Lloyds Banking Group has said it will pay the UK government £975 million (€1.12 billion) of disputed back taxes tied to the winding down of its unit in the Republic during the financial crisis, even as it appeals a recent tribunal decision that the money is owed.
However, the London-based group will account for the payment as a so-called current tax asset, as it holds to the view that the money is not owed and will ultimately be returned.
The plan to pay the amount in the meantime was disclosed in Lloyds’ latest annual report, which noted that the final conclusion of the long-running dispute “may not be for several years”.
“The group believes it has applied the rules correctly and that the claim for group relief is correct. Having reviewed the tribunal’s conclusions and having taken appropriate advice, the group intends to appeal the decision and does not consider this to be a case where an additional tax liability will ultimately fall due,” it said.
Lloyds first disclosed in its 2013 annual report that HM Revenue and Customs (HMRC) had rejected how the bank had used losses built up by its defunct Bank of Scotland (Ireland) unit following the financial crash to reduce taxes paid by the group in the UK.
Lloyds inherited Bank of Scotland’s €32 billion Irish loan book under its rescue takeover of Halifax Bank of Scotland (HBOS) in 2008.
The group handed back its Irish banking licence to the Central Bank in 2010 and began to sell off its mainly impaired local loans at deep discounts. The bank offloaded its remaining €5 billion of Irish mortgages in 2018.
The group recorded €14.8 billion in losses on its Irish loan book after the 2008 crash, including impairment charges on soured debt and shortfalls sustained as it disposed of loan portfolios, according to Irish Times calculations, based on company filings.
In 2020, HMRC concluded its inquiry into the matter and denied the Lloyds’s relief claim. The bank appealed to the First-tier tax tribunal. However, the tribunal reached a decision in favour of HMRC in January,
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The case will now go to the upper tribunal, but may subsequently make its way to the London court of appeal.
“It is unlikely that any [upper tribunal] appeal hearing will be held before 2026, and final conclusion of the judicial process may not be for several years,” the group said in its annual report, published recently.
In addition to the estimated £975 million of current tax liabilities at stake, Lloyds also faces the loss of £275 million of deferred tax assets (DTAs) – or accumulated losses that can be used to offset future tax liabilities – if it ultimately loses the case, according to the report.
[ Has Lloyds’ United Kingdom tax row over Irish losses come to a head?Opens in new window ]
It comes as some of Ireland’s remaining banks eye the end of an era where they have used billions of euros of crisis-era deferred tax assets to minimise their corporation tax bills.
This has resulted in the often-politically contentious situation of the surviving banks’ corporate entities avoiding having to pay such tax, even though they have subsidiaries that must pay company tax.
Bank of Ireland executives confirmed last week that they expect to use up the group’s remaining €574 million of DTAs in 2028 – years earlier than had been envisaged before banks’ interest income spiked in recent years.
AIB officials had told investors back in 2017, as the bank was being prepared for an initial public offering (IPO), that it would take until 2047 before the bank used up all of its crisis-era DTAs. The bank had €2.5 billion of such assets at the end of June.
However, analysts, including Davy’s Diarmaid Sheridan, estimate that the recent surge in profits across the sector will result in AIB’s DTA being used up by 2032. PTSB had almost €300 million of DTAs as of June.
Successive governments have used a bank levy – which is currently yielding €200 million a year from the three remaining retail banks – to partially offset how banks are benefiting from DTAs.
