UK Budget raises tax on digital banks
The UK Budget announced on 28 October 2026 sets out a series of measures that will change the fintech sector, affecting challenger banks, corporate tax collection and retail savings products.
Key fiscal changes
The budget raises the Bank Corporation Tax surcharge from 3 percent to 6 percent starting 1 January 2027, with a return to 3 percent on 1 April 2028. The annual surcharge allowance of £100 million remains unchanged.
From 2029, HMRC will require direct-debit payments for both value-added tax and Pay-As-You-Earn. The cash Individual Savings Account ceiling stays at £20,000 through April 2027, and a new Securities Transfer Tax will replace stamp duty and SDRT by late 2027.
Impact on challenger banks
The increased surcharge targets all UK-licensed digital banks, including Monzo, Revolut and Starling. Monzo reported adjusted pre-tax profit of £172.6 million for the year to March 2026, while Revolut posted a group pre-tax profit of £1.7 billion for 2025 before its UK bank launch.
Industry leaders argue that the temporary hike could constrain profitability as these firms scale. “Although the increase in the surcharge is temporary, in the long term the threshold needs to be raised to provide headroom for our growing digital banks who have been passing interest rates on to savers and are now providing the majority of lending to small firms across the UK,” said Janine Hirt, CEO of Innovate Finance.
The surcharge will revert to its previous rate after a 15-month period, giving banks a brief window to adjust capital planning.
HMRC’s digital push
Beyond tax rates, the budget mandates e-invoicing for VAT from 1 April 2029. The government also grants HMRC power to recover tax debts directly from business bank accounts, a move intended to improve cash flow for the public purse.
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The Treasury plans to tap HMRC data within the Open Finance ecosystem, aiming to fuel new lending models. Vendors of accounts-payable automation and accounting software see the published e-invoicing roadmap as a catalyst for product development.
The Peppol network has been confirmed as the digital infrastructure for the new regime, with technical standards detailed in the Red Book setting the immediate agenda for B2B software providers.
The Budget confirms VAT invoices must be issued as e-invoices from 1 April 2029. Although the e-invoicing roadmap has just been published, the full details of the UK e-invoicing regime may not be known until April 2028, which would leave businesses with little time to get ready and could threaten business continuity, according to Pierre Arman, Managing Director at Alvarez & Marsal.
Fintech sector response
Fintech investment fell to its lowest level since 2016 in the first half of 2026, although AI-related projects still accounted for about a quarter of total funding. The budget offered no specific measures for stablecoins, a silence noted by industry observers.
James Gibson, Head of Revolut Business, emphasized that government support must be matched by an environment that encourages competition. He highlighted the need for efficient cross-border payments, multicurrency tools and automated cash-flow management for SMEs expanding beyond the UK.
Kyriba’s advice for finance leaders highlights that the cost of capital remains a moving target, urging businesses to reassess borrowing forecasts, covenant buffers and cash availability in light of upcoming Bank of England interest-rate decisions.
