CH231800 - How to do a compliance check: information powers: rules that apply to all notices: issuing a notice to collect a tax debt

One of the reasons you can issue an information notice for is the purpose of collecting a tax debt. This can be used, for example, to establish whether there are funds available to pay a debt or to find the existing address of the taxpayer.

The following examples show how a Financial Institution Notice (FIN) can be used in this way.

Example 1

Tax authorities in France are trying to collect a tax debt from Mr P, who is a French resident.

Recent CRS data has shown the French tax officers that he has a UK bank account with a balance of over £50,000. They have asked Mr P for copies of bank statements from his UK bank account. He failed to provide these on request and, in any case, maintains that the UK bank account is now overdrawn. He also says that he has no other source of funds to pay off the tax debt.

In order to verify what they are told by Mr P, the French tax officers can make an exchange of information request to HMRC to obtain his UK account’s bank statements dating from the latest CRS report. This will enable them to check the current balance on the account and see if the funds were transferred to another account.

The UK competent authority agrees that the request is valid, and the bank statements are foreseeably relevant to the collection of taxes in France. They are also reasonably required for the purpose of collecting a tax debt.

The authorised officer considers that the information is not onerous to provide and agrees that they are reasonably required for the purpose of collecting a tax debt. The authorised officer provides agreement that HMRC can issue a Financial Institution Notice to obtain the statements from the bank on behalf of the French tax authorities.

Example 2

Mrs B has been the director and sole owner of a successful e-commerce business for 12 years.

Following a recent enquiry into her business Mrs B was found to have been deliberately underpaying corporation tax for a number of years by engaging in a complex avoidance scheme and is now liable to repay the tax and an additional penalty for non-compliance. The underpaid tax and penalty, together, form the tax debt.

As the director, Mrs B is jointly liable for this debt by virtue of Schedule 13 FA 2020 and a Joint Liability Notice, since she was involved in a tax avoidance scheme. Mrs B claims she is unable to pay this tax debt as she has no funds available in any of her UK bank accounts.

However, while examining the business bank statements provided in aid of the enquiry, the officer has come across an account from a UK Financial Institution that is in Mrs B’s name. The business account has made multiple transfers to the building society account of amounts totalling over £75,000. When asked, Mrs B tells the officer that the account now has no funds in it and was closed down a number of years ago.

In order to verify what they are told by Mrs B, the officer can use a Financial Institution Notice to check with the Financial Institution when the account was closed and where the funds from the business account were transferred to. Here, the information sought is reasonably required to collect a tax debt, as the officer is trying to verify whether or not the individual has the capacity to pay the debt owed.

The authorised officer considers that the information is not onerous to provide and agrees that the information sought is reasonably required to collect a tax debt. The authorised officer provides agreement that HMRC can issue a Financial Institution Notice to obtain the information.

The use of a Financial Institution Notice does not take the place of an information notice required to be issued under the Direct Recovery of Debt provisions.

Alternatives to using a Sch36 notice

Where you intend to use the Direct Recovery of Debt provisions in Schedule 8 of the Finance (no.2) Act 2015 to take money out of a taxpayer’s bank account, a notice should be issued under those powers rather than using under Sch36 (see CH23120).

A notice under Schedule 36, FA08 cannot be used in place of a notice under Schedule 8.