018/19 with a view to full implementation during 2019/20 if the pilot proves to be successful.

In this reporting period, banks made nine pre-transaction code approaches to HMRC (compared with 19 in the previous period). In one case, the bank decided not to go ahead with the transaction. In two cases, the tax planning did not result in a change to the UK tax position. The six remaining cases were agreed to be compliant with the code.

HMRC has agreed to include a commitment in the code guidance to respond to pre-transaction code approaches within 28 days and will indicate in future reports whether the 28-day turnaround time has been met. During 2017/18, four of the six code approaches considered were dealt with in less than 28 days.


The average effective tax rate of the UK’s five biggest banks was 42% in 2017, nearly double the average of 23% paid by FTSE100 companies as a whole, according to research carried out by Thomson Reuters. This is due in part to the bank levy and corporation tax surcharge on bank profits. The effective rate for the rest of the financial sector in 2017 was 25.9%.

Across all UK businesses that paid corporation tax in 2016/17, the effective tax rate was just 20.5%.