BKM208100 | Bank compensation restriction: qualifying company: overview

CTA09/S133A(5)

The bank compensation restriction denies a banking company corporation tax relief for compensation payments related to misconduct issues. The restriction also applies to compensation paid by any company to customers of a qualifying company where the compensation is in respect of the qualifying company’s relevant conduct. A qualifying company is an associated company of the company incurring the expense. (CTA09/S133A(5)). Associated is defined at CTA09/S133L and largely follows the definitions used elsewhere in the Taxes Acts.

This rule means that banking groups cannot escape the restriction by paying the compensation through a related party (CTA09/S133A(3)(b)).

This rule also means the restriction may apply where a UK company incurs compensation expenditure to customers of an overseas banking company which is an associated company.

However, the rule will not apply if there is an arm’s length arrangement between the two companies (CTA09/S133A(3)(b)). This ensures that a company that pays the compensation and recharges the expense on an arm’s length basis is not unfairly penalised (BKM208200).