Policy paper

Amending HMRC’s Civil Information Powers

Published 3 March 2021

Who is likely to be affected

This measure will mainly affect financial institutions, such as banks and building societies, who might be asked for information for the purposes of checking the tax position of a taxpayer.

General description of the measure

Following a consultation in 2018, this measure introduces a new Financial Institution Notice (FIN) that will be used to require financial institutions to provide information to HMRC when requested about a specific taxpayer, without the need for approval from the independent tribunal that considers tax matters.

Information received in response to a FIN will be used for the purpose of checking the tax position of a taxpayer and used for debt collection purposes. The FIN will be balanced by a number of taxpayer safeguards, including:

• the information sought will have to be reasonably required for the purpose of checking a known taxpayer’s tax position - for international requests the information in the FIN will need to be relevant to the administration or collection of tax and the jurisdiction requesting the information would need to have exhausted all reasonable domestic ways to get the information
• documents subject to legal professional privilege cannot be requested
• HMRC will be required to tell the taxpayer why the information is needed, unless a tax tribunal rules this condition should not apply
• an authorised officer of HMRC (someone with the relevant experience and training) will need to approve the decision to issue a FIN
• if a Financial Institution does not comply with a FIN and as a result HMRC charges penalties, the Financial Institution will be able to appeal against the penalties

In addition, HMRC will report to Parliament annually on the use of the FIN.

Policy objective

As the UK is the biggest exporter of financial services in the world, HMRC receives a relatively large number of requests for third party financial information from other tax authorities. It currently takes the UK 12 months on average to obtain this information when an information notice is needed, whereas the target under international standards is 6 months.

The introduction of a new FIN will remove the current need for HMRC to obtain approval from the tax tribunal before obtaining information from financial institutions. The new process will speed up the time HMRC takes to deal with international exchange of information requests and bring the UK into line with international standards on tax transparency and on the quality and speed of exchange of tax information.

It will also support HMRC’s domestic compliance activity by helping to establish an individual’s tax position, including any tax debt.

These changes will bring the UK into line with other G20 countries and speed up the time taken to obtain information from financial institutions. The UK is the only G20 jurisdiction that requires the approval of a Tribunal, or the consent of the taxpayer, before a notice requiring information from a third party can be used. This measure will make HMRC’s processes more efficient.

This measure will also correct a drafting error in the Schedule 36 Finance Act 2008 legislation that governs increased daily penalties for failure to comply with an information notice.

Background to the measure

Schedule 36 Finance Act 2008 (Schedule 36) allows HMRC to access information and documents in order to check that the right amount of tax is paid by a taxpayer. Sometimes the information is held by a third party rather than the taxpayer (for example, the taxpayer’s bank or building society).

Obtaining approval from the tribunal to access information held by third parties can add a great deal of time to the information gathering process, and ultimately prolongs the course of a domestic enquiry or the time taken to exchange information internationally.

In recent years, the global community has agreed that a vital way to tackle cross border tax evasion and avoidance is to exchange information between tax authorities speedily.

This measure has been developed since 2018 through a consultation document, Amending HMRC’s Civil Information Powers’. The consultation, published on 10 July 2018, reviewed a number of changes to HMRC’s civil information powers to ensure they remain effective and to ensure the corresponding safeguards remain proportionate and appropriate.

The government consulted on options to speed up the process whereby HMRC is able to require taxpayer information from third parties, in order to respond to non-compliance (those taxpayers who fail to meet their tax obligations) and requests for tax information from other jurisdictions.

A response document was published alongside a Tax information and Impact Note on 21 July 2020.

Detailed proposal

Operative date

The measure will have effect on and after the date of Royal Assent to Finance Bill 2021.

Current law

Current law is contained in Schedule 36 Finance Act 2008.

Proposed revisions

Finance Bill 2021 will introduce legislation to bring in a new FIN, allowing HMRC to obtain information and documents from financial institutions for the purposes of checking the tax position of a taxpayer. It will also allow information to be obtained for the purpose of collecting a tax debt.

In addition, it will correct a drafting error in the Schedule 36 legislation that governs the issuing of increased daily penalties for failure to comply with an information notice. It also introduces a rule to prevent a third party telling the taxpayer about a third party information notice, where the tribunal has decided that is appropriate.

In order to meet the UK’s obligations under the Withdrawal Agreement and Northern Ireland Protocol, a consequential amendment is included to deal with exchange of information requests made in accordance with the EU Mutual Assistance Recovery Directive (MARD).

Summary of impacts

Exchequer impact (£m)

2020 to 2021	2021 to 2022	2022 to 2023	2023 to 2024	2024 to 2025	2025 to 2026
Nil	Nil	Nil	Nil	Nil	Nil

This measure is not expected to have an Exchequer impact.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure is not expected to have a direct impact on individuals as it affects financial institutions, such as banks and building societies. There is expected to be no impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that there will be impacts on groups sharing protected characteristics.

Impact on business including civil society organisations

This measure is expected to have a negligible impact on about 20 financial institutions, such as banks and building societies, who might be asked for information for the purposes of checking the tax position of a taxpayer.

One-off costs will include familiarisation with the change by a member of staff at each institution. There are not expected to be any continuing costs.

A continuing negligible saving could include financial institutions no longer making representations following requests. This could make their processes slightly less onerous.

Customer experience is expected to remain broadly the same as this measure does not significantly change how financial institutions interact with HMRC.

There is expected to be no impact on civil society organisations.

Operational impact (£m) (HMRC or other)

There are no financial consequences for HMRC.

Other impacts

Removing the tribunal step from the process will reduce the impact on the Ministry of Justice. While there may be rights of appeal in some circumstances which result in some tribunal cases, these will be outweighed by the removal of the requirement for HMRC to approach the tribunal in all cases.

Other impacts have been considered and none has been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected taxpayer groups and an annual report will be issued.

Further advice

If you have any questions about this change, please contact: eoi.policy@hmrc.gov.uk.