Financial Institution Notices: What do they mean for banks and building societies?

On 3 March 2021, HMRC confirmed that it will be expanding its civil information powers by introducing ‘Financial Institution Notices’ (‘FINs’). These will allow HMRC to request information from banks, building societies and credit card issuers about their customers, without First-tier Tribunal (“FTT”) oversight.

The idea stems from the government’s concern that international requests for information are currently taking longer than the goal of 6 months. The new regime is designed to streamline the process, and bring the United Kingdom in line with its G20 partners.

The proposals engender a sea change in HMRC’s information powers. As the law currently stands the Revenue can only require such information or documents with the taxpayer’s agreement or the FTT’s approval.

So, what does this mean for financial institutions and their advisers?

Key features

The draft legislation[1] will slot into the existing ‘information powers’ regime in Schedule 36 Finance Act 2008. It will apply to notices issued after the Finance Bill 2021 receives royal assent.

Key features are as follows:

  • Financial institutions. FINs will only be issued to ‘financial institutions’. The draft legislation borrows the definition from the CRS regime (including e.g. banks and building societies), together with credit card issuers. It excludes certain investment entities.
  • Approval. The FIN will have to be approved by an authorised HMRC officer. However, no FTT approval will normally be required.
  • Information/documents. The scope of information and documentation that can be requested is wide. The first condition is that it must be (in the “reasonable opinion” of the officer giving the notice) “of a kind that it would not be onerous for the institution to provide or produce”. The second condition is that it must be “reasonably required” for the purpose of (a) “checking the tax position of another person whose identity is known to the officer” or (b) “collecting a tax debt of the taxpayer.”
  • Notifying the taxpayer. The FIN must name the taxpayer to whom it relates, and a copy must be provided to the taxpayer, together with a summary of reasons why the information or documents are required. However, the Revenue may make a without notice application to the FTT if it wishes to dispense with these requirements. Such an application will be granted where the Tribunal is satisfied that the officer has “reasonable grounds” for believing that compliance with those provisions “might seriously prejudice the assessment or collection of tax”.
  • Limited right to appeal. No FTT appeal against such a notice will be possible, save against penalties for failure to comply.
Safeguarding concerns

The Revenue’s Tax Information and Impact Note released on 3 March 2021 addresses the day-to-day impact of the proposed measures. It acknowledges the likelihood of a ‘one-off’ cost for financial institutions required to familiarise their staff with the regime, but suggests that a “continuing negligible saving could include financial institutions no longer making representations following requests.” [2]

This belies deeper concerns about the erosion of judicial oversight.

In July 2018, the revenue issued a Consultation Paper with the new proposals.[3] A “large proportion” of the accountancy representative bodies, industry bodies, businesses and individuals who responded, felt that the “current process of obtaining FTT approval provided a robust safeguard and raised questions around the ability of internal HMRC safeguards alone to replace it.” [4]

Further, the House of Lords Economics Affairs Committee raised detailed concerns and concluded that the FINs proposals were “poorly targeted, disproportionate in their effect on UK taxpayers and lacking necessary safeguards and rights of appeal. They remove safeguards for taxpayers and financial institutions which prevent arbitrary use of the information powers, and are not supported by the evidence.” [5]

Practical tips

Nonetheless, FINs remain within the draft Finance Bill 2021.

Financial institutions and their advisers therefore need to ensure that their procedures and staff training programmes are updated with FINs in mind.

Practical tips include:

  • Read the FIN in detail. A FIN must be carefully scrutinised on receipt, to ensure you understand the scope of what is being requested. Handing over more than is required could constitute a breach of data protection rules.
  • Review documents/information before handing them over. Certain documents remain excluded from HMRC’s information powers — e.g. those protected by legal privilege, and those not within the possession and power of the financial institution. A thorough review, should be conducted before documents are handed over and legal advice sought. Even if documents are later ordered to be returned, work product deriving from them will remain within the Revenue, and so mistakes cannot truly be undone.[6]
  • Consider negotiating with HMRC. Although there is no recourse to the FTT, this does not stop you from seeking to persuade HMRC that a FIN is misguided and should be re-drafted.
  • Do not forget that judicial review will be an option for consideration where the Revenue appears to have exceeded its powers or acted improperly or irrationally.
Final thoughts…

The introduction of FINs is the latest expansion of HMRC’s information powers in the international sphere, following the decision in R (Jimenez) v First-tier Tribunal (Tax Chamber) that information notices can be issued overseas.[7] These new proposals are likewise pitched as the solution to an international problem.

However, the House of Lords noted that the number of information notices sent to financial institutions in response to international requests and then taken to the FTT is a “small minority”. Further, it highlighted that the bulk of time spent in dealing with such requests was accounted for by work within HMRC and correspondence with overseas tax authorities. The new measures may therefore do little to trim delay and create any lasting impact on the world stage. Instead, it may be that the real use of FINs will begin at home, as HMRC focuses in on those who fail to pay their dues at this difficult time.





[4] See paragraph 2.5, Summary of Responses:


[6] R (PML Accounting Limited) v HMRC [2018] EWCA Civ 2231

[7] [2019] EWCA Civ 51, although permission has been granted for appeal to the Supreme Court