The measure

As expected, HMRC confirmed that the Code of Practice on Taxation of Banks will be introduced.  Some limited changes have been made to the wording of the Code as a result of the consultation period that closed on 25 September 2009.  HMRC's aim is to encourage banks to follow the spirit as well as the letter of the law through voluntary adoption of the Code's 'benchmark' behaviours. The Code sets out principles it expects banks to comply with in relation to the following areas:

• Adopting good tax governance;
• Not undertaking tax planning that gives a tax result contrary to the intentions of Parliament; and
• Maintaining a transparent relationship between the bank and HMRC.

It is the tax planning section that was the subject of greatest scrutiny during the consultation period.

Who will be affected?

HMRC intend that the Code should be adopted by all banks operating in the UK, whether UK banks or overseas banks operating in the UK as subsidiaries or branches.  The definition of 'bank' for these purposes is relatively wide, including for example building societies and securities traders.

For groups that undertake predominantly banking activities the whole UK group (ie also potentially non-banking sub-groups) are caught, whereas for groups that contain banking entities but undertake predominantly non-banking activities only the banking entities are caught.  There are reduced adoption requirements for smaller banks, being those not managed by the Large Business Service within HMRC.  HMRC have identified 76 'fully' effected taxpayers managed by Large Business Service and 229 who are managed outside of LBS.

When?

Rather than introduce a specific deadline, HMRC expect that banks will determine through their own governance procedures whether they will adopt the code and communicate this to HMRC through existing dialogue, for example their regular discussions with their Customer Relationship Manager.