BKM402375 | Banking surcharge: definition of banking company: deposit taker condition – de minimis exclusion

CTA10/S269DO (3)-(5), (7)

The de minimis exclusion applies where deposits represent only a small part of the entity’s balance sheet and if the entity is a member of a group, where it is the only UK deposit taker.

For most retail banks, customer deposits represent a considerable proportion of the bank’s balance sheet liabilities. This applies both to UK retail banks and to foreign banks trading in the UK through a permanent establishment. From time to time the list of banks authorised to accept deposits under FSMA 2000 may include an entity where deposit taking represents only a small part of its balance sheet liabilities, these entities will be excluded from the surcharge if:

• in the chargeable accounting period, liabilities on the entity’s balance sheet which come from accepting deposits do not amount to a substantial proportion of its total liabilities and equity, and

• where the company is a member of a group, no other member of the group is a UK deposit taker in the chargeable accounting period

In practice, HMRC will accept the first part of the test is met where liabilities from accepting deposits represent less than 10% of the entity’s total liabilities and equity in the chargeable accounting period (the deposit ratio test).

The test should be applied at the balance sheet date and should be based on a 2-year rolling average. The test is only breached if a company has deposits of more than 10% of the entity’s total liabilities and equity in the chargeable accounting period and the previous accounting period.

Where the authorised deposit taker is a foreign company trading in the UK through a permanent establishment, the deposit ratio test must be applied to the foreign company’s balance sheet. In such a case, references to accepting deposits are references to carrying on an activity which would be a regulated activity of accepting deposits under FSMA 2000 if it were carried on in the UK.

The second part of the test refers to a UK deposit taker, for the purpose of the test a UK deposit taker is:

• a UK resident company that accepts deposits, or

• a non-UK resident company that accepts deposits in the course of carrying on a trade in the United Kingdom through a permanent establishment in the United Kingdom.