Corporate Tax

Background data for PAYE and corporate tax receipts from the banking sector (2020)

Coverage: United Kingdom

Theme: The Economy

Released: 24 September 2020

Next release: Autumn 2021

Frequency of release: Annual

Statistical contacts:

Ruth Townsend (PAYE)
Ruth.Townsend@hmrc.gov.uk

Damian Pritchard (Corporation Tax,
Bank Levy and Bank Surcharge)
Damian.Pritchard@hmrc.gov.uk

This publication explains how the banking sector has been defined for these statistics, the main
taxes affecting the sector and their treatment in PAYE and Corporate Tax receipts from the banking sector.

1. Background information

1.1 What is the banking sector?

Banks carry out many different activities such as accepting deposits, paying interest,
making loans, acting as intermediaries in financial transactions and providing other
financial services. However, translating these characteristics into a list of organisations for
the purpose of producing statistics is not straightforward.
The Prudential Regulation Authority (PRA) publishes a list of regulated firms which
businesses and the public would tend to think of as banks. However, the PRA note that
this list should only be used as a guide, and they cannot guarantee its accuracy or
completeness.

For this statistical publication for receipts between the tax year ending March 2016 and the tax year ending in March 2020, we have used a
definition of the banking sector as those businesses that are potentially eligible to pay the
Bank Surcharge. This is a change from the definition used for earlier years which defined
the banking sector as those companies within scope of HMRC’s Code of Practice on
Taxation for Banks, whose main business is banking-type activity as set out in the Code.
More details about this definition can be found at The Code of Practice on Taxation for Banks.

Since the Bank Surcharge was introduced as a tax specific to banking businesses,
adopting a definition of the banking sector that is consistent with the population potentially
eligible to pay the Bank Surcharge is appropriate. The groups within the Bank Surcharge
definition include all the deposit takers on the PRA list of regulated firms as published by
the Bank of England, as well as the retail and investment banks covered in the HM Revenue and Customs (HMRC)’s
Code of Practice on Taxation for Banks. This change in definition has not had a significant
impact on the estimates for tax receipts, as the large majority of receipts come from banks
that are covered by both the old and new definitions.

The exercise to compile these statistics has involved working with experts across HMRC
who deal with the tax affairs of banks and other financial institutions. For practical reasons,
the banks included in the analysis are the same for the tax year ending March 2006 to the tax year ending March 2011. For the tax year ending March 2012 onwards, the population has been updated annually to include new banks falling within
the population definition and to exclude any companies no longer undertaking banking
activities. Earlier years’ figures have not been revised for any subsequent changes in the
population.

1.2 Level of analysis

The statistics in this publication are compiled at the company level (for singleton
companies) and the group level where there are subsidiaries and a parent company. This
is to ensure consistency of coverage between Pay As You Earn Income Tax and National
Insurance Contributions (PAYE) and Corporation Tax.

A group can be viewed as a collection of parent and subsidiary companies that function as
a single economic unit through a common source of control. The larger banks are generally
groups whereas smaller banks and building societies can be singleton companies.
Only company groups whose main business can be described as banking activity are
included in these statistics. For banking companies that are part of predominantly non-banking groups, only the specific companies that carry out banking activity within those
groups are included in the statistics.

PAYE schemes within a group do not necessarily identify separate areas of business
within that group. This means that, when the business of a group includes banking activity
alongside other activities, the tax relating to the banking activity cannot necessarily be
isolated.

Similarly, within Corporation Tax, a banking group can consist of some companies that
are involved in banking activity and others that are not. The structure of the data means
that it is not feasible to separate out a banking group’s tax receipts between banking and
non-banking activity.

PAYE and Corporation Tax arising from non-banking activities carried out within banking
groups are therefore included, as the data does not allow these to be separately
identified. One example of this is insurance activities carried out within banking groups.

HMRC also publishes figures on Corporation Tax receipts paid by broadly-defined business
sectors, including the financial sector as a whole (excluding life assurance). These can be
obtained from the HMRC National Statistics website. In contrast to the figures presented in
this bulletin, the sector breakdowns in those statistics are based on HMRC trade
classifications. Companies are allocated to trade classification categories by HMRC staff,
based on the trade descriptions and other company information that companies provide.
This method is not suitable for the precise identification of the banking sector used for the
statistics in this bulletin.

