UK Bank Levy - draft legislation released

The Government has published draft legislation for the UK Bank Levy for comment.

The Bank Levy (the Levy) is intended to encourage banks to move away from 'riskier funding' and will see the banks making 'an appropriate contribution' to reflect the risks to the economy generated by them. The overall intention is to 'increase the resilience of the financial sector'.

Liability to pay the Levy will be assessed using the global consolidated balance sheet. UK banks and banking groups will be charged on their world-wide 'chargeable equity and liabilities', calculated according to the legislation. Non-UK banks will be charged in respect of chargeable equity and liabilities attributable to their UK operations only.  The Levy will also apply to non banking groups in some circumstances.

The Levy is expected to raise £2.5 billion each year and will not be deductible for corporation tax purposes.

This briefing reviews the key aspects of the proposed Levy  from a tax, regulatory and accounting perspective.

The draft legislation

The draft rules are detailed and complex but largely as expected. A more detailed review of the draft legislation has highlighted some material points of concern which are discussed here.

On the positive side, the Government has taken on board a number of points made during the consultation process. Notably, the Government has conceded that only the amount of chargeable equity and liabilities over £20 billion will be charged to the Levy (rather than the original proposal of the Levy applying to total liabilities once the £20 billion threshold was exceeded).

The Government is seeking comments by 19 November and a final draft of the legislation, along with full HM Revenue & Customs guidance, will be published later this year as part of the draft Finance Bill 2011.

'Taxable entity' - a due diligence exercise may be required

The definition of those entities caught by the new provisions is broad. Except for the obvious big players who are clearly within the regime, we recommend that all those engaged in the provision of banking services in the UK (anywhere within a group structure) undertake a due diligence exercise to determine whether the Levy applies to them.

This briefing is designed to assist clients to quickly gauge whether the Levy may apply to them and whether further and more detailed investigation is necessary.

A link to the detailed Herbert Smith briefing can be found here.

A link to the relevant Government documents can be found here.