Posted by Christie Malry on March 23, 2012 at 10:33 pm
The Telegraph runs an unsurprising story:
Barclays and HSBC will record a gain as a result of the cut in corporation tax, despite George Osborne saying big banks would not benefit from the move.
Well, duh. Corporation tax is based on taxable profits. Whereas the bank levy is based on the bank's balance sheet. They're two totally different bases. Osborne can increase the levy so as to offset the estimated profits that specified major banks will make, but he cannot prevent:
- banks making more taxable profits;
- banks having smaller balance sheets; or
- some banks gaining while other banks lose.
So The Telegraph's "scoop" is pretty underwhelming stuff, really.
There's another point too. Corporation tax is intimately linked to financial reporting, with companies required to account for any timing differences between recognition for accounting purposes and recognition for tax purposes via something called "deferred tax". So, if you record a gain in your accounts today but don't pay tax on it for another year, you record a notional tax charge against that item in the profit and loss account and set up a deferred tax liability on the balance sheet. Next year, this item will reverse, all things going according to plan. Now, you're required to record the deferred tax at the expected tax rate. Now that Osborne has changed that rate, you have to go back and revalue all your deferred tax assets and liabilities. To the extent that there will be deferred tax liabilities being reduced, this will be recorded as a reduction in the tax charge line.
The bank levy, by contrast, is accounted for differently. There's no deferred tax accounting for it. So the increase in the levy won't impact the accounts until the year it's due.
Update: Jaimie Kaffash has an alternative perspective on the bank levy.