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HMRC’s review of its civil information powers

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The UK tax authority, HMRC, is proposing to make targeted changes to its civil information powers. On 10 July 2018, HMRC published a consultation document, Amending HMRC’s civil information powers, in which it launched a focused review of its existing third party information powers and proposed certain changes to simplify and accelerate the process by which it can obtain information about specified taxpayers from third parties. The proposed changes are intended to align HMRC’s powers more closely with international standards, and to further assist it to respond to tax non-compliance more effectively.

Existing information powers: HMRC has extensive formal information powers which enable it to compel a third party to provide specified information in relation to a known taxpayer which is under investigation by HMRC, even where the third party itself is not under any enquiry. HMRC considers these information powers, which provide one of the many sources of access to data for HMRC, to be essential in enabling it to respond to cases of non-compliance.

Under the current legislation, there is a clearly defined process which must be followed before HMRC can issue an information request to a third party about a known taxpayer. The process includes a number of important safeguards, designed to ensure that any information requests are not disproportionate, inappropriate or unnecessarily intrusive. The safeguards comprise a requirement for HMRC to seek the approval of the tribunal or the taxpayer before issuing the notice. In addition, in most circumstances, the third party must be offered the opportunity to make representations about the scope of the notice before HMRC submits its application for approval to the tribunal.

The consultation notes that the requirement for HMRC to seek tribunal approval before issuing a notice has resulted in significant delay before HMRC can obtain the requisite information. This prolongs domestic tax investigations. It also makes it more difficult for HMRC to respond promptly to requests for information received from international tax authorities under international exchange of information treaties and legislation. The consultation notes that the requirement for HMRC to seek the approval of the tribunal has been heavily criticised by the OECD in its most recent Global Forum report on transparency and exchange of information for tax purposes.

Proposals for reform: The consultation sets out a number of proposals for reform of the existing powers. The principal proposals are as follows:

  • Alignment with taxpayer notices: The first option proposes to amend the existing process for issuing third party information notices about a known taxpayer by aligning it with the process for issuing an information request to a taxpayer itself. This would remove the requirement for HMRC to seek the approval of the tribunal or agreement of the taxpayer prior to the issue of a third party notice. Some limited safeguards are retained, including a right of appeal for the third party recipient of the notice.
  • Financial institution notice: An alternative proposal is to introduce a new type of notice, to be issued to a financial institution in respect of third party banking information held by that institution. Banking information would be defined to include bank statements, KYC information, and transaction information. There would be no requirement to seek the approval of the tribunal for the issue of such a notice, but it would be limited to the production of banking information reasonably required to check a taxpayer’s tax position.

Comment: If the proposals are implemented, we can expect to see an increase in the number of third party notices which are issued by HMRC. The proposals are indicative of a growing trend by HMRC to effectively rely on third parties to assist in the clampdown on tax evasion through various actions, including the provision of information.

The changes to HMRC’s powers are to be welcomed to the extent that they can assist HMRC to accelerate the progress of long-running disputes, both domestic and overseas.

However, the devil will lie in the detail of the new legislation. It will be critical for the new powers to contain appropriate and proportionate safeguards to ensure that the rights of taxpayers and third parties are protected, and that third party notices are not disproportionate or unduly onerous. 

Issue: 1409
Categories: In brief