UK Finance Ministry has announced that surcharge on banking profits will be reduced from April 2023.
This announcement comes as the government aims to boost its competitiveness as a global financial hub after Brexit.
In the budget statement, Finance Minister Rishi Sunak said that the present 8% surcharge on profits over £25m levied on banks will be reduced to 3% from April 2023.
This move lightens the effect of an increase in UK corporation tax to 25% from 19%.
Sunak told the Parliament: “The overall rate of corporation tax on banks will in 2023 increase from 27% to 28%, and will remain higher than the rates paid by other companies.”
Since Brexit, UK has been exploring ways to maintain the position of London as a financial hub.
Following the implementation in 2016, the surcharge has fetched £8.3bn.
Without reducing the surcharge to 3%, the total tax bill of UK banks would put them at a disadvantage as against the international players.
Commenting on the present £25m threshold, Sunak added: “Small challenger banks are improving banking competition which is good for the sector and good for consumers, so to help them I will also raise the annual allowance to 100 million pounds.”
This move has been welcomed by UK Finance, which represents banks in UK. It, however, noted that the banks will continue to be taxed more than other firms.
UK Finance CEO David Postings said: “Given the overall tax position of other global financial centres, we urge HM Treasury to keep the banking and finance sector’s total tax rate under active review.”.
Because of the new the changes, around 35 banking groups will come out of the surcharge scope in 2023.
This would leave around 35 of the major banking groups under the purview of the surcharges, the ministry said.
Meanwhile, UK will retain a different levy on balance sheet liabilities of the banks. So far, this has raised £25.5bn.
It will also continue to have a ban on tax relief for losses incurred during the financial crisis. This move has raised £3.5bn.