The House of Commons Treasury Committee has published a letter from George Osborne, Chancellor of the Exchequer, to Andrew Tyrie, committee chair.

Mr Osborne has written the letter in response to a letter from Mr Tyrie, dated 6 April 2016, regarding the tax deductibility of payments made by banks to regulators.  Mr Tyrie had sought further clarification on whether banks can offset any of the payments they make to regulators against their corporation tax bill.

In the letter, Mr Osborne confirms that payments made to regulators are generally deductible for corporation tax purposes.  This applies to routine payments made by banks operating in the UK to regulatory authorities, to cover the cost of their supervision and oversight.  It also applies to payments that banks make to regulators to cover the costs of specific investigations, such as those carried out under section 166.

Mr Osborne confirms that this is a long-standing general position and reflects the view that regulatory payments are a routine cost of doing business, and are paid by compliant and non-compliant firms. It is also consistent with the treatment of payments made to regulators in other industry sectors, such as law, accounting, oil and gas.

Despite this, Mr Osborne confirms he will keep this area under review as part of the government’s commitment to ensure a fair tax contribution from the baking sector.

In a related press release, Mr Tyrie comments that, provided regulatory payments are made by compliant and non-compliant firms alike, it is reasonable that they should be treated as a cost of doing business and therefore tax deductible. However, in his view, if any such payments were to be due solely from non-compliant firms, they should not be tax deductible since they would be tantamount to fines.