1.3 What is Pay As You Earn?

Pay-As-You-Earn (PAYE) is the method used by HMRC to collect Income Tax and
National Insurance contributions (NICs) on wages and occupational pensions. Employers
deduct tax and NICs from wages, occupational pensions and share disposals before
paying the net amount to employees. They then add their own employer NICs and remit the whole amount to HMRC the following month.

When an employer registers with HMRC to operate PAYE they will be assigned a PAYE
scheme reference number. The PAYE scheme is the smallest unit for which PAYE
receipts can be determined. Employers may operate multiple PAYE schemes and most
large banks do so.

Income Tax

Income Tax is a tax on an individual’s income over the course of a tax year (6 April to 5
April the following year). It is the UK Government’s largest single source of tax revenue.
PAYE accounts for by far the largest share of total Income Tax receipts. However,
substantial other amounts are collected in other ways, notably through the Self-Assessment
(SA) system. None of these other amounts are reflected in these statistics.

National Insurance contributions

NICs are paid on earnings to build up entitlement to certain state benefits, including the
state pension. Class 1 contributions are paid by both employees and employers. The 11
employee and employer contributions are often referred to as the ‘primary’ and
‘secondary’ contributions respectively.

Class 1 contributions collected through the PAYE system account for by far the largest
share of total NIC receipts. However, further amounts are collected in other ways, notably
Class 4 contributions paid on profits from self-employment which are collected through the
SA system alongside SA Income Tax. None of these further amounts are reflected in these
statistics.

1.4 What is Corporation Tax?

Corporation Tax is a direct tax charged on profits made by companies, public corporations
and unincorporated associations such as industrial and provident societies, clubs and
trade associations. It is charged on the profits made in each accounting period, which is
normally the period over which a company draws up its accounts. The rates of taxation
are set for the financial year 1 April to 31 March. Where an accounting period straddles 31
March, the profits are apportioned between the two financial years on a time basis.

Corporation Tax rates over the period covered by this publication are set out in Table 1 of
Appendix B.

1.5 What is Bank Payroll Tax?

The Bank Payroll Tax was announced at the 2009 Pre-Budget Report. It applied to retail
and investment banks (including building societies) and to banking groups.

The Bank Payroll Tax was a temporary tax set at 50% on awards of discretionary
bonuses over £25,000 to, or in respect of, banking employees, in the period from its
announcement on 9 December 2009 until 5 April 2010. It was paid by banks, building
societies and UK resident investment or financial trading companies, in banking or
building society groups.

Bank Payroll Tax liabilities arose on bonuses awarded in the 2009 to 2010 financial year. The
Bank Payroll Tax did not pass into law until 8 April 2010, in financial year 2010 to 2011. Only
after this point could HMRC collect Bank Payroll Tax and a payment due date of 31
August 2010 was set.

In line with guidance from the Office for National Statistics (ONS), the yield from the Bank
Payroll Tax is allocated only after it has passed into legislation. Therefore, the revenue
from the Bank Payroll Tax is scored in financial year 2010 to 2011.

The £3.4 billion is a gross receipts figure. To the extent that the Bank Payroll Tax
discouraged the paying of bank bonuses (or reduced their size) there would have been an
effect on other tax receipts, in particular lower Income Tax and NICs receipts from smaller
bonuses. In other words, the behavioural effects from introducing the Bank Payroll Tax
were expected to reduce Income Tax and NICs receipts relative to not introducing the tax.

The counterfactual (no Bank Payroll Tax) baseline against which to make such an
assessment is not directly observable. However, HMRC estimated that the net yield from
the Bank Payroll Tax was £2.3 billion. The net yield takes account of direct behavioural
effects of a measure on the tax base itself (in this case the tax base for the Bank Payroll
Tax) or closely associated receipts (in this case receipts from Income Tax and NICs).

The PAYE and Corporation Tax receipts shown in the accompanying table will reflect any impacts of the
Bank Payroll Tax on these taxes. However, these effects cannot be separately identified.

1.6 What is the Bank Levy?

The Bank Levy is a tax based on chargeable equity and liabilities arising from banks’
balance sheets, with effect from 1 January 2011.
The Bank Levy applies to

  • UK banks, banking groups and building societies
  • foreign banking groups operating in the UK through permanent establishments or
    subsidiaries
  • UK banks and banking sub-groups in non-banking groups

The Bank Levy is based on the total chargeable equity and liabilities arising from the
relevant balance sheets, at the end of the ‘chargeable period’. There is no charge on the
first £20 billion of chargeable equity and liabilities, which in practice means that only the
banks with a large operating presence in the UK will pay any Bank Levy.

