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UK Code of Practice on Tax for Banks

July 6, 2009


On 29 June 2009, following announcements in the 2009 budget, HM Revenue & Customs ("HMRC") published for consultation its draft Code of Practice on tax for the banking sector (the "Code"), which seeks to identify certain principles that the Government expects banks operating in the UK (including UK branches of non-UK banks) to adopt in relation to tax.

Set out below is a brief summary of some of the main points of the Code, together with a link to the Consultation Document. 


The Code's headline is that banks have a particular responsibility to comply with "the spirit, as well as the letter, of tax law". The Government hopes to embed this principle by reference to requirements in three categories:  

  1. Governance: banks must implement and maintain formal tax compliance and governance policies, including appropriate internal committee approval processes, for which the UK board of directors, or other senior officers in the UK, are ultimately responsible.
  2. Tax Planning: banks should not engage in tax planning other than in support of genuine commercial activity. Where a bank is acting as principal, the tax result of a transaction must be consistent with the underlying economics (except where legislation is specifically designed to give that tax result). Banks must also determine and adhere to Parliament's legislative intentions and not structure or promote transactions or arrangements that aim to achieve a result that is contrary to those intentions.
  3. Transparency: banks should maintain a transparent relationship with HMRC, disclosing uncertainties in advance of proposed transactions, as well as any transactions or arrangements that have already taken place, where a bank believes the tax result may be contrary to the intentions of Parliament.


Adoption of the Code would be voluntary. Where a bank signs but does not comply with the Code, HMRC may raise the issue with the bank's board or senior officers. In cases of deliberate non-compliance, it is suggested that reference may also be made to a professional body of which the officer who signed the Code is a member. Persistent non-compliance may lead to HMRC requiring disclosures in the bank's accounts or an audit of its Code compliance record. 

HMRC promises greater scrutiny of the tax affairs of those banks which do not sign up to the Code. Adoption of the Code will also be a factor taken into account when HMRC carries out its risk assessments in deciding where to allocate resources. 

Comments and Consultation Process

Initial reactions to the Code are starting to filter through, but it remains to be seen how it will be received by the banking sector once it has been properly digested. 

The Code's principles on good governance reflect the internal tax compliance policies and practices that many banks (and other large businesses) already have in place.

The primary focus of the consultation is therefore more likely to be on the requirement to discern Parliament's intentions and the spirit of the law, which in the context of increasingly prescriptive tax legislation is not always straightforward. Moreover, it is not entirely clear what this aspect of the Code is intended to add to the established case law doctrine of purposive statutory construction.

Other practical issues may arise around enforcement of the Code, ensuring taxpayer confidentiality and how differences of legislative interpretation between HMRC and taxpayers can be resolved before transactions are entered into or returns are filed. 

Questions are also being raised on the relationship between the non-statutory Code and the principles of taxation by rule of law. 

The initial consultation lasts until 25 September 2009, before which date feedback is invited on the draft Code and accompanying proposals. 

The full Consultation Document and Code can be found at http://www.hmrc.gov.uk/news/june.htm

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