They won’t pay the surcharge until they pass an annual allowance of £100 million in profits, up from £25 million.
The surcharge is a tax on bank profits on top of corporation tax. Cutting it is deemed to be a measure that will help keep the UK’s vital financial services sector competitive.
Overall bank tax will still increase in 2023 however, due to a rise in corporation tax. In that year, banks will pay 28% in tax.
Barclays shares slid 4p to 199p, Lloyds was up 0.13p at 49.12p.
UK Finance said: “The banking sector will see an increase in its total tax rate and will continue to be taxed at a higher rate than other sectors of the UK economy. Given the overall tax position of other global financial centres, we urge HM Treasury to keep the banking and finance sector’s total tax rate under active review – this will ensure the UK continues to be an attractive place to do business, is globally competitive, and enables the sector to support the economic recovery and the net zero transition.”
Sunak said: “I also said in March that I would review the Bank Surcharge within Corporation Tax, to maintain the competitiveness of our financial services. We will retain a surcharge of 3%. The overall corporate tax rate on banks will, in 2023, increase from 27% to 28%. And will remain higher than the rate paid by other companies. Small challenger banks are improving banking competition, which is good for the sector and good for consumers. So to help them, I will also raise the annual allowance to £100m.”