Taxpayers Face Billions in Loss Over Car Finance Scandal as Ministers Urge Action Against Loophole
The UK government is under pressure to close a £2 billion tax loophole that could allow banks and specialist lenders to avoid paying corporation tax on payouts to victims of the motor finance scandal. The loophole, which was introduced in 2015 to prevent taxpayers from losing out due to "past misconduct and management failure", has now been exploited by non-bank entities, including high street names like Barclays and Santander UK.
Under the current law, any operation that is not a bank can deduct compensation payments from their profits before calculating their corporation tax. However, UK banks have been blocked from claiming this relief since 2015. The loophole means that those who will be receiving redress as part of the pending £11 billion car loan compensation scheme, including the operations of Lloyds Banking Group and specialist lenders such as Honda and Ford, can exploit it to their advantage.
This has resulted in taxpayers losing out on £2 billion in corporation tax over the next two years, according to the Office for Budget Responsibility. Liberal Democrat MP Bobby Dean is now urging the government to intervene and close the loophole, saying that "it's not right that the taxpayer is set to lose out on billions due to a loophole in compensation rules".
The Financial Conduct Authority's proposed motor finance compensation scheme, which is currently out for consultation, aims to compensate borrowers who were overcharged as a result of unfair commission arrangements between lenders and car dealers. However, critics argue that the scheme could lead to millions of people seeing their tax bills go up.
The Treasury has refused to comment directly on the tax relief, saying only that it wants to see the issue resolved in an "efficient and orderly way" that provides certainty for consumers and firms. Meanwhile, lenders have continued to lobby for government support, with some arguing that the scheme's terms are too broad and could lead to customers who suffered no loss receiving compensation.
The loophole has been widely condemned by experts, with one claims law firm representing 1.5 million car finance victims saying that it is "hard to understand why the Labour government is not closing this loophole, allowing big banks to profit from a £2 billion tax break for their own historic misconduct".
The UK government is under pressure to close a £2 billion tax loophole that could allow banks and specialist lenders to avoid paying corporation tax on payouts to victims of the motor finance scandal. The loophole, which was introduced in 2015 to prevent taxpayers from losing out due to "past misconduct and management failure", has now been exploited by non-bank entities, including high street names like Barclays and Santander UK.
Under the current law, any operation that is not a bank can deduct compensation payments from their profits before calculating their corporation tax. However, UK banks have been blocked from claiming this relief since 2015. The loophole means that those who will be receiving redress as part of the pending £11 billion car loan compensation scheme, including the operations of Lloyds Banking Group and specialist lenders such as Honda and Ford, can exploit it to their advantage.
This has resulted in taxpayers losing out on £2 billion in corporation tax over the next two years, according to the Office for Budget Responsibility. Liberal Democrat MP Bobby Dean is now urging the government to intervene and close the loophole, saying that "it's not right that the taxpayer is set to lose out on billions due to a loophole in compensation rules".
The Financial Conduct Authority's proposed motor finance compensation scheme, which is currently out for consultation, aims to compensate borrowers who were overcharged as a result of unfair commission arrangements between lenders and car dealers. However, critics argue that the scheme could lead to millions of people seeing their tax bills go up.
The Treasury has refused to comment directly on the tax relief, saying only that it wants to see the issue resolved in an "efficient and orderly way" that provides certainty for consumers and firms. Meanwhile, lenders have continued to lobby for government support, with some arguing that the scheme's terms are too broad and could lead to customers who suffered no loss receiving compensation.
The loophole has been widely condemned by experts, with one claims law firm representing 1.5 million car finance victims saying that it is "hard to understand why the Labour government is not closing this loophole, allowing big banks to profit from a £2 billion tax break for their own historic misconduct".
. The fact that these big bank entities are exploiting a loophole like it's nobody's business is just a slap in the face to hardworking taxpayers 
. I mean, think about it - £2 billion in lost tax revenue over two years? That's money that could've gone towards fixing real problems, not just lining the pockets of corporate giants 
.
. I'm all for fairness in compensation schemes, but this feels like more of a bailout for the banking industry than actually helping those who were wronged 
. The Labour government should be taking action to close this loophole ASAP - it's time to put the interests of taxpayers first 
these lenders r gettin away with literally billions in tax savings just cuz they found a loophole. its so unfair to the taxpayers who are already losin out on 11 billion in car loan compensation. like come on gov, do ur job & close this loophole ASAP 
. the treasury is just playin both sides against each other by sayin they want 2 resolve it but dont wanna comment directly lol 
. Like, isn't the whole point of paying compensation to those who were wronged supposed to be fair and transparent? And now we're finding out that some of these big high street names like Barclays and Santander UK are just exploiting it for their own gain 
- it's not fair that non-bank entities can get a break while UK banks can't. 
I'm all for the government taking action and closing this loophole ASAP! 
It's time to stop this big bank profiteering and make sure taxpayers don't lose out anymore. 
. this loophole needs to be closed ASAP so that taxpayers can start seeing some real change 
.