UK Taxpayers Facing £2bn Loss Due to Loophole in Motor Finance Scandal
A potentially costly tax loophole is being exploited by UK banks and specialist lenders, allowing them to avoid paying billions of pounds in corporation tax on compensation payouts to victims of the motor finance scandal. Under current law, any operation that is not a bank can deduct compensation payments from their profits before calculating their corporation tax, reducing their bill.
However, this rule has been blocked for UK banks since 2015, but those due to pay redress as part of the pending £11bn car loan compensation scheme are able to exploit it because their motor finance arms are considered "non-bank entities". This means taxpayers will lose out on £2bn in corporation tax over the next two years.
The loophole has sparked criticism from Liberal Democrat MP Bobby Dean, who is urging the government to intervene and ensure the rule applies to payouts for car loan mis-selling. "It's not right that the taxpayer is set to lose out on billions due to a loophole in compensation rules," Dean said. "The UK banned banks from deducting payouts from tax bills for good reason and it seems that those caught up in the motor finance scandal are going to dodge their responsibilities by operating through spin-off companies."
The issue has also been raised by a claims law firm representing 1.5 million car finance victims, who say it's "hard to understand why the Labour government is not closing this loophole". The UK's biggest provider of car loans through its Black Horse division, Lloyds Banking Group, and other big high street names including Barclays and Santander UK, are among those exploiting the loophole.
The loophole was introduced in 2015 as part of efforts to prevent "past misconduct and management failure" from impacting state revenues. However, it has now been revealed that banks and specialist lenders are able to exploit this rule, allowing them to avoid paying billions of pounds in corporation tax.
The issue is set to be discussed by the government, with the Office for Budget Responsibility (OBR) warning that taxpayers will lose out on £2bn in corporation tax over the next two years. The FCA's proposed motor finance compensation scheme, which is due to close this week, also contains a loophole that allows lenders to exploit the current system.
The Treasury has said it wants to see the issue resolved in an "efficient and orderly way" but has not directly commented on the tax relief.
A potentially costly tax loophole is being exploited by UK banks and specialist lenders, allowing them to avoid paying billions of pounds in corporation tax on compensation payouts to victims of the motor finance scandal. Under current law, any operation that is not a bank can deduct compensation payments from their profits before calculating their corporation tax, reducing their bill.
However, this rule has been blocked for UK banks since 2015, but those due to pay redress as part of the pending £11bn car loan compensation scheme are able to exploit it because their motor finance arms are considered "non-bank entities". This means taxpayers will lose out on £2bn in corporation tax over the next two years.
The loophole has sparked criticism from Liberal Democrat MP Bobby Dean, who is urging the government to intervene and ensure the rule applies to payouts for car loan mis-selling. "It's not right that the taxpayer is set to lose out on billions due to a loophole in compensation rules," Dean said. "The UK banned banks from deducting payouts from tax bills for good reason and it seems that those caught up in the motor finance scandal are going to dodge their responsibilities by operating through spin-off companies."
The issue has also been raised by a claims law firm representing 1.5 million car finance victims, who say it's "hard to understand why the Labour government is not closing this loophole". The UK's biggest provider of car loans through its Black Horse division, Lloyds Banking Group, and other big high street names including Barclays and Santander UK, are among those exploiting the loophole.
The loophole was introduced in 2015 as part of efforts to prevent "past misconduct and management failure" from impacting state revenues. However, it has now been revealed that banks and specialist lenders are able to exploit this rule, allowing them to avoid paying billions of pounds in corporation tax.
The issue is set to be discussed by the government, with the Office for Budget Responsibility (OBR) warning that taxpayers will lose out on £2bn in corporation tax over the next two years. The FCA's proposed motor finance compensation scheme, which is due to close this week, also contains a loophole that allows lenders to exploit the current system.
The Treasury has said it wants to see the issue resolved in an "efficient and orderly way" but has not directly commented on the tax relief.
I'm low-key shocked that banks are exploiting this loophole like there's no tomorrow! £2bn is a lot of cash, fam 
. How can they do this without any consequences? Did we really just give them a free pass to avoid paying taxes? 
And what about the 1.5 million car finance victims who are still waiting for redress? This loophole feels like a slap in the face, tbh 
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, as Albert Einstein so wisely put it: "The important thing is not to stop questioning. Curiosity has its own reason for existence."
! Like, £2 billion is a LOT of money and the fact that these big corporations are just exploiting a loophole to avoid paying their fair share of corporation tax is just so... so... ugh! It's like they think they're above the law or something? 
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This is just another example of how banks get away with exploiting loopholes to avoid paying their fair share of taxes. I mean, who thought it was a good idea to let non-bank entities, which are basically just spin-off companies created by the same big lenders, dodge corporation tax? 
The £2bn loss we're talking about here isn't going to fix itself.
? Like, totally agree with him on this one!
! Like, we're talkin' billions of pounds here 
... which is a huge loss for taxpayers 