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DFB 2018: Bank Levy - Changes to the scope and administration

DFB 2018: Bank Levy - Changes to the scope ...

Implementation of the Government’s previously announced decision to restrict the scope of the Bank Levy to UK balance sheets from 2021.


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The change in the scope of the Bank Levy, so as to apply to only UK balance sheets, was announced at Summer Budget 2015 as a counterpart to the introduction of the surcharge on the profits of UK banks. The reduced scope, broadly seen as benefitting the large UK headquartered banks, was then the subject of a consultation exercise in 2016. The draft legislation published on 13 September 2017 is consistent with the Government’s response to that consultation, but also takes the opportunity to make some administrative changes to the operation of the Levy.

Under the revised approach applying from 1 January 2021, only UK entities or the UK permanent establishments of non-UK entities should be considered in determining the group’s overall chargeable liabilities. This contrasts with the existing position where liabilities of non-UK entities held under the UK are also subject to the Levy.

Also important in this regard is the treatment of UK liabilities used to fund the activities of non-UK subsidiaries or permanent establishments. The draft legislation takes the approach set out in the Government’s consultation response:

  • A deduction (at the half rate for short term liabilities) should be given for loss absorbing instruments of an overseas subsidiary held by the UK. Details of instruments benefitting will be specified in regulations.
  • The proportion of equity and liabilities attributable to any non-UK permanent establishment may be disregarded. The relevant proportion will be calculated using the same methodology currently used to calculate amounts attributable to inbound permanent establishments. The benefit will vary according to the size of each permanent establishment, but the legislation permits a group to simply forfeit the relief so as to reduce its compliance burden.

The draft legislation also seeks to reduce the compliance burden by allowing (as requested by industry) a choice as to whether to determine the Levy on the basis of consolidated accounts or the individual accounts of the entities involved. This flexibility is subject to a targeted anti-avoidance rule (TAAR) to prevent abuse.

Modifications to the scope of the netting rules are also included and should be considered carefully.

While the proposed changes will have the most significant impact on UK headquartered banks, it is important that the impact is considered by any group that currently has non-UK entities or non-UK permanent establishments of UK entities within the scope of the Levy. For example, liabilities at the ‘cliff edge’ from UK companies to non-UK subsidiary companies, which were previously exempt from the Levy, may now be subject to the Levy, albeit with the possible benefit of netting.

For further information please contact:

Tony Urwin

Paul Freeman

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