The March 2021 Budget introduced a new power for the tax authorities – the Financial Institution Notice. This allows HMRC to require financial institutions to provide information about specific taxpayers, without needing approval from the independent Tax Tribunal. It’s likely to lead to HMRC getting personal bank statements in many more cases and for many more years.

HM Revenue and Customs have been frustrated about the length of time it has taken to get information from banks etc. Tax Officers had to go through a process requiring approval from the independent Tax Tribunal; partly because they had to prove that the information sought was reasonably required to for the purpose of the current year Tax Enquiry. And that was taking up to 12 months. In this major new extension to the HMRC Information Powers the Financial Institution Notice (FIN) weapon means financial institutions, such as banks and building societies, may be required to supply information and documents for the purposes of checking someone’s tax position, and for debt collection purposes. Taxpayers lose an important safeguard, in that HMRC won’t need approval from the Tribunal for the initial FIN. This could result in some zealous tax inspectors trying to obtain bank statements in circumstances where it is not reasonable, or for years that are currently outside their actual powers to investigate. The banks are unlikely to challenge on those grounds; as they would not be party to any information about the Enquiry itself. If the financial institution does not comply then HMRC can charge penalties. Those penalties can be appealed against to the Tribunal.

The information sought has to be “reasonably required” for the purpose of checking a named person’s tax position. Although there are no apparent built in safeguards to check if the taxman is being reasonable: so, many more “fishing expeditions” are likely.

The new power will also enable HMRC to comply with requests from overseas tax authorities. For international requests, the information in the FIN will need to be relevant to the administration or collection of tax; and the country requesting the information would need to have exhausted all reasonable domestic ways to get the information. Exchange of information requests made in accordance with the EU Mutual Assistance Recovery Directive will be included.

Documents subject to legal professional privilege cannot be requested.

HMRC are required to inform the taxpayer why the information is needed. That is the time for the taxpayer’s representative to challenge the “reasonableness” and legality of the proposed FIN. In some cases HMRC can apply to the Tax Tribunal permission that this condition should not apply: meaning there is no opportunity for the taxpayer to challenge HMRC at all.

What does this mean to me?
If you are undergoing a Tax Enquiry then frequently HMRC will request documents such as bank statements. From now on, HMRC are highly likely to approach your bank, or other financial institution, directly: in order to speed up their access to that information. As this new process is a lot more streamlined, Tax Inspectors are far more likely to require, and to obtain, and to examine in detail, bank statements in ongoing Tax Investigations.

How can Lynam Tax Enquiry Experts help me?
If you are undergoing a Tax Investigation or a Tax Compliance Check then specialist help from Lynam Tax Enquiry Experts could save your blushes and your business. Plus, our massive experience will almost certainly save you tax and penalties as well.

*For a free, confidential chat about your tax affairs, don’t delay, call
Paul Lynam now on: 0845 643 9997
or Andrew Nutbrown on: 07718 778710