The Budget 2015 for banking and finance lawyers

The Budget 2015 for banking and finance lawyers

With the Chancellor’s speech still ringing in our ears, we bring together the most important features of the Budget 2015 for banking and finance lawyers alongside expert analysis and industry comment.

What was relevant in the Budget for banking and finance lawyers?

Budget 2015—TIIN: Bank levy—rate change

Legislation in Finance Bill 2015 will increase the rate of the bank levy to 0.21% from 1 April 2015. A proportionate increase of 0.105% will be made to the half rate to take effect from the same day.

Budget 2015—TIIN: Tax administration—regulations to implement the UK's automatic exchange of information agreements

As part of the Budget 2015, regulations are being introduced from 1 January 2016 to implement the revised Directive on Administrative Cooperation (DAC) and competent authority agreements with non-EU jurisdictions for the Common Reporting Standard (CRS) to create due diligence and reporting obligations for UK financial institutions.

Budget 2015: Consultation—Digital currencies—Government response

In order to support innovation and prevent criminal misuse, the government intends to apply anti-money laundering regulation to digital currency exchanges in the UK. The announcement was made at Budget 2015 and follows the publication of the government’s response to a consultation on the matter.

Budget 2015: Tax avoidance and evasion overview

The government has announced that, from 18 March 2015, anti-avoidance legislation will be introduced to prevent companies from obtaining a tax advantage by entering contrived arrangements to turn historic tax losses into more versatile in-year deductions. Legislation will also introduce a special reporting requirement and surcharge for repeat offenders, a specific tax-geared penalty and enable HMRC to issue conduct notices. The government has also announced a new disclosure facility for the Common Reporting Standard (CRS) and improvements to the Disclosure of Tax Avoidance Schemes (DOTAS).

Budget 2015: Report—FinTech futures

The government, regulators, business and academia must work together to develop new financial business models known as ‘FinTech’, according to a report. The Chancellor commissioned the Blackett review to look at the technologies and barriers that will shape the FinTech sector to 2025 and ensure the UK remains a global hub for innovation.

Budget 2015—TIIN: VAT—deductions relating to foreign branches

An amendment to the Value Added Tax Regulations 1995 will mean partly exempt businesses in the UK will no longer be able to take into account supplies made by foreign branches when calculating how much VAT incurred on overhead costs can be deducted.

What does this mean for banking and finance lawyers?

What are the headlines for this year’s Budget for banking and finance lawyers and why?

Luke Scanlon, consultant, Pinsent Masons: One of the headlines was that the government would move forward with plans for an open application programming interface standard in UK banking. This will allow consumers access to innovative financial service tools, including getting a single view of their financial affairs online.

Charles Kerrigan, partner and head of the finance group, Olswang: The main points of interest are:

Bank levy

It will be interesting to see if the announcement that the bank levy will increase to 0.21% combined with rules preventing banks claiming tax deductions in relation to the costs of compensation pay-ments and fines will have an impact on bank lending.

The trend in the past 12 months has been a general increase in bank lending, despite the increased pressure of competition from funds and non-bank lenders. Whether the increase in the levy and treatment of compensation payments on bank profits has a noticeable effect on banks’ mandatory costs or pricing, and whether this gives any significant competitive advantage to funds and non-bank lenders, who are not subject to the bank levy and do not have a PPI claims against them, remains to be seen.

Diverted profits tax (DPT)

This was first trailed in last year’s Autumn Statement. The Chancellor has confirmed that this will take effect from April 2015. This could have an impact on intra-group financing arrangements which have a cross-border element. Banking and finance lawyers already deal with issues arising from the general anti-avoidance legislation and transfer pricing rules—DPT will add another layer to be considered by banking and finance lawyers and their tax colleagues.

