Press release: ATT concerned at threat to taxpayer safeguards

At the moment, HMRC can request information or documents they say are reasonably required for checking a taxpayer’s position from a third party, such as a bank or tax adviser. But before a third party notice can be issued HMRC have to secure either the agreement of the taxpayer in question or the approval of the tax tribunal (the latter is sometimes used to keep enquiries secret or as a last resort).

The ATT has responded to an HMRC consultation on the possible need to update HMRC’s civil information powers. The consultation asserts that HMRC’s existing powers to obtain information from third parties are insufficient, a key concern being the length of time it takes to obtain tribunal approval. HMRC believe a radical solution is to remove the requirement for either tribunal or taxpayer approval before a third party notice is issued.

Jon Stride, Co-Chair of ATT’s Technical Steering Group, said:

“We appreciate that HMRC are having to meet increasing demands from overseas tax bodies for information, and that they currently have to seek tribunal approval in order to obtain that information. However, we do not believe that HMRC have provided sufficient evidence to justify the erosion of important safeguards for both taxpayers and third parties.

“In particular, we are not comfortable with the proposal to remove the requirement for either tribunal or taxpayer approval before a third party notice is issued. This requirement was introduced for two reasons - to protect the privacy of taxpayers and to prevent undue burdens being imposed on third parties. We do not believe that the consultation provides sufficient evidence or reasoning to warrant the removal of such important safeguards.”

The ATT prefers HMRC’s alternative proposal for the introduction of a separate, specific Financial Institution Notice for banking information. ATT considers that to be a more targeted response, balancing HMRC’s concerns over the existing process with a restricted application to a defined group of third parties and a specific class of information.

Jon Stride said:

“A Financial Institution Notice should also carry safeguards including, as a minimum, a requirement for either pre-approval of its issue (by either the taxpayer or the tribunal) or the right of appeal by the financial institution on the grounds that the information requested is onerous or impractical to provide.”

The consultation also proposes extending tribunal-determined penalties of up to £1,000 a day which currently apply to non-compliance with a small subset of information notices, to cover all types of information notice which HMRC can issue to taxpayers and third parties.

Jon Stride said:

“We do not believe that HMRC have provided enough evidence to justify this proposal. Although the consultation refers to harmonisation, expanding the reach of a severe penalty which currently only affects one narrow aspect of a regime to cover a much wider remit is not what many might class as harmonisation.

“HMRC have failed to provide any evidence to support their assertion that this change would help deter long periods of non-compliance with an information notice.

“We would encourage HMRC to go back to the drawing board on these proposals.  While we agree that HMRC should be given the powers they need to do their job, this should not be at the expense of taxpayer safeguards that prevent undue burdens being placed on third parties and assure taxpayers of a reasonable degree of privacy.” 

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Notes for editors

1. The current legislation covering HMRC’s civil information powers is found in Schedule 36 of Finance Act 2008.  This allows HMRC, subject to specific safeguards, to issue information notices in order to access information and documents from various parties in a number of different situations, including:

• From the taxpayer directly.
• From a third party about a known taxpayer (third party notices).
• From a third party about a taxpayer whose identity is not known to HMRC.
• From a third party whose identity can be ascertained.

2. The Finance Institution Notice (FIN) is proposed to be a new class of information notice for “banking information which is held by a financial institution”.  Banking information would include bank statements, information about transactions on the account and information held about the legal and beneficial ownership of the account.  The consultation proposes that there would be no need for HMRC to secure tribunal approval to issue a FIN and no right of appeal by the financial institution to whom it is issued.

3. HMRC can levy penalties where a person does not comply with an information notice.   For most notices these are a fixed penalty of £300 for an initial failure to comply, with additional penalties of up to £60 a day for continued non-compliance.  However, for non-compliance with a notice about a taxpayer whose identity is not known, HMRC can apply to a tribunal to impose increased daily default penalties of up to £1,000 a day.

4. The consultation proposes extending these £1,000 daily penalties to cover non-compliance with all notices which can be issued under Schedule 36.