Tax Payers Face £2 Billion Hit as Banks Exploit Loophole in Motor Finance Scandal
A recent loophole in the UK's car finance scandal is set to cost taxpayers £2 billion over the next two years. Under the current law, banks and specialist lenders can deduct compensation payments from their profits before calculating corporation tax, reducing their bill.
However, this rule does not apply to non-bank entities, including high street names such as Barclays and Santander UK, and Lloyds Banking Group's Black Horse division. This means that these companies will be able to avoid paying £2 billion in corporation tax due to compensation payouts for motor finance scandal victims.
The loophole was introduced in 2015 to prevent "past misconduct and management failure" from impacting state revenues. However, it appears that banks are exploiting this rule to dodge their responsibilities.
Liberal Democrat MP Bobby Dean has urged the government to intervene and close the loophole. "It's not right that taxpayers are set to lose out on billions due to a loophole in compensation rules," he said.
The Office for Budget Responsibility (OBR) has confirmed that corporation tax takings will be offset by a £2 billion loss linked to the proposed motor finance compensation scheme over 2025-26 and 2026-27. The FCA's proposed scheme is meant to compensate borrowers who were overcharged as a result of unfair commission arrangements between lenders and car dealers.
Lenders have been pushing for government support, with the Chancellor, Rachel Reeves, considering overruling a supreme court decision in January that largely sided with lenders.
The loophole has raised concerns among consumer advocates, with one law firm representing 1.5 million car finance victims stating that it's "hard to understand why the Labour government is not closing this loophole".
The Financing and Leasing Association (FLA) lobby group has also been pushing for narrower terms in the FCA's compensation scheme, claiming that its current terms are "so broad that they will compensate customers who suffered no loss".
As the consultation on the compensation scheme closes this week, consumers are left wondering why their expected tax bills are set to rise while big banks reap the benefits of a £2 billion tax break.
A recent loophole in the UK's car finance scandal is set to cost taxpayers £2 billion over the next two years. Under the current law, banks and specialist lenders can deduct compensation payments from their profits before calculating corporation tax, reducing their bill.
However, this rule does not apply to non-bank entities, including high street names such as Barclays and Santander UK, and Lloyds Banking Group's Black Horse division. This means that these companies will be able to avoid paying £2 billion in corporation tax due to compensation payouts for motor finance scandal victims.
The loophole was introduced in 2015 to prevent "past misconduct and management failure" from impacting state revenues. However, it appears that banks are exploiting this rule to dodge their responsibilities.
Liberal Democrat MP Bobby Dean has urged the government to intervene and close the loophole. "It's not right that taxpayers are set to lose out on billions due to a loophole in compensation rules," he said.
The Office for Budget Responsibility (OBR) has confirmed that corporation tax takings will be offset by a £2 billion loss linked to the proposed motor finance compensation scheme over 2025-26 and 2026-27. The FCA's proposed scheme is meant to compensate borrowers who were overcharged as a result of unfair commission arrangements between lenders and car dealers.
Lenders have been pushing for government support, with the Chancellor, Rachel Reeves, considering overruling a supreme court decision in January that largely sided with lenders.
The loophole has raised concerns among consumer advocates, with one law firm representing 1.5 million car finance victims stating that it's "hard to understand why the Labour government is not closing this loophole".
The Financing and Leasing Association (FLA) lobby group has also been pushing for narrower terms in the FCA's compensation scheme, claiming that its current terms are "so broad that they will compensate customers who suffered no loss".
As the consultation on the compensation scheme closes this week, consumers are left wondering why their expected tax bills are set to rise while big banks reap the benefits of a £2 billion tax break.
£2 billion is a lot of dosh... I mean, money 
. It's not right that banks are getting off scot-free while taxpayers foot the bill. 
Shouldn't they be held accountable for their part in the scandal? 
I don't think it's cool that some lenders are trying to push for a scheme that doesn't compensate those who were really affected... sounds like they're just looking out for their own interests 
.
I mean, come on... £2 billion? That's just peanuts for these guys 
. The banks are basically saying "hey, we got screwed, but you gotta pay" 
. It's like the government is just giving them a pat on the back and saying "good job, guys!" 
. Liberal Democrat MP Bobby Dean needs to get his act together and actually do something about it, instead of just complaining 
they're literally dodgin £2billion in corp tax by exploitin a loophole 
? It's like they're being bailed out by taxpayers while the rest of us are stuck with higher taxes 
. Can't we just have some fairness for once? 
. It's not fair that these huge banks are dodging out on paying their share of taxes just 'cause they're big players. I mean, come on! They're making billions from all you hardworking people borrowing money to buy cars... and then they get to take a £2 billion break? That's just laughable 
. It's like they think the system is rigged against them or something 
. The government needs to step in and close this loophole ASAP, before it costs us all even more 
. It's time for some real change, ya know? 
. I'm so sick of banks thinking they can just play the system and get away with it 
Can't believe these big banks think they can just exploit a loophole like that and get away with it! I mean, I'm all for fairness in finance, but this is just unfair to regular taxpayers. It's not right that we're footing the bill while the banksters are raking it in 
. It's just not fair that they get to use a loophole that non-bank entities don't have access to 
. Can we please get some real change and close this loophole ASAP? 
#TaxFairnessNow #BankingReform #JusticeForConsumers