Loading…
Read time: 7 minutes
Last updated: 2 Feb 2021
On this page

HMRC Inspection powers – Financial Institution Notices

As HMRC looks to introduce new legislation circumventing some of the protection that Sch36 previously provided to taxpayers, Joe Burns highlights the likely changes to HMRC's powers and how this impacts taxpayers once the FIN legislation is introduced.

For the last 50 years, HMRC has relied on statutory information powers, currently governed by Sch36 of the Finance Act 2008 (FA 2008), to collate information and documents from taxpayers that are reasonably required to check their tax position. Historically, HMRC has used Sch36 to obtain information directly (from those under enquiry), but also indirectly from third parties.

However, HMRC has announced its intention to introduce new legislation in the 2021 Finance Bill, circumventing some of the protection that Sch36 previously provided to taxpayers.

About the author

Joe Burns

+44 (0)20 7710 2602
burnsj@buzzacott.co.uk

For the last 50 years, HMRC has relied on statutory information powers, currently governed by Sch36 of the Finance Act 2008 (FA 2008), to collate information and documents from taxpayers that are reasonably required to check their tax position. Historically, HMRC has used Sch36 to obtain information directly (from those under enquiry), but also indirectly from third parties.

However, HMRC has announced its intention to introduce new legislation in the 2021 Finance Bill, circumventing some of the protection that Sch36 previously provided to taxpayers.

The present

Financial institutions – the present 

At present, if HMRC wants to compel a financial institution to provide information, or documents, in relation to a particular taxpayer, it has two options:

  1. It can either obtain the express permission of the taxpayer to contact the third party, or
  2. It can receive Tribunal approval.

To obtain Tribunal approval, HMRC must make a detailed application which convinces the judiciary panel that the information it’s requesting from the third party is reasonably required to check the tax position of the taxpayer. Before the Tribunal will even entertain an application of this nature, it insists that HMRC’s case has been approved by an ‘authorised officer’ (a specially trained, senior officer) of HMRC. Sch36 legislates for each of these steps, thereby providing protection from unjustified invasions of privacy.

The future

Financial institutions – the future

Looking ahead, HMRC is in the latter stages of introducing new legislation in relation to the acquisition of information and documents from third parties. This new legislation means the above permissions will no longer be necessary.

If implemented, HMRC will be allowed to issue Financial Institution Notices (FINs) to banks and building societies without receiving the permission of either the first party taxpayer, or the Tribunal. FINs will entitle HMRC to demand the provision of particular customer records and information, including: account statements, loan applications and even hypothetical borrowing potential.

It’s important to note that the draft legislation does not require HMRC to have an open enquiry into a taxpayer before a FIN can be issued. In essence, this means HMRC will be able to demand a taxpayer’s bank statements from any UK bank, without the taxpayer having any prior knowledge that HMRC considers them to be a tax risk.

Reasonable action?

Reasonable action?

We ought to mention that the UK is currently the only G20 country to require the approval of a Tribunal, or the consent of the taxpayer before a third party notice can be issued. Therefore, the introduction of this new legislation isn’t entirely unexpected.

HMRC has suggested that the FIN legislation is necessary to deal more efficiently with information requests from foreign tax jurisdictions under the Common Reporting Standard. However, there’s no indication that HMRC will limit the use of FINs to complying with requests from foreign jurisdictions.

If the FIN legislation makes it through parliament, HMRC will have access to more information than it has ever had before and there’s no question it’ll better equip them to challenge inaccurate tax returns and claims.

Should you be concerned?

Should you be concerned?

Given HMRC has the power to issue penalties of up to 200% of any tax loss involving offshore non-compliance, this should be taken extremely seriously. By far and away the simplest means for anyone to reduce the risk of these draconian penalties is to ‘come clean’ to HMRC, before you’re approached with concerns.

How can we help?

How can we help?

With only a matter of months before the FIN legislation is introduced, taxpayers who suspect HMRC might uncover inaccuracies in their tax affairs if given access to their bank accounts, ought to be asking what they can do to protect themselves. Anyone caught out will face severe financial penalties, and potentially even criminal prosecution. 

For taxpayers wishing to avoid these potential sanctions, time really is of the essence. If you or someone you know would like to correct any inaccuracies by making a disclosure to HMRC, please do not hesitate to get in touch.

Get in touch
Request a callback or meeting

If you'd like us to give you a call, fill in your details below and we'll email to arrange a good time to speak to our Head of Tax investigations team, Mark Taylor. All communications are in the strictest confidence.

If you'd prefer to speak to our team directly, please call +44 (0)20 7710 3389.

Please complete all required fields above.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
close back
Your search for "..."
did not yield any results.
... results for "..."
Search Tags