Biggest share of tax paid by banks from employment

05 October 2015 3 min. read

Foreign banks pay the biggest share of tax collected, from the banking industry, to the HMRC, with the largest contribution coming in from taxes collected from their employees’ wages, research by PwC shows. Employment tax receipts have stayed relatively stable for the industry in recent years at £17.6 billion in 2014, or 7.2% of all UK employment tax receipts.

In a study commissioned by the British Bankers’ Association (BBA), titled ‘Total Tax Contribution of the UK banking sector’, PwC uses aggregated information collected from BBAs members about their tax payments in the tax period ending March 2014. This information is supplemented with further surveys using the same methodology as the BBA survey.

Study participants

The survey was completed by 29 participating banks, whose combined workforce accounts for 389,000 employees or 92% of the total 425,000 employed in the UK banking industry. In terms of corporate tax, the 29 firms paid 75% of corporation tax receipts (£1.6 billion) from the UK banking sector. The study makes a distinction between ‘tax borne’ as a burden of a banks’ own activities, and ‘taxes collected’, those that a banks administration collects from employees on behalf of the HMRC.

Overseas tax collection
According to the study, overseas banks, with their staff and operations in the UK – but with their headquarters overseas – pay slightly more tax than locally situated banks. Domestic banks paid £15.3 billion in the year ending March 2014, while foreign entities paid £16 billion in total taxes, both as burden and from tax collected.

Foreign tax collection

The profile for domestic and international banks, in terms of the breakdown of taxes paid, differs considerably. Although for both kinds of banks the largest tax activity comes from employment taxes, this is almost 10% higher for foreign banks, at 61% of the total, compared to 50.9% for UK based banks. Foreign banks paid considerably less to the Bank Levy, at 4.5% compared to the 11.1% of the UK banks’ pie. As proportion of the total taxes paid, corporate taxes on foreign entities stood at 8.5%, while for domestic banks a total of 1.2% of their total tax was corporate tax.

Employment tax receipts

Skilled contributions
The largest proportion of tax collected within the industry comes from employment. According to the data, employment in banking sector makes up 39% of the total UK financial sector employment. For the UK as a whole, the banking sector employs 1.5% of the total working population.

In terms of taxes paid, the sector’s employees paid £17.6 billion in 2014, which accounts for a disproportionate 7.2% of all UK employment tax receipts. Besides the bank payroll tax levied in 2011 – netting public coffers £3.4 billion – tax collected from employees over the past five years has been relatively stable.

Banking sector tax collection

Tax collected
In terms of comparison to the national average, workers in the banking sector are paid considerably higher wages, which are met with considerably higher tax requirements. Taking the total wages for the survey population and dividing it by the total number of employees within that population, the average salary in 2014 was £66,847, of which around £35,278 was collected as tax. Considerably higher than the national average, where wages stand at £27,000, of which an average £11,214 is contributed to the HMRC.