HMRC Welcomes Fall In Banking Sector Tax Schemes
The number of legacy bank tax avoidance schemes under investigation by UK tax authority HM Revenue and Customs (HMRC) has fallen since the strengthening of Code of Practice on Taxation for Banks, a new departmental report has shown.
The Code of Practice on Taxation for Banks was introduced in 2009 and strengthened in 2013. It is a voluntary code, designed to encourage banks to follow the letter as well as the spirit of the law in relation to tax planning. It requires banks to bring to HMRC’s attention all facts relevant to their own tax affairs and in relation to the tax consequences of products and services they provide to their customers. Banks must maintain good internal controls over their tax affairs and have strong governance around tax.
As of 2015, HMRC is required to publish an annual report on the operation of the Code, in which it must list the banks that have adopted the Code, identify those that have not, and determine if any have been in breach of their Code commitments. The report covers the period from December 5, 2013 (the date at which amendments to the Code took effect) until March 31, 2015. It shows that 303 banks had adopted the code, while, as at March 31, 2015, six had not. None of the banks were found to have been in breach of the Code during the period covered by the report.
Over this 16-month period, banks made fewer than five disclosures under the Disclosure of Tax Avoidance Schemes (DOTAS) regime. At March 31, 2015, there was GBP1bn (USD1.5bn) of tax under consideration in relation to 55 legacy bank avoidance schemes. This is down from the GBP3.2bn of tax under consideration in April 2013 in relation to 92 legacy bank tax avoidance schemes.
HMRC said that its compliance work with individual banks has “shown improved governance around tax, with tax decisions increasingly integrated with the bank’s business decision making.”
The report explained that over the April 2013 to March 2015 period, thirty transactions were referred to HMRC’s Code team to obtain a view on whether the transaction was Code compliant. HMRC considered that four would have led to a tax result contrary to the intentions of Parliament in making the relevant tax law. The banks concerned have confirmed to HMRC that none of these transactions subsequently went ahead.
The report concluded that the Code “continues to be a significant factor in ensuring banks demonstrate positive behaviors in relation to their tax planning, transparency, and tax governance. We have seen strong evidence of a behavioral shift alongside Code implementation and we believe that the Code played a key role in achieving this change.”
HMRC plans to issue new consolidated guidance on the Code in the coming months. It will discuss the proposed content with the banking industry and other interested parties. The next annual report will cover the period April 1, 2015 to March 31, 2016 and will be published by December 31, 2016.
