Most HMRC FINs not issued for international request purposes

Monday, 30 January 2023
Less than half of the 355 financial institution notices (FINs) issued by HMRC in the first year of their use were authorised for international information exchange requests.

The notices were introduced by Finance Act 2021, following a consultation in 2020. They were first used in July 2021, requiring financial institutions (FIs) to provide information to HMRC that it 'reasonably requires' either to check a taxpayer's tax position or collect a tax debt. HMRC can self-authorise the notices without seeking agreement from the taxpayer or a tribunal.

The justification given for the new power was to speed up the UK's response to foreign countries' requests for assistance in tax investigations. According to HMRC, the minimum standard set by the OECD requires tax authorities to provide information requested under international treaties within six months. However, at the time of the last OECD review in 2018 it was taking the UK on average 12 months to provide information where a Schedule 36 third-party information notice (the usual disclosure procedure for obtaining information from FIs) was needed. This led the OECD to recommend reform of HMRC's information-gathering processes to be compatible with effective international exchange of information for tax matters.

Most of the objections raised in the 2020 UK government consultation related to the lack of procedure for third parties or taxpayers to appeal or even object to the issue of a FIN. The first opportunity that the FI has to object is when a penalty for non-compliance with the notice is imposed. HMRC defended the absence of an appeal procedure on the basis that it would delay issue of the notices and so defeat the purpose of meeting the OECD target.

However, HMRC's 2023 report on the use of the powers in the first nine months of operation shows that only 141 of the 355 FINs issued between July 2021 and March 2022 were imposed for international information requests: 39.7 per cent of the total. This indicates that the main purpose of FINs is not that envisaged by the consultation and resulting legislation. The vast majority of HMRC officials' applications for FINs were approved by an HMRC-authorised officer.

HMRC says no complaints have been made against the use of the FIN from taxpayers or FIs and no penalties have been issued to FIs. The only way of challenging a FIN is through a judicial review application and none have been made, it says.

One change has been made to the use of FINs as a result of industry feedback. Originally, when issuing a notice, HMRC requested information concerning a taxpayer's location when they accessed their digital online or mobile banking account with a FI. Such information can sometimes be obtained from the IP address of the computer or phone used to access the account. Representatives of FIs pointed out that the FIN consultation did not specifically cover using FINs to obtain this type of information and HMRC has now decided to discontinue the practice.

The use of FINs does appear to have improved the UK's response time to international exchange of information requests. The average time taken by HMRC to respond to international requests received from the first use of the FIN on 1 July 2021 until 31 March 2022 was 197 days, down from 365 days at the time of the 2018 review. HMRC says it expects to make further progress as legacy cases are resolved.


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