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:
- The timetable between the HMRC response to the Condoc (expected 30 September) and the Autumn Statement. It will be difficult enough for UK Banks to timetable a Board meeting to agree a position on the Code in this timeframe, never mind for branches of foreign banks.
- Banks will have to sign up to the Code in writing and unconditionally. There is an aim for consistency, but this reignites the debate on how anyone can sensibly and consistently interpret “the spirit of the law” and “intentions of Parliament”. A debate that cannot ever be resolved satisfactorily.
- The treatment of “smaller banks” is unclear: Section 1 of the Code is in fact a summary of the rest of the Code; how will a smaller bank be defined?
- Branches of foreign banks may have difficulty convincing Boards at head office to adopt the Code. Who are “the Board” that HMRC would engage with at a branch bank?
- Although the Code itself is not changing, will HMRC’s views on the Code expressed in guidance change over time, i.e. will there be “scope creep” without an opportunity for appropriate consideration by Banks?
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.