Report on use of financial institution notices published by HMRC

In its first statutory annual report on its use of financial institution notices (FINs), HMRC cited concerns raised by a body representing financial institutions but said the legislation providing for FINs permits them to be used for that purpose.

HMRC said: “The representative body considers that using the FIN in such circumstances unfairly puts financial institutions in a different position to other employers and the use of a FIN was not mentioned during the consultation. HMRC’s view is that the legislation allows a FIN to be used for this purpose where all relevant statutory conditions and safeguards are satisfied.”

FINs were introduced with effect from 1 July 2021. They are one of HMRC’s tools for obtaining information about a person’s tax affairs.

HMRC has long held powers to require delivery of information and documents from taxpayers themselves and from third parties. Until FINs were introduced, all notices issued to third parties had to be approved by the independent Tax Tribunal, or agreed with the taxpayer concerned.

Under the new FIN regime, HMRC can issue an information notice to a financial institution without Tribunal approval, provided safeguards are met: the issuing of the notice must be approved by an authorised officer of HMRC; the officer issuing the notice must also be of the opinion that complying with it would not be onerous and the information being sought is ‘reasonably required’ for the purposes of checking the taxpayer’s tax position or for collecting tax debts; the notice must also name the taxpayer and the officer must give the taxpayer a copy of the FIN and a summary of the reasons why the officer requires the information – though the latter two requirements can be removed with the approval of the Tribunal.

A report regarding FINs is required to be laid before the House of Commons by 31 January following the end of the previous financial year. The reporting requirement was introduced in response to the loss of judicial scrutiny over FINs. This first report covers the nine-month period from 1 July 2021 to 31 March 2022.

The report refers to two possible challenges to the scope and use of FINs. The first relates to the use of FINs to obtain information from a financial institution about the tax affairs of an employee or contractor of the financial institution.

Tax expert Jake Landman of Pinsent Masons said: “On receiving a FIN, financial institutions will no doubt want to give careful consideration as to whether the specific employee/contractor information requested does fall within the exact terms of the FIN legislation. That is even before giving consideration to any wider points around whether HMRC is entitled to obtain more information from FIN employers as compared to others.”

“A financial institution cannot appeal against the notice, but there may be other ways to challenge a FIN or the underlying legislation itself, including possibly through judicial review and, where penalties have been issued for non-compliance, by appealing against the penalty,” Landman said.

HMRC had also previously stated that it believed that it could use FINs to ask for “a taxpayer’s location when they accessed their digital online or mobile banking account with a financial institution”. In its report, HMRC confirmed that it has decided it will not use FINs to request this data.

Jake Landman said: “Financial institutions have been corresponding with HMRC about this issue, raising their concerns on both the reliability of this data and the risks to them of disclosing such personal information. The news that HMRC will not use FINs to obtain this kind of information will be very welcome in the industry.”

According to HMRC’s report, 355 FINs were issued in the first nine months of operation. HMRC compared this with 426 equivalent notices that were issued to financial institutions in the 12 months to 30 March 2020 and declared that the move to the FINs regime “has not substantially increased the number of third-party information notices issued”. What the data doesn’t show is whether the number of third-party information notices has seen a corresponding drop.

Other findings in the report include that approximately 40% of FINs issued in the period related to information that had been requested by tax authorities outside the UK. The ability to respond to requests from other tax authorities quickly had been a core policy driver for the introduction of FINs and the report highlighted that the turnaround time for such requests reduced from 365 days to 197 in the first nine months of operation. The target timeframe is 180 days.