How does the bank surcharge work for corporation tax in the UK?

Full answer

The Bank Surcharge is a supplementary corporation tax charge introduced in January 2016 to ensure that the banking sector pays a higher effective rate of corporation tax than other businesses, reflecting the implicit government support and systemic risk associated with banks. **2026/27 Bank Surcharge:** - **Rate:** 3% on chargeable profits above the bank's annual surcharge allowance - **Allowance:** £100 million per banking group per year (allocated among group companies) - **Combined CT rate for large banks:** 25% (main rate) + 3% (surcharge) = **28%** on profits above the allowance **History of the surcharge:** | Period | Surcharge rate | |---|---| | January 2016 -- March 2023 | 8% | | From 1 April 2023 | 3% | The rate was cut from 8% to 3% when the main CT rate rose from 19% to 25% in April 2023, to prevent the combined bank rate rising too far above 28%. **Who pays the surcharge:** UK banks and building societies, and the UK branches of overseas banks that are subject to UK CT. This includes high street banks, investment banks, credit card companies, and savings institutions. **Who does NOT pay:** Insurance companies (which have their own tax regime), credit unions, and most non-bank financial businesses. **Ring-fenced vs non-ring-fenced banks:** Following the Banking Reform Act 2013, large UK banks must ring-fence retail banking from investment banking. Both ring-fenced and non-ring-fenced banks are subject to the surcharge, but the allowance can be split between them. **Bank Levy (separate from surcharge):** Large UK banks also pay the Bank Levy on their balance sheets (at 0.10% per year on chargeable equity and liabilities above £20bn). This is separate from the surcharge and both can apply simultaneously to the same institution.

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