The world of tax can at times feel like you are swimming with the HMRC sharks.
Those sharks now have a few more FIN’s. And where there are FIN’s, there will be teeth.
Financial Institution Notice
The government legislated in Finance Act 2021 for financial institutions to provide more rapid information about customers, that is required for the purposes of UK or overseas tax investigations, without prior First Tier Tribunal (FTT) approval. The stated aim is to bring the UK’s rules in line with the rest of the G20 countries.
HMRC previously could obtain information via an ‘information notice’ under FA 2008 Sch 36; which can be issued to either taxpayers or third parties. To issue to a third party, HMRC must either have the taxpayer’s permission or approval from the FTT.
These changes are intended to streamline the process and largely remove the FTT from the process.
What is a FIN?
A FIN is a notice requiring a financial institution to provide information (or documents) to HMRC for HMRC to check the tax position of a taxpayer or for the purpose of collecting a tax debt.
The definition of financial institution broadly follows the Common Reporting Standard (CRS) definition and includes credit card issuers.
A FIN will not need the approval of the FTT. However, it should only be used if, in the reasonable opinion of the HMRC officer giving the notice, the information (or documents) requested are of a kind that it would not be onerous to provide.
HMRC should give a copy of the FIN to the taxpayer, together with a summary of reasons why the information is required. However, an application can be made to the FTT to negate this requirement, if the FTT agrees that notifying the taxpayer might prejudice the assessment or collection of tax.
A FIN should not be used to request documents subject to legal professional privilege.
How will FIN’s interact with CRS reporting requirements?
HMRC already shares high-level information about financial accounts held by non-residents with overseas jurisdictions under the auspices of the Common Reporting Standard (CRS).
Based on the early exchanges of CRS data HMRC expects that overseas requests for more detailed information will expand.
The FIN is the response to that expectation.
Not forgetting it can also be used to obtain information about UK taxpayers..
How could this affect me?
HMRC’s view is that it will only affect a taxpayer if it, or an overseas tax jurisdiction, believes the taxpayer’s tax position is incorrect.
But what if the information on which that belief is founded is incorrect? It does happen as we have seen with offshore asset nudge letters.
If HMRC advises it is going to use a FIN, take the matter seriously. It is a signal of deep HMRC scrutiny and a firm belief by HMRC that something is materially incorrect.