The UK government are in the final stages of implementing a new notice in the 2021 Finance Bill, which will allow HMRC to issue Financial Institution Notices (FIN’s).
This notice will give HMRC the power to request information from financial institutions for the purposes of checking the position of a taxpayer, without the need for approval from an independent tribunal.
What powers do HMRC currently hold?
Under the current legislation HMRC have the power to request documents and information through the use of schedule 36 notices:
- Directly from taxpayers – through a taxpayer notice
- From third parties such as banks or accountants by issuing third party notices
Currently however, HMRC is unable to issue notices unless:
- They have obtained agreement from the taxpayer in question or;
- They have received approval from the first trial tax tribunal
Under the proposed legislation HMRC will be able to issue the schedule 36 FIN’s without the need for taxpayer consent or tribunal approval going forward.
When can HMRC issue FIN’s?
HMRC are only able to request information under the FIN’s where they are reasonably required:
- To check the tax position of a taxpayer or;
- For the purposes of collecting a tax debt
Who can receive a FIN?
For the purposes of the legislation the term ‘financial institution’ broadly mirrors the definition for Common Reporting Standard (CRS).
Under CRS there are four different classifications of financial institutions:
- Custodial Institutions
- Depository Institutions
- Investment Entities
- Specified Insurance Companies
Given that trusts are not currently financial institutions for the purposes of the common reporting standard, this would mean that HMRC are unable to issue FINs to Non-UK resident trusts themselves. However, there is some concern that they may attempt to circumvent this by issuing notices to custodian banks, investment managers and professional trust companies.
When will the new powers come into force?
The proposed new Financial Institution Notice legislation is set to come into force immediately once the Finance Act 2021 receives royal assent.
For further guidance on the Financial Institution Notice, visit the government website.