All companies subject to the Bank Levy are deemed to be ‘large’ companies for payment
purposes and therefore all liabilities are paid by quarterly instalments under the same
provisions as Corporation Tax.

The rates at which the Bank Levy is charged are shown in Table 5 of Appendix B.

Following National Accounts protocol, the initial yield from the Bank Levy is allocated only
after it has passed into legislation. The Bank Levy passed into law on 19 July 2011 and
therefore the first receipts were reported in the 2011 to 2012 financial year.

1.7 What is the Bank Surcharge?

The Bank Corporation Tax Surcharge, commonly known as the Bank Surcharge, was
introduced in The Finance Act (No 2) 2015 to levy a surcharge on the profits of banking
companies from 1 January 2016.

The Bank Surcharge applies to all banking companies and building societies within the
charge to UK Corporation Tax.

The surcharge profits are calculated on the same basis as for Corporation Tax but before
certain deductions are included. There is an annual allowance of £25 million available to
banking groups, or, where a group has only one banking company or the banking company
is not in a group, to that banking company alone.

The Bank Surcharge is paid alongside a company’s liability to Corporation Tax.

The rates at which the Bank Surcharge is charged are shown in Table 6 of Appendix B.

1.8 Other Taxes

There are a number of other taxes that impact on the banking sector, including VAT and
Insurance Premium Tax.

Value Added Tax (VAT)

VAT is charged on most supplies of goods and services that VAT registered businesses
provide in the UK. When such businesses buy goods or services (inputs) for use in their
business activities they can generally reclaim the VAT they have been charged.

Some goods and services are exempt from VAT. This means VAT is not charged on such
exempt supplies to customers and the supplier cannot recover the VAT incurred on inputs
purchased to produce the exempt supplies. Most services supplied by banks are exempt
and as a result banks cannot recover all the VAT incurred on their inputs. This
irrecoverable VAT represents a significant addition to a banks’ tax cost base.

HMRC does not have an administrative source of data on the irrecoverable VAT burden
facing banks (or any other organisations whose supplies are exempt from VAT) because
this information is not required for calculating VAT liabilities and therefore not collected
through the VAT returns. It therefore has to be estimated using survey and other external
data.

HMRC tentatively estimates that around £4.5 billion of VAT was irrecoverable by
businesses in the banking sector in the tax year 2017 to 2018. This was based on a survey of businesses
whose main activity is assessed by HMRC as Standard Industrial Classification of
Economic Activities 2007 (SIC 2007) code 64 (Financial service activities, except insurance
and pension funding). This is the most recent year for which an estimate is available.

The net VAT payments by banks to HMRC (VAT charged on their taxable outputs less VAT
claimed for VAT costs on inputs for use in producing the taxable outputs) are small relative
to the size of the sector because of the VAT exemption.

Insurance Premium Tax (IPT)

IPT is a tax on general insurance premiums. Most long-term insurance is exempted from
the tax, as is reinsurance, insurance for commercial ships and aircraft and insurance for
commercial goods in international transit. Premiums for risks located outside the UK are
also exempted, but they may be liable to similar taxes imposed by other countries.

Sectoral information on IPT is not collected by HMRC. This is because HMRC does not
need this information in order to administer the tax, and as such does not require insurers
to provide this information on the return that they make.

An estimate has been made of the amount of IPT which is paid by the banking sector using
information provided by HMRC banking sector teams. The population used to derive this
estimate is not directly comparable with IPT receipts statistics. Companies without a UK
establishment can be liable to IPT where the risks being insured are located in the UK, so
the IPT population will include non-UK resident companies outside the scope of this
publication.

HMRC estimates that net IPT receipts of the banking sector in 2017-18 were approximately
£0.5 billion.

Other taxes

There are a number of other taxes that may impact on the banking sector which are not
included in this publication. These include environmental taxes such as the Climate
Change Levy and Landfill Tax, excise duties on products such as fuel and alcohol, stamp
duties and business rates (the latter is not administered by HMRC). A sectoral breakdown
of these tax receipts is not available.

1.9 Presentation of the statistics

PAYE is presented on a National Accounts basis. This aims to recognise tax as the
liability accrues, irrespective of when the tax is received by the Exchequer. The Bank
Payroll Tax, Corporation Tax, Bank Levy and Bank Surcharge are presented on a cash
receipts basis.

