UK Autumn Budget 2026: Challenger banks’ request for a £500m surcharge allowance is not met, and HMRC will collect tax by direct debit and from bank accounts from 2029.
UK Chancellor John Healey has doubled the Bank Corporation Tax Surcharge to 6% for 15 months to help fund a £2.6bn ($3.45bn) Household Energy Payment, according to the UK Autumn Budget 2026 published by HM Treasury on 28 October.
The Budget also commits HMRC to mandatory direct debit for VAT and PAYE liabilities, mandatory VAT e-invoicing and a new power to recover tax debts from bank accounts, all from 2029.
The government will also explore using HMRC data in Open Finance.
Bank surcharge doubles to 6% for 15 months
The Bank Corporation Tax Surcharge will rise from 3% to 6% on 1 January 2027 and return to 3% on 1 April 2028, according to the Budget. The Treasury said the temporary period will be legislated for in Finance Bill 2026-27 and “will not be extended”.
The measure raises £305m in 2026-27, £950m in 2027-28 and £220m in 2028-29, a total of £1.48bn, according to Treasury costings. The surcharge sits on top of the 25% main rate of corporation tax, which takes the combined rate on bank profits from 28% to 31%.
“I am looking to our banks to help fund breathing space for British families,” Healey told the House of Commons.
The Budget makes no change to the £100m annual allowance, the level of surcharge profits a banking group can make before the charge applies. A dozen mid-tier and specialist lenders, including Revolut, Monzo, Shawbrook and Paragon, wrote to Healey in September asking for the allowance to rise to £500m. Their letter said any rate increase would have a “significantly negative and disproportionate impact on mid-tier and specialist banks”.
Newer digital banks including Revolut, Monzo and Starling all hold UK banking licences, which brings them within the surcharge regime. Revolut Bank UK exited mobilisation and launched as a fully licensed bank on 11 March 2026.
HMRC guidance states banks on the Prudential Regulation Authority’s list of deposit-takers will normally meet the deposit-taker condition for the surcharge.
Whether each bank pays depends on its taxable profits above the £100m allowance, a figure which differs from reported pre-tax profit.
Monzo reported statutory pre-tax profit of £87.3m for the year to March 2026, and adjusted pre-tax profit of £172.6m. Starling reported pre-tax profit of £217.1m for the same period. Revolut reported group pre-tax profit of £1.7bn for 2025, before its UK bank launched.
Bank capital and senior managers regime reform
Healey’s annual remit letter to the Bank of England’s Financial Policy Committee asks it to deliver proposed reforms to the leverage ratio and the releasability of capital buffers “quickly”. The letter also asks for further proposals so the UK bank capital framework is internationally competitive, promotes competition and supports investment.
The Budget outlines how the Financial Services and Markets Bill will reduce the overall burden of the Senior Managers and Certification Regime by 50%.
HMRC to mandate direct debit for VAT and PAYE
Taxpayers will be required to set up a direct debit instruction for VAT liabilities from 1 April 2029 and PAYE liabilities from 6 April 2029, according to the Budget. Businesses can still pay by other methods before a specified cut-off date, after which HMRC will use the direct debit to collect any unpaid balance.
The UK Treasury expects the measure to raise £165m in 2029-30. Direct Debit processed a record 5 billion transactions in 2025, according to Pay.UK.
VAT e-invoicing mandatory from April 2029
VAT invoices must be issued in a specified electronic format from 1 April 2029. The government has published an implementation roadmap and will set out full policy and technical design by April 2028.
A separate consultation covers potential uses of the structured invoice data that e-invoicing will generate. The Treasury expects e-invoicing to raise £10m in 2027-28, rising to £160m in 2030-31.
Angus Milledge, Head of New Business Sales at SAP Concur, tells Payment Expert: “As HMRC strengthens compliance and moves towards mandatory electronic VAT invoicing from April 2029, accurate records and greater visibility over business spending will become increasingly important.
“Disconnected systems and manual expense claims can make it harder to track spending, identify discrepancies and maintain reliable records. Digitising travel, expense and invoice management can help businesses strengthen financial controls, improve oversight and reduce administrative burdens, giving finance teams greater confidence in the information they use to make decisions.”
Digital gilt pilot set for end of Q1 2027
The government expects to issue its pilot digital gilt instrument, DIGIT, by the end of Q1 2027. DIGIT will be issued onto HSBC‘s Orion distributed ledger platform within the Digital Securities Sandbox.
Barclays, HSBC, Lloyds Bank Corporate Markets, Morgan Stanley, NatWest and RBC Capital Markets were appointed joint lead managers on 6 October 2026. HSBC and London Stock Exchange Group signed a memorandum of understanding (MOU) on 14 July 2026 to link their digital securities depositories for the issuance.
HMRC data to be explored for Open Finance
The government will explore the use of HMRC data in Open Finance, working with regulators and industry partners to test feasibility while safeguarding the integrity of the tax administration system, according to the Budget. No timeline was given.
The Financial Conduct Authority is working with HM Treasury on options for a regulatory framework for Open Finance, due by the end of 2027.
Emma Banymandhub, CEO of The Payments Association, summarises: “This budget was positive overall. It’s important that our industry remains nimble and innovative, especially when the payments sector touches upon every aspect of the economy and continues to evolve far faster than the governing legislation.
“With that in mind, the Chancellor’s announcement of measures like founders’ relief and increased support for entrepreneurs is welcome and will hopefully help secure the UK’s position as the fintech capital of the world.”
