Financial Information Notices – HMRC powers to shortcut the Tribunal approval

Author

Andy Wood

Andy is a practical, creative tax adviser who assists a variety of clients in achieving their personal and commercial objectives in the most tax efficient manner.

General

New proposals announced by the Government will make it easier for HMRC to obtain information about taxpayers from financial institutions such as banks.

These new powers, called Financial Information Notices will be included in the next Finance Bill.

Current state of play

As things stand, HMRC can only obtain information from these institutions by issuing a third-party notice. This notice requires the relevant third party to provide information ‘reasonably required’ to check a person’s tax position.

Importantly, such a notice may only be issued if either:

  1. the taxpayer agrees; or
  2. the FTT approves the notice

These notices will usually be issued where HMRC is seeking information for its own enquiries into a taxpayer. However, in some cases, these might be issued where an overseas revenue authority is conducting an investigation into a taxpayer.

Why are these changes being proposed?

We are told that these changes are designed to allow HMRC to deal more efficiently with information requested from overseas tax authorities. Indeed, this is supported by the fact that the UK is the only member of the G20 that requires the tribunal approval (or taxpayer consent) before such a notice can be issued.

Clearly, having to jump through these procedural hoops takes time. Indeed, we are told that it takes HMRC on average 12 months to produce this information which is twice as long as the internationally agreed target of 6 months.

Changes afoot

The proposed changes will allow HMRC to issue a Financial Institution Notice (“FIN”) to a financial institution. Under the new rules, this will be possible without HMRC first having to obtain the approval of the first-tier tribunal (FTT) or the taxpayer.

Clearly, this removes a significant safeguard from the current rules.

The issuing of a notice must be approved by an authorised HMRC officer.

The applicable test is whether the information (or document)s requested is / are, in the reasonable opinion of the HMRC officer giving the notice, of a kind that it would not be onerous for the financial institution to provide or produce.

It should be noted that these new notices only apply where the intended recipient is a Financial Institution and not just any third party.

Safeguards

There is no right of appeal against a FIN.

The taxpayer will receive a copy of the notice and a summary of reasons why the information is required. It should be noted that the FTT can decide that this requirement can be waivered.

There is no appeal against a FIN. As such, the only way to challenge the issue of the notice would be by way of judicial review. Of course, this could prove expensive.

The usual restrictions that apply to a ‘Schedule 36’ Information Notice will also apply to FINs. For example, a person is only required to produce something that is within their ‘possession or power’.

Penalties

Failure to comply with the FIN may result in a penalty being imposed on the recipient of the notice.

There is a right of appeal against the penalty.

Commencement

It is proposed that these changes will come into effect for any notices that are issued after the next Finance Bill receives royal assent.

It should be noted that it is the date of the notice that is relevant and not when the underlying tax matter occurred. As such, a FIN could be issued relating to a matter which arose well before FINs came into force.

If you have any queries about this article, or tax matters generally, then please get in touch with one of the team.

 

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