The second annual report on HMRC's use of financial
institution notices (FINs), covering the period from 1 April 2022 to 31 March
2023, was published on 25 January 2024.
FINs were introduced from June 2021 as a new type of HMRC
information notice (under FA 2008 Sch 36 para 4A) – as their name suggests,
aimed specifically at financial institutions. Unlike standard third party notices (under FA 2008 Sch 36 para 2), the
statutory conditions for HMRC to issue FINs do not include any requirement for
HMRC to obtain either any prior approval from the FTT or consent from the
relevant taxpayer. There is also no
right of appeal to the FTT under any circumstances.
In light of the controversy surrounding the introduction of
FINs, an annual report is required to be laid before Parliament. The latest report reiterates that HMRC are willing to use this power in previously unanticipated ways.
HMRC have confirmed that it intends to use FINs to collect
data held by financial institutions on where customers have accessed their
online or mobile accounts - i.e. their geographical location by reference to
an IP address (location data). Location
data might be relevant, for example, to determine the residence of a taxpayer
by establishing the number of days spent in a jurisdiction in a particular tax
year.
The possibility of using FINs in this way was not
specifically considered at any time during the consultation process prior to
their introduction. The first annual
report on FINs, published on 26 January 2023, revealed that the proposal had at
that time been abandoned following discussions with the industry. The latest report discloses that the same
proposal is to be resurrected following changes to parts of the Investigatory
Powers Act 2016 which would have otherwise further restricted HMRC's ability to
request location data.
Employee data
Despite further concerns raised by the industry, HMRC still
plan to proceed with its other controversial proposal to use FINs to obtain
information on employees or contractors of financial institutions (as opposed
to their customers) (employee data).
Like location data, the use of FINs to collect employee data
was not specifically considered at any time during the original consultation
process. The report defends the proposal
on employee data on the basis that the legislation strictly refers to 'taxpayers',
rather than specifically to customers of a financial institution. This argument is somewhat undermined by the stated
purpose of the annual report to consider 'the impact of the FIN on financial
institutions and customers' (emphasis added). There is no satisfactory explanation as to
why, according to HMRC, Parliament decided to single out financial institutions
in respect of employee data (e.g. rather than to introduce legislation
applicable to a broader range of employers).
Other updates
647 FINs were issued in the period from 1 April 2022 to 31
March 2023, as opposed to 355 in the period from 1 July 2021 to 31 March
2022. The higher figure stems partly
from a longer reporting period this time around, but still represents a pro
rata rise of approximately 37%.
The report shows that the overwhelming majority of new FINs
(almost 80%) were issued in connection with domestic investigations rather than
in connection with international information requests. This is somewhat at odds with the intended
purpose of FINs, although the report does confirm that there has been further
improvement in the average time taken to process international requests.
Home >Articles > Update on HMRC financial institution notices
Update on HMRC financial institution notices
The second annual report on HMRC's use of financial
institution notices (FINs), covering the period from 1 April 2022 to 31 March
2023, was published on 25 January 2024.
FINs were introduced from June 2021 as a new type of HMRC
information notice (under FA 2008 Sch 36 para 4A) – as their name suggests,
aimed specifically at financial institutions. Unlike standard third party notices (under FA 2008 Sch 36 para 2), the
statutory conditions for HMRC to issue FINs do not include any requirement for
HMRC to obtain either any prior approval from the FTT or consent from the
relevant taxpayer. There is also no
right of appeal to the FTT under any circumstances.
In light of the controversy surrounding the introduction of
FINs, an annual report is required to be laid before Parliament. The latest report reiterates that HMRC are willing to use this power in previously unanticipated ways.
HMRC have confirmed that it intends to use FINs to collect
data held by financial institutions on where customers have accessed their
online or mobile accounts - i.e. their geographical location by reference to
an IP address (location data). Location
data might be relevant, for example, to determine the residence of a taxpayer
by establishing the number of days spent in a jurisdiction in a particular tax
year.
The possibility of using FINs in this way was not
specifically considered at any time during the consultation process prior to
their introduction. The first annual
report on FINs, published on 26 January 2023, revealed that the proposal had at
that time been abandoned following discussions with the industry. The latest report discloses that the same
proposal is to be resurrected following changes to parts of the Investigatory
Powers Act 2016 which would have otherwise further restricted HMRC's ability to
request location data.
Employee data
Despite further concerns raised by the industry, HMRC still
plan to proceed with its other controversial proposal to use FINs to obtain
information on employees or contractors of financial institutions (as opposed
to their customers) (employee data).
Like location data, the use of FINs to collect employee data
was not specifically considered at any time during the original consultation
process. The report defends the proposal
on employee data on the basis that the legislation strictly refers to 'taxpayers',
rather than specifically to customers of a financial institution. This argument is somewhat undermined by the stated
purpose of the annual report to consider 'the impact of the FIN on financial
institutions and customers' (emphasis added). There is no satisfactory explanation as to
why, according to HMRC, Parliament decided to single out financial institutions
in respect of employee data (e.g. rather than to introduce legislation
applicable to a broader range of employers).
Other updates
647 FINs were issued in the period from 1 April 2022 to 31
March 2023, as opposed to 355 in the period from 1 July 2021 to 31 March
2022. The higher figure stems partly
from a longer reporting period this time around, but still represents a pro
rata rise of approximately 37%.
The report shows that the overwhelming majority of new FINs
(almost 80%) were issued in connection with domestic investigations rather than
in connection with international information requests. This is somewhat at odds with the intended
purpose of FINs, although the report does confirm that there has been further
improvement in the average time taken to process international requests.
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