Banking: UK firms up plans for bank tax, sorry, "levy."

There's no mistake. HMRC is in charge. And in the first line of the Schedule to draft legislation it says "There is to be a tax called "the bank levy."

Why not, then, simply call it a tax?

Oh, because - although he did not say "watch my lips" - it's not Conservative party policy to create new taxes. So it's a "levy," instead.

It's not a simple tax: it takes 35 A4 pages to define it, its targets and its operations.

So, here's the thing: any UK banking group, building society group, foreign banking group or "relevant non-banking group" will be subject to the tax where, at the end of a "chargeable period" the parent company ... actually, we don't understand.

Answers on a postcard for what the following means: "

9(1)The bank levy is charged if, as at the end of a period of account (the
chargeable period) of an entity (the parent entity) -
(a)the parent entity is a parent and is not a subsidiary of any other
entity, and
(b)the group (the relevant group) for which the parent entity is the
parent is a group within sub-paragraph (2).
(2)The groups within this sub-paragraph areÛ
(a)a UK banking group,
(b)a building society group,
(c)a foreign banking group, or
(d)a relevant non-banking group.

OK, so we do actually understand it but it's ridiculously contorted - and it's bad practice to define a word with reference to itself.

What it means is that the tax applies to the ultimate parent of a group described in the clause 9(2). When the current government is eradicating the legacy of the previous Labour administration, it would be helpful if it also threw out the stupid style of draftsmanship that was introduced in order, supposedly, to make law easier to understand.

But, and there's no surprise, it's actually much more complicated that that single paragraph says. For there are a series of further definitions which, one assumes, are designed to be anti-avoidance provisions.

Surprisingly, it might be that the only avoidance some foreign groups do is to avoid doing business in London.

But - and for foreign banks operating in London this may be a saving - "If the amount of the chargeable equity and liabilities is not more than £20,000,000,000, the amount of the bank levy is nil and no further steps are taken." Thankfully, the UK Government has recognised that this is GBP20,000 million and is not causing confusion by the mistaken use of "billion" which has become prevalent in HM Treasury documents.

So, who will fall under the scheme?

13 The relevant group is a "UK banking group" if -
(a)the group is a banking group (see paragraph 17), and
(b)the parent entity is a UK resident entity.
14 The relevant group is a "building society group" if the parent entity is a
building society.
15 The relevant group is a "foreign banking group" if -
(a)the group is a banking group (see paragraph 17), and
(b)the parent entity is a non-UK resident entity.
16 The relevant group is a "relevant non-banking group" if -
(a)the members of the group include at least one UK resident bank or
relevant foreign bank, and
(b)the group is neither a banking group nor a building society group.

Clear?

Ha ha. It gets worse:

17(1)The relevant group is a "banking group" if -
(a)condition A, B, C or D is met, and
(b)the exempt activities condition is not met (see paragraph 18).
(2)Condition A is that the parent entity is a UK resident bank or a relevant
foreign bank.
(3)Condition B is that -
(a)the parent entity is an investment entity, and
(b)the members of the relevant group include at least one UK resident
bank to which sub-paragraph (6) applies or relevant foreign bank to
which that sub-paragraph applies.
(4)Condition C is that -
(a)the parent entity is a non-UK resident entity to which sub-paragraph
(8) applies, and
(b)the members of the relevant group include at least one UK resident
bank or relevant foreign bank.
(5)Condition D is that -
(a)the parent entity is an investment entity,
(b)the members of the relevant group include at least one non-UK
resident entity to which both sub-paragraphs (6) and (8) apply, and
(c)those members also include at least one UK resident bank or relevant
foreign bank.
(6)This sub-paragraph applies to an entity ("E") if, for the purposes of the
applicable accounting provisions, E is not a subsidiary of any other entity
apart from investment entities.

(7) "The applicable accounting provisions" means -

(a)the provisions mentioned in paragraph 9(3), or

(b)if the members of the relevant group are determined under
paragraph 9(7), the provisions of US GAAP mentioned in paragraph
9(6)(a)(iii).

(8) This sub-paragraph applies to an entity ("F") if -

(a)F would be a UK resident bank if F were a UK resident entity and
carried on its activities in the United Kingdom, or
(b)F -
(i)is a member of a partnership which is a non-UK resident
entity, and
(ii)would be a UK resident bank if both F and the partnership
were UK resident entities and the partnership carried on its
activities in the United Kingdom.

(9)"Investment entity" -

(a)means an entity the business of which consists wholly or mainly of,
and the principal part of the income of which is derived from, the
making of investments, and
(b)also includes any savings bank or other bank for savings.

And that's just a small fraction of the complicated part of the draft that is designed to tell you if your bank is affected.