On 31 May 2013 HM Revenue & Customs (HMRC) published a consultation on strengthening the Code of Practice on taxation for banks. This did not include any proposals on the content of “the Code”; instead the consultation focused on strengthening the consistency of the application of the Code. The proposals include:
The Code impacts all banks, building societies and certain securities dealers (“Banks”). The current definition of Bank for these purposes is based on the bank levy definition, without the protection of the £20bn threshold. There has been some suggestion that the scope should be extended to the “shadow banking” sector, but whether HMRC will act on this suggestion is unclear. What was made very clear in the first “Town Hall” meeting held on 24 June is that HMRC are seeking to “cement” the Code for future years when, for example, more Banks are taxpaying and the appetite for tax risk could change.
We would recommend that Banks engage with HMRC on the proposals through trade associations, other Town Hall events and directly with HMRC CRMs and Inspectors. Banks should also consider whether to make a formal response to the Condoc before 16 August. Given the Autumn Statement timetable, it will be important to escalate this issue to Boards and general managers/head office, during the consultation process.
There are legal concerns around taxpayer confidentiality, a lack of external oversight of HMRC decisions on Code compliance and HMRC having quasi legal powers. It will be important to stress to HMRC the need for greater transparency around HMRC’s decisions on Code compliance and the need for an external appeals procedure. Other points to consider include:
Ultimately, Boards will need to weigh up the tax, legal and reputational issues that will arise from the strengthened Code. Although the Code is prospective, Banks should be mindful of legacy tax disputes that have yet to be concluded.
This article represents the views of the author only, and does not necessarily represent the views or professional advice of KPMG in the UK.