Budget 2015: Compensation payments made by banks to their customers will become non-deductible for corporation tax purposes

Under current legislation, banks are able to claim a corporation tax deduction in respect of compensation payments made to customers in respect of mis-sold financial products, such as PPI and IRHPs.

Subject to consultation and inclusion in a future Finance Bill, compensation payments made by banks in respect of mis-sold financial products, will become non-deductible for corporation tax purposes.

This measure will directly affect the banking and financial services sector, as the Government has made it clear that they consider it unacceptable that the industry’s corporation tax receipts continue to be reduced, as a result of widespread misconduct in selling inappropriate financial products. The consultation process is likely to be a complex process in order to ensure that its application is suitably ring-fenced.