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Update on HMRC financial institution notices

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The second annual report on HMRC's use of financial institution notices now published.

The second annual report on HMRC's use of financial institution notices (FINs), covering the period from 1 April 2022 to 31 March 2023, was published on 25 January 2024.

FINs were introduced from June 2021 as a new type of HMRC information notice (under FA 2008 Sch 36 para 4A) – as their name suggests, aimed specifically at financial institutions. Unlike standard third party notices (under FA 2008 Sch 36 para 2), the statutory conditions for HMRC to issue FINs do not include any requirement for HMRC to obtain either any prior approval from the FTT or consent from the relevant taxpayer. There is also no right of appeal to the FTT under any circumstances. 

In light of the controversy surrounding the introduction of FINs, an annual report is required to be laid before Parliament. The latest report reiterates that HMRC are willing to use this power in previously unanticipated ways. 

For details on the first annual report and FINs generally, please see 'How is HMRC using financial institution notices?' (J Prytherch, 24 February 2023).

Location data

HMRC have confirmed that it intends to use FINs to collect data held by financial institutions on where customers have accessed their online or mobile accounts - i.e. their geographical location by reference to an IP address (location data).  Location data might be relevant, for example, to determine the residence of a taxpayer by establishing the number of days spent in a jurisdiction in a particular tax year. 

The possibility of using FINs in this way was not specifically considered at any time during the consultation process prior to their introduction. The first annual report on FINs, published on 26 January 2023, revealed that the proposal had at that time been abandoned following discussions with the industry. The latest report discloses that the same proposal is to be resurrected following changes to parts of the Investigatory Powers Act 2016 which would have otherwise further restricted HMRC's ability to request location data.

Employee data

Despite further concerns raised by the industry, HMRC still plan to proceed with its other controversial proposal to use FINs to obtain information on employees or contractors of financial institutions (as opposed to their customers) (employee data). 

Like location data, the use of FINs to collect employee data was not specifically considered at any time during the original consultation process. The report defends the proposal on employee data on the basis that the legislation strictly refers to 'taxpayers', rather than specifically to customers of a financial institution. This argument is somewhat undermined by the stated purpose of the annual report to consider 'the impact of the FIN on financial institutions and customers' (emphasis added). There is no satisfactory explanation as to why, according to HMRC, Parliament decided to single out financial institutions in respect of employee data (e.g. rather than to introduce legislation applicable to a broader range of employers).

Other updates

647 FINs were issued in the period from 1 April 2022 to 31 March 2023, as opposed to 355 in the period from 1 July 2021 to 31 March 2022. The higher figure stems partly from a longer reporting period this time around, but still represents a pro rata rise of approximately 37%. 

The report shows that the overwhelming majority of new FINs (almost 80%) were issued in connection with domestic investigations rather than in connection with international information requests. This is somewhat at odds with the intended purpose of FINs, although the report does confirm that there has been further improvement in the average time taken to process international requests.

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