Our approach to tax

Alongside transparent products, we strive to be transparent in all other areas of our business. This is not only because it is an essential component of corporate governance, but because in being open with our stakeholders on issues that are important to them, we are able to build further trust. Paying tax is a key part of how our business contributes to society. We are committed to ensuring that we pay the tax we are legally required to pay in all of the territories in which we operate, complying with all tax rules and regulations and safeguarding our reputation as a responsible taxpayer.

Our tax strategy

Taxes allow governments to fund essential public expenditure, enabling them to meet economic and social objectives, and are a key part of how our business contributes to society.

We are committed to ensuring that we pay the tax we are legally required to, in all of the territories in which we operate. We comply with all tax rules and regulations in those territories and we safeguard our reputation as a responsible taxpayer. However, we recognise that we also have a responsibility to protect shareholder value by controlling and managing our tax liabilities.

Our approach to tax is set out in our tax strategy which is aligned with our mission, core values and overall CR strategy. We are committed to being a responsible taxpayer, being straightforward and transparent on all tax matters and acting fairly, responsibly and with integrity in all our dealings with tax authorities.

Our tax strategy is aligned with HM Revenue & Customs’ (HMRC) Code of Practice on Taxation for Banks which sets out the principles and behaviours expected of banking groups with regard to tax, and we have unconditionally adopted this code.

Our tax strategy has the following key components:

  • Payment of taxes. We seek to ensure that we always pay the tax we are legally required to and comply fully with our tax obligations in all territories in which we operate.

  • Dealings with tax authorities. We are committed to dealing with tax authorities openly, honestly and proactively. This includes having a regular and constructive dialogue with HMRC across all taxes, seeking advance clearance where the tax treatment is uncertain and a clearance procedure is available, discussing contentious issues as early as possible, and making full disclosure of key transactions in relevant tax returns. It also includes full disclosure and early notification where it becomes apparent errors or mistakes have been made.

  • Mitigating tax liabilities. We seek to ensure that genuine commercial transactions are structured with clear and unambiguous legislative support so that tax liabilities are controlled and minimised. Artificial structures without commercial or economic substance which give a result which is inconsistent with the underlying economic position will not be considered.

  • Mitigating and controlling tax risk. Our tax strategy sets out how tax risk is mitigated and controlled by having documented principles for the involvement of the in-house tax function in transactions and business developments, the allocation of responsibilities between the tax function and the businesses, and the involvement of external advisers. These principles, which are embedded into our corporate policies and documented processes, procedures and internal controls, ensure that tax implications are fully considered on corporate transactions and business developments, as well as on day to day business operations.

  • Tax risk management framework. Our tax strategy also sets out our tax risk management framework which is embedded within our overall risk management framework and governance structure (available in the Annual Report and Financial Statements). In relation to tax risk, this involves:

    1. Identification, evaluation and management of tax risk by the in-house tax function working with the Finance Director and the divisions
    2. Independent review and challenge of first line actions by:
            a. The six-weekly Finance Forum chaired by the Finance Director and attended by the divisional finance directors and senior management, including the heads of tax, audit, treasury and risk
            b. The Risk Advisory Committee
            c. The Audit Committee, twice a year
            d. The Board
    3. Independent assurance provided through an annual review, by the internal audit function, of the processes and internal controls underpinning 

Our total tax contribution in 2016

We operate predominantly in the UK and the Republic of Ireland. We no longer operate in, or generate income in, any other territory.

Our total tax contribution comprises not only the direct tax we, as a business, contribute to governments out of our own financial resources. It also comprises the tax we collect on behalf of governments, such as employment taxes deducted from payments to employees. Over the last five years, our total tax contribution, which predominantly comprises taxes paid to the UK and Irish governments, has shown sustained growth, increasing to £156m in 2016.

Direct tax contribution  
Corporation tax 46 40 45 48 57
Bank corporation tax surcharge - - - - 8
Employer's national insurance and equivalent 14 14 15 16 18
Irrecoverable VAT 11 12 17 21 22
Business rates 3 3 3 3 3
  74 69 80 88 108
Indirect tax contribution  
Employees’ income tax and national insurance (through PAYE) 34 38 42 44 46
Tax deducted from interest paid on Vanquis Bank deposits 2 2 3 3 2
  36 40 45 47 48
Total tax contribution 110 109 125 135 156

Note: For 2012 to 2015, the above includes small amounts of Polish taxes paid in respect of Vanquis Bank’s pilot operation in Poland.

Our tax contribution in the Republic of Ireland

Our home credit business operates as a branch in the Republic of Ireland. In 2016, it generated revenue of £50m (2015: £43m) and profits of £4.7m (2015: £6.1m) and had, on average, 130 (2015:124) employees. Of our total tax contribution for 2016 of £156m (2015: £135m), £4.0m (2014: £3.8m) was tax paid to the Irish Government and comprised the following:

Direct tax contribution  
Corporation tax at 12.5% net of repayments related to prior years 0.8 0.7
Employer’s national insurance equivalent 0.7 0.7
Irrecoverable VAT 0.5 0.8
Indirect tax contribution  
Employees’ income tax and national insurance equivalent (through PAYE) 1.8 1.8
Total tax contribution 3.8 4.0