Corporate report

Report on HM Revenue and Customs' Financial Institution Notice powers

Updated 25 January 2024

The report is presented to the House of Commons pursuant section 126(6) of Finance Act 2021.

Summary

This is the second report on the use of Financial Institution Notices (FINs). The period covered is 1 April 2022 to 31 March 2023.

The report will consider:

• the effectiveness of the FIN in improving HMRC’s international information request response times
• the impact of the FIN on financial institutions and customers, including the number of notices issued

Background

Following consultation, the FIN was introduced by the Finance Act 2021, which received Royal Assent on 10 June 2021. HMRC started issuing notices from July 2021 once the relevant preparations, such as training officers to use the FIN, had been completed. The FIN gives HMRC the power to issue third party information notices to financial institutions without the requirement for tribunal or taxpayer approval.

The FIN was introduced to allow the UK to meet international minimum standards on the exchange of information for tax purposes. The minimum standard requires tax authorities to provide information requested under international treaties within 180 days (6 months). At the time of the last review in 2018, it was taking the UK, on average, 12 months to provide information where a third party information notice was needed, double the time allowed by the minimum standard.

The UK received a recommendation under a review by the Organisation for Economic Cooperation and Development’s (OECD) Global Forum on Transparency and Exchange of Information to reform HMRC’s information gathering processes and ensure they are compatible with effective international exchange of information for tax matters. In line with the UK’s commitment to tax transparency, the FIN was introduced to reform HMRC’s process, improve the time the UK takes to deal with information requests, and allow the UK to meet international standards on tax transparency for information requests from other jurisdictions.

The FIN applies to information requests necessary for domestic tax checks, as well as those needed to respond to international exchange of information requests.

The FIN is a form of third party information notice within schedule 36 of Finance Act 2008. FINs allow HMRC to access information and documents from financial institutions, where these are required to check a taxpayer’s tax position, or for the purpose of collecting a tax debt of the taxpayer. The FIN does not require tribunal or taxpayer approval and there are several safeguards built into the legislation, including:

• information or documents sought must be reasonably required for the purpose of checking a known taxpayer’s tax position or for collecting a tax debt
• an authorised officer must approve each FIN. HMRC have provided specific training on FIN powers
• a FIN can only be issued if, in the reasonable opinion of the officer giving the notice, it would not be onerous for the financial institution to comply with it
• officers are required to tell taxpayers why the information is needed when the FIN is issued. This requirement can only be overridden with the agreement of the independent tax tribunal, where that tribunal is satisfied that informing the taxpayer might undermine the collection or assessment of tax
• if a financial institution does not comply with a FIN, penalties can be charged. Financial institutions have the right to appeal against any penalties
• there is a legislative requirement to present an annual report to the House of Commons on the use of FINs. This is the second report, covering the first full year of operation of the FIN

Effectiveness

The table sets out the use of FINs in the period 1 April 2022 to 31 March 2023. Figures from the previous report are provided for information.

	1 July 2021 to 31 March 2022	1 April 2022 to 31 March 2023
Total number of FINs issued	355	647
Total number of domestic FINs issued	214 (60.3%)	516 (79.8%)
Total number of FINs issued for international information requests	141 (39.7%)	131 (20.2%)
Total number of FINs issued for debt collection purposes (applies to domestic FINs only)	7 (2%)	7 (1%)
Number of applications for FINs formally rejected by authorised officers[footnote 1]	31 (8.73%)	88 (13.6%)
The average time taken to respond to international requests received from the first use of the FIN	197 days	175 days

Data demonstrates there has been further improvement in the average time taken to process international exchange of information requests. In the current reporting period, the average time to process international requests was 175 days compared to 197 days last year and below the 180 days standard. This is a considerable reduction from the 365 days average at the time of the 2018 review. This brings the UK more into line with other jurisdictions and the international standards.

A total of 647 FINs were issued compared to 355 in the previous period. This is due to a number of factors including a longer reporting period this time around. In addition, it is because:

1. case workers are more aware of the FIN process
2. increased capacity to authorise notices through training of additional FIN authorised officers, meaning they can be processed more efficiently
3. a high number of FINs being generated from a small number of specific cases

Around 20% of FINs issued in the period were in support of international cases. This percentage is lower than the previous year.

Impacts

Taxpayers

No informal or formal complaints have been made against the use of the FIN from taxpayers. There have been no judicial review applications.

Financial institutions

No issues or concerns have been raised by financial institutions with either the number of FINs or that the information and documents requested in any FIN has been onerous. No informal or formal complaints have been received from financial institutions against FINs issued. No penalties have been issued to financial institutions and therefore no appeals against penalties have been made. Two areas of clarification have been sought by financial institutions on how HMRC are applying the FIN policy.

Location data

The previous FIN annual report set out that HMRC would not use FINs to obtain location data (information concerning a taxpayer’s location when they accessed their digital online or mobile banking account). Since that report was published, the law has changed so that civil tax information powers can be used to obtain communications data, which includes location data. HMRC will consider carefully on a case-by-case basis whether the use of a FIN is the appropriate and reasonable way to proceed before using one to obtain location data.

Employee data

The last report also set out that a FIN could be used to reasonably request information to support the checking of a tax position where the taxpayer could be an employee or contractor of a financial institution. In response to a request for clarification on this matter, HMRC re-iterates in this annual report that the FIN applies to information relevant to a ‘taxpayer’ and makes no distinction between taxpayers who are customers of a financial institution and those who are employees or contractors.

Therefore, HMRC may use a FIN to request information about employees where it is reasonably required. There are safeguards in the approval of the notice by an authorised officer and informing the taxpayer why the information is needed, unless a tax tribunal rules this condition should not apply.

Conclusion

The FIN is continuing to achieve its policy objectives and the safeguards introduced have operated efficiently. The changes introduced have significantly improved the time taken to respond to international information requests, bringing the UK into line with international standards for the first time, and support the UK’s reputation as a leader in tax transparency.

HM Revenue and Customs, January 2024

1. This figure includes applications that may have been rejected and then resubmitted and approved. HMRC requires compliance officers and authorised officers to ensure that FIN applications are completed to the same standard as tribunal approved notices. The percentage comparison is based on the proportion of applications rejected to the number of FINs issued in the year. ↩