Corporation Tax, Bank Levy and Bank Surcharge receipts in this publication cover the
months April to the following March.

For PAYE, receipts in a given month mainly relate to liabilities accrued in the previous
month. To a close approximation, receipts in the months May to April equate to liabilities
accrued in the immediately preceding tax year and therefore to the National Accounts (i.e.
liabilities) measure of PAYE receipts.

PAYE Income Tax and NICs receipts relating to bonus payments are mainly received by
HMRC in the months January to April (reflecting bonuses paid to employees in the months
December to March). Bonus payments in the banking sector are relatively large, and
substantially boost PAYE receipts in these months. The treatment of PAYE receipts in
these statistics means that all of the bonus related amounts for a given year appear within
the same year’s receipts total.

1.10 Rounding

Figures in this publication have been independently rounded to the nearest £0.1 billion.
This means that the individual tax components as shown in the table may not appear to
sum to the total as shown.

2. Appendix A: Data Sources

2.1 Pay As You Earn

The data for PAYE receipts is sourced from the BROCS system (Business Review of the
Collection Service) for all years up to and including 2012-13. From 2013-14 PAYE receipts
is sourced from a different PAYE accounting system (the Enterprise Tax Management
Platform, or ETMP), linked to the Real Time Information (RTI) programme.

PAYE figures as provided in the banking sector receipts statistics are recorded on a
financial year accruals basis approximated by receipts in the months from May to April
and consistent with the National Accounts. Other PAYE receipts figures published by
HMRC (for example in the HMRC receipts table and also National Statistics table 2.8) are
on a financial year cash basis (reflecting receipts over the period April to March). When
making comparisons between the figures in this document and PAYE receipts information
published elsewhere it is important to note this difference in coverage.

The statistics are subject to the definition of the banking sector used, as explained in the
main body of this document.

2.2 Corporation Tax

The data for Corporation Tax receipts comes from cash amounts (known as ‘postings’)
recorded on HMRC’s COTAX administrative system.

COTAX is the Company Tax computer system introduced in November 1999 to handle
the CTSA (Corporation Tax Self-Assessment) legislation enacted on 1 July 1999, and the
previous CT Pay and File legislation.

The dataset used for analysis contains all of the postings information. Therefore, as
complete data is used, sampling error is not an issue.

2.3 Bank Levy

The Bank Levy is returned to HMRC as part of the supplementary pages to the CT600
company tax return. Liabilities and receipts are recorded on HMRC’s COTAX administrative
system alongside those for Corporation Tax. All companies subject to the Bank Levy are
deemed to be ‘large’ companies for payment purposes and therefore all liabilities are paid
as quarterly instalments under the same provisions as Corporation Tax.

2.4 Bank Surcharge

The Bank Surcharge liabilities and receipts are recorded on HMRC’s COTAX administrative
system alongside those for Corporation Tax. All companies subject to the Bank Surcharge
are deemed to be ‘large’ or ‘very large’ companies for payment purposes and therefore all
liabilities are paid as quarterly instalments under the same provisions as Corporation Tax.

2.5 Bank Payroll Tax

The data for Bank Payroll Tax receipts comes from HMRC’s SAFE accounting system.

3. Appendix B: Tax Rates

The key tax rates for the taxes in accompanying table are set out in Tables 1 to 6 below.

Corporation Tax rates are set for the financial year commencing 1 April. Income tax and
National Insurance Contributions rates are set for the tax year commencing 6 April. Bank
Levy rates are normally set for a calendar year period.

Table 1: Corporation Tax rates
Year Main rate Small profits rate Starting rate
2005-2006 30% 19% 0%
2006-2007 30% 19% n/a
2007-2008 30% 20% n/a
2008-2009 28% 21% n/a
2009-2010 28% 21% n/a
2010-2011 28% 21% n/a
2011-2012 26% 20% n/a
2012-2013 24% 20% n/a
2013-2014 23% 20% n/a
2014-2015 21% 20% n/a
2015-2016 20% n/a n/a
2016-2017 20% n/a n/a
2017-2018 19% n/a n/a
2018-2019 19% n/a n/a
2019-2020 19% n/a n/a

The Corporation Tax starting rate applied to companies with an annual profit of less than £10,000 and
was withdrawn from the tax year 2006 to 2007. The small profits rate was merged with the main rate from the tax year 2015 to 2016.

