HMRC’s First Annual Report - Code of Practice on Taxation for Banks

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By Susan Cattell, Head of Taxation (England and Wales)

12 January 2016

Susan Cattell outlines positive developments highlighted in HMRC’s report.

What is the Code of Practice?

The Code of Practice, which applies to banks and building societies, was first introduced in 2009 and strengthened in 2013.  The aim was to change the attitudes and behaviours of banks in relation to tax avoidance because of their unique position as potential users, promoters and funders of tax avoidance.

In adopting the Code banks agree:

  • To adopt adequate governance to control the types of transactions they enter into;
  • Not to undertake tax planning that aims to achieve a tax result that is contrary to the intentions of Parliament;
  • To comply fully with all their tax obligations; and
  • To maintain a transparent relationship with HMRC.

So, are the banks responding to this strategy?  And are there elements in this code that may be sought more widely across large businesses?

The annual report

The first annual report is now available from HMRC

The strengthened Code requires HMRC to publish annual reports on its operation, starting in 2015, so this is the first report and covers the period from 5 December, 2013 to 31 March ,2015.  The report lists the 303 banks which had adopted the Code by the end of the period and the six which had not (of which four subsequently adopted it).

HMRC has the power to name any bank which it considers has not complied with its Code commitments.  The report notes that none of the banks which had adopted the code is considered to have failed to comply during the report period.

Changing attitudes and behaviour

HMRC notes that it has seen positive changes in the way banks conduct their tax affairs, including stepping back from undertaking or promoting avoidance and putting in place effective governance arrangements.  It believes that the Code has been a significant factor in these changes.

Since 2004 the DOTAS (Disclosure of Tax Avoidance Schemes) regime has required tax avoidance schemes to be disclosed to HMRC.  Banks made 125 disclosures between 2004 and the introduction of the Code in 2009 but the number dropped by 80% between July 2009 and 2013. In the period covered by this report banks made fewer than five DOTAS disclosures and in each case approached HMRC for confirmation that the transaction in question did not achieve a result contrary to the intentions of Parliament.

At 31 March, 2015 there was £1bn of tax under consideration in relation to 55 legacy bank avoidance schemes.

Additionally in 2013 HMRC calculated that there was £3.2bn of tax under consideration in relation to 92 legacy bank avoidance schemes.  Due to changing attitudes at the banks, and HMRC engagement with them, by March 2015 this had considerably reduced.  At 31 March, 2015 there was £1bn of tax under consideration in relation to 55 legacy bank avoidance schemes.

HMRC also notes that before adopting the Code some retail banks had provided customers with the finance for tax avoidance arrangements.  During the period covered by the report the banks have worked with HMRC to provide evidence on these transactions.  These banks have also decided not to provide services that could help facilitate unwinding the arrangements in a way that avoids the customer paying the full amount of tax that HMRC believes is due – citing their Code commitments as the reason for this.

Reviewing compliance

HMRC undertakes periodic reviews of particular aspects of Code compliance.  An example given in the report describes how towards the end of the reporting period HMRC initiated a review of groups with retail banking operations serving UK customers to ensure that they understood that their Code obligations apply to the worldwide group, to the extent UK tax is involved.

HMRC also had meetings with wealth management and private banking divisions to ensure banks were not promoting or facilitating avoidance by others and ‘know your customer’ meetings which considered how the banks reward their top employees and ensure those rewards are Code compliant.

Intentions of Parliament

Under the Code banks have to consider whether the tax results of a transaction are contrary to the intentions of Parliament.  If a bank has any doubts it can refer the transaction to a central team at HMRC for discussion before the transaction is implemented.  HMRC local contacts can also refer transactions if they identify concerns.

In the report period 30 transactions were referred to the central Code team to obtain HMRC’s view on whether the transaction was Code compliant; most of these referrals were requested by the banks but a few were triggered by HMRC compliance personnel.  HMRC considered that four of the transactions would have produced results contrary to the intentions of Parliament: the banks concerned confirmed to HMRC that these did not go ahead.

New Guidance

HMRC intends to issue new guidance on the Code in the coming months to assist banks further in determining their compliance.  This will be of interest beyond the banking sector because HMRC will be including some additional material, for example on the intentions of Parliament. Ahead of the issue of the new guidance HMRC plans to discuss the proposed content with the industry and other interested parties.


  • Tax

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