UK Banks To Receive Tax Break As Part Of IFRS Transition

by Robert Lee, Tax-News.com, London

08 December 2005

Banks in the United Kingdom are to receive transitional tax relief for impairment losses in relation to the UK’s adoption of International Financial Reporting Standards (IFRS).

It is thought that the overall tax relief, announced as part of Chancellor of the Exchequer Gordon Brown's pre-Budget statement on Monday, will be worth between GBP1 billion and GBP3 billion over 10 years, although the exact amount won't be known until all the banks report their full-year earnings in February.

The tax break has come about as a result of the way that IFRS rules treat money put aside by banks to cover possible bad debts.

According to HM Revenue & Customs, UK banks will be able to deduct all pre-2005 bad debt provisions from future income, and the Treasury will issue a tax credit which will be spread over ten years starting 2006.

Welcoming the the move, Gillian Wild, tax director at PricewaterhouseCoopers observed that:

“It has been a real concern for corporate taxpayers, particularly banks, that the final clarity of tax treatment on the transition to IFRS has been missing until now."

“The complexity of the tax legislation needed to deal with IFRS – and particularly the tax treatment for financial instruments – is daunting. There is a huge challenge ahead ensuring that taxpayers and HM Revenue & Customs are able to both understand and apply the legislation."

"However, at least now it is known that an impact on transition on items such as bank’s impairment losses will be spread over ten years which means that any financial impact is tempered. This will be welcome as many companies continue to grapple with assessing the impact on their tax liabilities.”

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