Draft legislation to be included in Finance Bill 2020-2021 gives HMRC a new right to information from a financial institution (FI) without having first to seek the approval of the First Tier Tax Tribunal (FTT). The measures were published on 21 July 2020 and follow the closure of HMRC’s consultation on the discussion document Amending the HMRC’s Civil Information Powers published on 10 July 2018.

The new right extends the information and inspection powers contained in schedule 36 Finance Act 2008 (s36).

At the moment, s36 allows HMRC by notice in writing to obtain information and documents from the taxpayer to check up on their tax position from a third party to check another’s tax position (third-party notice) and from a person to check up on persons whose identity is unknown. Approval of the FTT is required to the giving of a third-party notice without the agreement of the taxpayer.

The proposed measure introduces a new financial information notice (FIN) that HMRC will use to require FIs, such as banks and building societies, to provide information to HMRC when requested about a specific taxpayer, without the need to seek the approval of the FTT. The information that HMRC will be entitled to capture will be information for the purpose of checking the tax position of a taxpayer and used for debt collection purposes.

Currently, the FTT may not approve the giving of a third-party notice or disapply the requirement to name the taxpayer to whom the notice relates unless certain conditions are met. These are:

approval is sought by, or with the agreement of an HMRC authorised officer (someone with the relevant experience and training);

the tribunal is satisfied that, in the circumstance, the officer giving notice is justified in doing so;

the person to whom the notice is addressed has been told that the information or documents referred to in the notice are required and given a reasonable opportunity to make representations to HMRC;

the tribunal has been given a summary of any representations made by that person;

the taxpayer has been given a summary of the reasons the documents are required by HMRC.

Steps (c) to (e) do not apply if the FTT is satisfied that taking the action might prejudice the assessment or collection of tax.

In November 2011, the Conservative and Liberal Democrat coalition government had a vision for a more transparent, open and easier personal tax system. An HMRC discussion document, Modernising the administration of the personal tax system: Tax Transparency for Individuals, suggested changing to a system of pre-filled tax returns that Denmark had started for paper tax returns in 1987 to help taxpayers to get their tax right.

From 1999, Denmark had started this online and from 2003 switched from having people send in annual tax returns to issuing tax statements pre-populated with data for the majority.

HMRC noted: ‘The third parties that report information include banks, pension providers and letting agencies and they provide the tax authority with information on an individual’s sources of income.

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