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Lloyds UK tax dispute over Irish losses drags on

Hearing is now not expected until 2023, some 10 years later

Lloyds Banking Group has been involved in a dispute with HMRC since 2013 over the use losses built up by its defunct Bank of Scotland (Ireland) unit after the crash. Photograph: Nick Ansell/PA

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Thu Jul 28 2022 - 05:30

As Ulster Bank and KBC Bank Ireland work at pace on their plans to exit the Irish market, an overseas lender that quit the Republic a dozen years ago offers a cautionary tale of how long it can take to tie up loose ends.

Lloyds Banking Group, which inherited Bank of Scotland (Ireland) through its shotgun marriage with HBOS in 2008, may have handed back its Irish licence in 2010 and sold off the business’s €32 billion loan book — at deep discounts — over the subsequent eight years.

But the timeline for the resolution of a long-running stand-off with Her Majesty’s Revenue and Customers (HMRC) over the tax treatment of losses racked up in the Republic during the financial crisis continues to drift.

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The UK banking group disclosed in its 2020 annual report that it failed to convince HMRC that it was entitled to claim tax relief on massive Irish losses and that an appeal hearing with the UK’s First Tier Tax Tribunal was expected in early 2022.

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Lloyds disclosed on Wednesday in its latest financial report — covering the first half of this year — that a hearing is now not expected until next year, some 10 years after the dispute began.

If the final determination of the matter by the judicial process is that HMRC’s position is correct, Lloyds estimate that this would result in an increase in current tax liabilities of approximately £865 million (€1.03 billion), including interest, and a reduction in the group’s deferred tax asset (DTAs) of approximately £305 million, it said. DTAs are essentially the use of past losses to lower future tax bills.

All told, it could amount to a £1.17 billion hit.

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