UK Finance publishes its latest banking sector tax report

UK Finance has today published its latest total tax contribution of the UK banking sector report, produced by PwC. Contribution to government tax receipts 

Contribution to government tax receipts

The analysis in the report estimates the total tax contribution of the UK banking sector to be £41 billion in the financial year to the end of March 2023. This is £2.2 billion higher compared to the previous year and was equivalent to 4.6 per cent of the total UK government tax receipts in the period.

This is comprised of £22.1 billion in taxes borne (including corporation tax and the bank levy) and £18.9 billion in taxes collected (including income tax and employee national insurance). Taxes borne are a business cost and therefore directly affect a firm’s financial results. Taxes collected are generated by a firm’s operations but collected from others and reflect the wider economic contribution generated by the banking sector.

Total employment taxes were £22.9 billion, equivalent to 5.8 per cent of all UK employment tax receipts. This reflects the large number of highly skilled workers employed in the banking industry across the UK.

International comparison

The report also includes analysis of the UK's current and projected tax levels relative to other leading global financial centres.

For 2023, London (45.5 per cent) has a total tax rate for a typical corporate and investment that is higher than New York (27.9 per cent) and Dublin (32.4 per cent), but slightly lower than Frankfurt and Amsterdam (both 46.8 per cent).

Looking to 2024 the UK is forecast to have a notably higher total tax rate compared to these other jurisdictions.

This is because the European Single Resolution Fund (SRF) is scheduled to have reached its target level in 2023 and so the contributions to the fund in Germany, the Netherlands and Ireland are expected to reduce substantially, possibly to zero.

That would result in total tax rates of 38.5 per cent in Frankfurt, 37.2 per cent in Amsterdam and 27.9 per cent in Dublin.

The rates in London and New York are projected to remain unchanged, which means the total tax rate in London could be 7 percentage points higher than in Frankfurt, the location with the second highest rate.

The graphic below shows the total tax rates for a model bank in 2023 and projected for 2024:

Total tax rates for a model bank in 2023 and projected for 2024

David Postings, Chief Executive of UK Finance, said:

This report shows that the banking sector is a major contributor to the UK’s tax base and supports a large number of skilled jobs. Through its activities, the sector also delivers growth and investment up and down the country.

“Banks based here pay a significantly higher rate of tax than those in New York. And our analysis shows that they are expected to pay notably higher rates of tax in future years than in other major European capitals. This is something that needs to be considered in terms of the UK’s international competitiveness.

Notes to editor

The full report is available here. 

The European SRF requires banks to make contributions to build up an ex-ante fund totalling one per cent of covered deposits across the European banking union by 31 December 2023. It is unclear at time of publication whether further contributions to the SRF will be required in 2024. If there is sufficient growth in covered deposits in the EU, further contributions to the SRF may be required to maintain its level at one per cent of covered deposits. The TTRs for Frankfurt, Amsterdam, and Dublin may be marginally higher in 2024 as a result.

The TTR for London in 2023 and 2024 includes the impact of the increase in the rate of corporation tax from 19 per cent to 25 per cent, as well as the corresponding decrease in the surcharge from eight per cent to three per cent, giving an overall headline rate of 28 per cent.