Tax avoidance

New tougher measures include:

  • clampdowns on tax avoidance involving offshore accounts
  • shortening of existing disclosure facilities, with a more limited disclosure facility with tougher terms and guaranteed penalties and no guarantees around criminal investigation to follow (designed to encourage disclosures as soon as possible)
  • an obligation on financial advisers and tax intermediaries to contact UK customers to notify them of the reporting standards, opportunities to disclose and potential penalties for non-disclosure; and direct recovery of debts from debtors’ accounts in credit
Private placements

An exemption was announced from withholding tax in relation to unlisted securities known as ‘qualifying private placements’. The proposed legislation from the Autumn Statement has been revised to remove a condition around the minimum term of the security, which will widen the exemption.

Peer-to-peer (P2P) lending

Individuals who make loans through P2P platforms will be able to offset bad debts arising against the interest they receive from P2P loans when calculating their taxable income. This will make P2P lending a more attractive proposition.

Application Programming Interfaces (API)

It is confirmed in the Budget that the government will back the development of an open API standard in UK banking and will work with the banking and FinTech industries with a view to setting out a framework by the end of 2015. This is aimed at enabling FinTech firms to develop ways to better use bank date on behalf of customers and is part of the UK’s commitment to financial technology and innovation.

Were there any surprises?

Luke Scanlon: The government had promised to discuss the next steps on this. We don’t have a great amount of detail, but the next steps could be put in place by the end of the year.

Luke Scanlon: This will open up a number of new questions in relation to the obligation on banks to responsibly own and share data. Lawyers will have to think about compliance issues and reputation along with the commercial aspects. Several innovative businesses can provide the type of services that retail bank customers require. So, potentially, banks will be sharing their data, at the customer’s request, with these organisations. We still have to question how safe these organisations are with regards to data privacy.

So was it a negative Budget for banking and finance lawyers?

Charles Kerrigan: It’s not all doom and gloom—what with a 2% cut in duty on whiskey and a penny off a pint of beer. Champagne is frozen at the same level. The effect of these changes on completion mechanics will be one to watch from 6 April 2015.

What has been the reaction from the banking and finance industry?

Matthew Barling, PwC banking tax partner: ‘Today’s announcement will be a blow to the UK banking industry. Coming hard on the heels of the bank loss restriction rules announced in the Autumn Statement, two more bank specific tax measures clearly shows bank taxes remain high on the political agenda. For a sector already under pressure in terms of profitability as a result of regulatory change and other demands, a further £900m increase in the bank levy will be felt acutely. The UK is a global leader in financial services. The short term benefits to the Treasury are perhaps understandable, but this could potentially be at the cost of the longer term growth and competitiveness of the UK as a global financial centre.’

BBA chief executive Anthony Browne: ‘Banks in the UK already pay more than £40bn in taxes each year, helping to fund schools and hospitals across the country. The bank levy imposes a significant cost on banking businesses in the UK, which is making many banks move work and jobs to other parts of the world, and is deterring international banks from investing in the UK. This major increase in the bank levy is likely to accelerate that process and damage the competitiveness of the UK economy. This will also further disadvantage UK headquartered banks by increasing tax on their overseas activities, while their competitors in those markets do not pay this tax at all.’

Dan Thomas, UK head of retail banking, KPMG: ‘While the overall impact of the Budget measures was negative for banks, there was some good news. In particular, the new personal savings allowance which will see 17m savers no longer paying tax will considerably ease the administrative burden for banks and building societies. This represents a form of payback for firms which have invested heavily in their back-office systems and will help to reduce friction in the system. Also, the new Help to Buy ISA for first-time buyers will help mortgage providers get closer to their customers much earlier in the house-buying process than before. Taken together, both these measures will help to attract more deposits among banks' more important customer types—savers and first-time buyers.’

Anna Anthony, head of EMEIA Tax for financial services at EY: ‘This is a three-fold increase in the bank levy in just four years and once again is anti-competitive for our own UK banks. It will hit UK headquartered banks hardest as it’s a tax on their entire global balance sheets, whereas foreign banks in the UK are only taxed on their UK liabilities. The constant tinkering with the tax regime for banks in the UK is unhelpful, and in the long-term unsustainable—the industry will definitely be looking for a commitment to a more certain tax environment in the future.’

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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About the author:

Neeta started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her paralegal experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office in 2006. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice. She has been working at Lexis Nexis since April 2013.