UK banking sector generates £41bn in tax

The UK banking sector contributed around £41 billion in tax during the financial year ended March 2023, £2.2 billion higher than the previous year.

According to a new report by UK Finance, the tax paid by the industry accounted for 4.6 per cent of total UK government tax receipts over the period.

Tax paid by UK banking firms was comprised of £22.1 billion in taxes borne – including corporation tax and the bank levy – and £18.9 billion in taxes collected including income tax and employee national insurance, the report said.

Taxes borne are a business cost and therefore directly affect a firm’s financial results. Taxes collected are generated by a firm’s operations but collected from others and reflect the wider economic contribution generated by the banking sector.

Total employment taxes were £22.9 billion, equivalent to 5.8 per cent of all UK employment tax receipts. UK Finance said the figures reflect the large number of highly skilled workers employed in the banking industry across the UK.

The report also compared UK tax rates with those in other financial centres. In 2023, the report said that London had a total tax rate of around 45 percent, which is higher than New York’s rate of 27.9 per cent and Dublin’s rate of 32.4 per cent.

Frankfurt and Amsterdam had higher tax rates of 46.8 per cent, with the report suggesting that these would fall to around 37.2 per cent in the future.

“This report shows that the banking sector is a major contributor to the UK’s tax base and supports a large number of skilled jobs,” said David Postings, chief executive of UK Finance. “Through its activities, the sector also delivers growth and investment up and down the country.”

He added: “Banks based here pay a significantly higher rate of tax than those in New York. And our analysis shows that they are expected to pay notably higher rates of tax in future years than in other major European capitals. This is something that needs to be considered in terms of the UK’s international competitiveness.”

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