HMRC will shortly be able to issue a Financial Institution Notice (FIN) that requires financial institutions to provide information without the need for prior approval by the Tribunal. HMRC advises it will use the information received in response to a FIN for checking the tax position of a taxpayer and for debt collection.
HMRC currently has the power to issue third party notices to banks and other financial institutions, but they require first party agreement or approval from the Tribunal to do so. HMRC felt the existing process was too slow and cumbersome leading to undue delays.
The concern from financial institutions will be that without the need for HMRC to obtain either first party or Tribunal approval they could see many more notices coming through that need to be responded to within 30 days.
Historically, the issue of a third-party notice was often a last resort for HMRC where the taxpayer was either unable or unwilling to provide information that had been requested. Areas of concern for taxpayers must be whether the new streamlined process could discourage HMRC from approaching them in the first instance, giving them the opportunity to co-operate by providing information voluntarily. In addition, safeguards will need to be provided to prevent over-zealous use or misuse of HMRC’s powers.
There is also an international aspect to be considered. In today’s world financial data is shared between tax authorities more than ever. HMRC indicates in the policy paper that it receives “a relatively large number of requests” from other tax authorities for third party financial information. HMRC estimates that it currently takes an average 12 months to obtain this information where an information notice is required. The target under international standards is 6 months for a response. It is also worth noting that the UK is currently the only jurisdiction in the G20 that requires approval from either the Tribunal or the taxpayer to issue such a notice.
Ultimately if HMRC is to become more effective in collecting unpaid taxes then arguably it needs to be given access to the information it requires, and these new information powers are a significant step in helping it achieve that goal.