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Financial Institution Notices: time to press pause or reset?

As mentioned in my earlier post, the UK’s proposed “Financial Institution Notices” (FINs) would give HMRC easier and quicker access to taxpayer data. Under the current rules (in Schedule 36 Finance Act 2008), tribunal approval is needed before HMRC can demand information from someone who is not the taxpayer in question (e.g. the taxpayer’s bank). The draft legislation (if enacted) would significantly curtail the tribunal approval requirement where HMRC sought information from a financial institution.

A report by the House of Lords Economic Affairs Committee published on 19 December 2020 gives short shrift to the FIN and certain other tax-related proposals - including the proposal that large businesses should be required to notify HMRC of uncertain tax positions (previously discussed by Mike Lane). In respect of FINs, the Committee was sensitive to the fact that, as proposed:

  • FINs could be issued without prior tribunal approval, removing a key layer of protection for taxpayers;
  • there would be no specific route to appeal a FIN (leaving taxpayers and financial institutions to rely on judicial review); and
  • FINs could be issued to assist HMRC with debt collection (and not, as is currently is the case, only to help HMRC assess the taxpayer’s tax bill).

The Committee, swayed by witness evidence which displayed a dim view of HMRC’s ability (or inclination?) to police its own decisions as to what information it really needed, concluded that the case for removing the tribunal approval requirement had not been made. 

It disagreed with the Government’s contention that the pressure to fulfil information requests from other tax authorities in a timely manner provided the necessary justification. The number of such requests, they said, is simply not that significant – and delays are not the sole fault of the tribunal process.

The Committee also took into account some improvements (e.g. judge training) and Covid-related innovations (e.g. introduction of virtual hearings) when concluding that tribunal approval shouldn’t be seen as such a huge hurdle.

In terms of the (in)ability to appeal FINs, the Committee recalled its earlier findings on judicial review – being a court process which, in 2018, it considered to be “expensive and effectively inaccessible to ordinary taxpayers”. That is a view likely shared by most tax advisers.  

I suspect that this is not the end of the road for FINs – but perhaps the publication of draft legislation in July 2020 was premature. Rather than rushing through the FIN proposal as part of the next Finance Bill, it would be better to conduct a more holistic review of the full gamut of HMRC's information powers first (in order to assess whether there is a gap which needs to be plugged through the introduction of FINs, or a moderated version of them).

In this respect, it should be noted that other institutions are also looking at HMRC’s information powers – which are something of a hot topic at the moment. The Office of Tax Simplification, for example, has issued a scoping document to initiate a review into the principles that should apply in relation the HMRC’s use of third party data.


sosprey, slaughterandmay, financial institutions, uk tax, finance bill 2021, tax disputes

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