In the Autumn Statement 2014 the Government announced that the ability of banks and building societies to use their pre-April 2015 losses against their taxable profits would be restricted such that these losses could only be offset against 50% of profits earned. This was considered to be a real blow to the banking industry but justified by the Government on the basis that banks should not be able to use recession-era losses to eliminate tax payable on their post-recession profits given their contribution to the financial crisis that generated the losses in the first place.
The Chancellor has now gone further and in Budget 2016 has announced that from 1 April 2016, the current 50% restriction will be reduced to only 25% of profits earned. This is a significant additional restriction, projected to raise a further nearly £1.9bn in tax revenue from the banking sector by 2021. We will need to consider the detail of the Finance Bill 2016 but it is understood that this restriction will remain subject to a £25 million allowance for building societies and an exemption for losses incurred by new-entrant banks.
This announcement forms part of a package of measures following the financial crisis, including the bank levy and bank corporation tax surcharge, which the Government have introduced to ensure the banking industry are supporting the recovery from the financial crisis. Many may be asking how much more pain the banking industry is prepared to take in relation to activities that now took place approximately a decade earlier.