Table 2: Income Tax rates
Year Starting rate Basic rate Higher rate Additional rate
2005-2006 10% 22% 40% n/a
2006-2007 10% 22% 40% n/a
2007-2008 10% 22% 40% n/a
2008-2009 n/a 20% 40% n/a
2009-2010 n/a 20% 40% n/a
2010-2011 n/a 20% 40% 50%
2011-2012 n/a 20% 40% 50%
2012-2013 n/a 20% 40% 50%
2013-2014 n/a 20% 40% 45%
2014-2015 n/a 20% 40% 45%
2015-2016 n/a 20% 40% 45%
2016-2017 n/a 20% 40% 45%
2017-2018 n/a 20% 40% 45%
2018-2019 n/a 20% 40% 45%
2019-2020 n/a 20% 40% 45%

The Additional Rate of Income Tax applies to individuals with taxable income in excess of £150,000.

Table 3: Employee’s primary Class 1 NIC rates
Year Lower earnings limit (£/week) Primary threshold (£/week) Upper earnings limit (£/week) Rate between primary threshold & upper earnings limit Rate above upper earnings limit
2005-2006 82 94 630 11% 1%
2006-2007 84 97 645 11% 1%
2007-2008 87 100 670 11% 1%
2008-2009 90 105 770 11% 1%
2009-2010 95 110 844 11% 1%
2010-2011 97 110 844 11% 1%
2011-2012 102 139 817 12% 2%
2012-2013 107 146 817 12% 2%
2013-2014 109 149 797 12% 2%
2014-2015 111 153 805 12% 2%
2015-2016 112 155 815 12% 2%
2016-2017 112 155 827 12% 2%
2017-2018 113 157 866 12% 2%
2018-2019 116 162 892 12% 2%
2019-2020 118 166 962 12% 2%
Table 4: Employer’s primary Class 1 NIC rates
Year Secondary threshold (£/week) Rate above secondary threshold
2005-2006 94 12.80%
2006-2007 97 12.80%
2007-2008 100 12.80%
2008-2009 105 12.80%
2009-2010 110 12.80%
2010-2011 110 12.80%
2011-2012 136 13.80%
2012-2013 144 13.80%
2013-2014 148 13.80%
2014-2015 153 13.80%
2015-2016 156 13.80%
2016-2017 156 13.80%
2017-2018 157 13.80%
2018-2019 162 13.80%
2019-2020 166 13.80%
Table 5: Bank Levy rates
Rate Period Rate for long term chargeable equity and liabilities Rate for short term chargeable equity and liabilities
01/01/11 to 28/02/11 0.025% 0.05%
01/03/11 to 30/04/11 0.05% 0.10%
01/05/11 to 31/12/11 0.0375% 0.075%
01/01/12 to 31/12/12 0.044% 0.088%
01/01/13 to 31/12/13 0.065% 0.13%
01/01/14 to 31/03/15 0.078% 0.156%
01/04/15 to 31/12/15 0.105% 0.21%
01/01/16 to 31/12/16 0.09% 0.18%
01/01/17 to 31/12/17 0.085% 0.17%
01/01/18 to 31/12/18 0.08% 0.16%
01/01/19 to 31/12/19 0.075% 0.15%
01/01/20 to 31/12/20 0.07% 0.14%
Table 6: Bank Surcharge rates
Rate Period Rate for chargeable profits below £25 million Rate for chargeable profits above £25 million
01/01/16 to 31/03/17 0% 8%
2017-18 0% 8%
2018-19 0% 8%
2019-20 0% 8%

3.1 Bank Payroll Tax

The Bank Payroll Tax was a temporary tax set at 50% on awards of discretionary
bonuses of over £25,000 to, or in respect of, banking employees in the period from its
announcement on 9 December 2009 until 5 April 2010.

Information on the rates and allowances applying to Income Tax are published on the
GOV.UK website.

Information on the rates and allowances for National Insurance
contributions are published on the GOV.UK website.

Corporation Tax rates since 1971 are published on the GOV.UK website.

3.2 Official statistics publications

Official statistics are produced to high professional standards set out in the Code of
Practice for Statistics. They undergo regular quality assurance reviews and also
seek to engage users in their refinement and development to ensure they meet
customers’ needs. There is further information found on the UK Statistics Authority’s
website.

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