The UK financial services (FS) sector paid a record high of £14.6 billion worth of corporation tax (including Bank Levy) in the last year, up 24 per cent from the £11.8bn paid during the 2015/16 financial year according to industry figures.
The sharp increase illustrates the importance of the sector to overall Government revenues, with 27 per cent of the total UK corporation tax receipts paid for by the financial services sector last year, a figure up from 16 per cent in 2011/12.
It has been argued that the high share of tax paid by financial services firms highlights the importance of any Brexit deal treating the safeguarding of financial services as a priority or else there could be a risk of undermining Government spending.
It also raises the question as to whether the financial services sector is now overburdened by tax in the UK to the point that it risks making the UK unattractive as an FS centre.
Many banks are currently reviewing the 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 US implemented a major overhaul of their tax system, reducing the main rate of US federal corporate tax from 35 per cent to 21 per cent. Canada and Australia are also reported to be reviewing their corporation tax rates.
The current rate of UK corporation tax is 19 per cent and is due to be lowered to 17 per cent 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.