The issue of financial institution notices (FIN) will enable HMRC to formally require a financial institution to provide banking information, including bank statements, transaction information and KYC information, about specific taxpayers. Critically, in a notable departure from the existing rules governing third party information requests, HMRC will not be required to seek prior approval from the First-tier Tribunal before issuing a FIN to a third party financial institution.
The new rules are concerning, given the absence of effective safeguards for taxpayers and the likely increased compliance burden for financial institution recipients. The most obvious concern is the absence of any requirement to seek prior approval from the First-tier Tribunal. Oversight and scrutiny from the tribunal has been an important check against HMRC’s powers, and the removal of this protection, despite robust criticism during the consultation period, is disappointing. In addition, there is no right of appeal against the issue of the FIN and penalties will be issued against financial institutions who fail to comply. It is also unclear what information HMRC will consider to be ‘onerous’ for financial institutions to provide and how it will make such an assessment. However, experience suggests that it is likely that HMRC’s views on this will differ significantly from the financial institution recipient.
While the UK government has made clear that its primary motivation for introducing the FIN is to accelerate the time HMRC takes to deal with international exchange of information requests, a question arises as to whether HMRC will restrict the use of FINs in order to facilitate compliance with requests for information from international tax authorities, or whether in fact the primary use of FINS will be in the context of domestic tax enquiries. As HMRC’s compliance activity levels return to normal following the easing of covid restrictions, and in light of the inevitable pressure HMRC will face to raise tax revenue and increase its yield, we expect reasonably high numbers of FINs to be issued in the medium to long term. Financial institutions that have not already implemented processes to enable them to respond effectively should therefore do so now.
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FA 2021: Financial institution notices
The issue of financial institution notices (FIN) will enable HMRC to formally require a financial institution to provide banking information, including bank statements, transaction information and KYC information, about specific taxpayers. Critically, in a notable departure from the existing rules governing third party information requests, HMRC will not be required to seek prior approval from the First-tier Tribunal before issuing a FIN to a third party financial institution.
The new rules are concerning, given the absence of effective safeguards for taxpayers and the likely increased compliance burden for financial institution recipients. The most obvious concern is the absence of any requirement to seek prior approval from the First-tier Tribunal. Oversight and scrutiny from the tribunal has been an important check against HMRC’s powers, and the removal of this protection, despite robust criticism during the consultation period, is disappointing. In addition, there is no right of appeal against the issue of the FIN and penalties will be issued against financial institutions who fail to comply. It is also unclear what information HMRC will consider to be ‘onerous’ for financial institutions to provide and how it will make such an assessment. However, experience suggests that it is likely that HMRC’s views on this will differ significantly from the financial institution recipient.
While the UK government has made clear that its primary motivation for introducing the FIN is to accelerate the time HMRC takes to deal with international exchange of information requests, a question arises as to whether HMRC will restrict the use of FINs in order to facilitate compliance with requests for information from international tax authorities, or whether in fact the primary use of FINS will be in the context of domestic tax enquiries. As HMRC’s compliance activity levels return to normal following the easing of covid restrictions, and in light of the inevitable pressure HMRC will face to raise tax revenue and increase its yield, we expect reasonably high numbers of FINs to be issued in the medium to long term. Financial institutions that have not already implemented processes to enable them to respond effectively should therefore do so now.
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