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An 81% increase in domestic FINs raises questions

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HMRC’s report on Financial Institution Notices reveals a number of fascinating facts, but leaves a number of questions to be asked.

18th Jun 2024
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HMRC has reported to Parliament on the effectiveness of its use of Financial Institution Notices (FINs) during the year ended 31 March 2023. 

The driver for the introduction of FINs was HMRC’s obligation to meet international minimum standards on the exchange of information for tax purposes. The minimum standard requires tax authorities to provide information requested under international treaties within 180 days (six months).

When HMRC’s performance around these standards was reviewed in 2018, the average time taken to provide information to overseas authorities was 365 days – twice the required timeframe.

Following consultation, legislation was included in the 2021 Finance Act empowering HMRC to issue notices to banks, credit card companies and other financial institutions without having to obtain authorisation from the tribunals. These notices can be issued if the information being sought is:

  • reasonably required for the purpose of checking the tax position of a known taxpayer or for collecting a tax debt, and
  • “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.”

As a result of the new legislation, an authorised (and suitably trained) HMRC officer can now approve the making of a notice. Leave of the tribunal is only required if the officer wishes to:

  • withhold the (otherwise mandatory) giving of written notice to the taxpayer of the issue of the notice and a summary of the reasons why the information is being sought, or
  • send a notice that does not name a specific taxpayer (in other words, blanket notices). 

First year results

The year to 31 March 2023 is the first complete year for which FINs have been issued. The previous period ran from 1 July 2021 to 31 March 2022.

HMRC’s report to Parliament discloses that, under the new legislation, it has been able to slash its average time to comply with international information requests from 365 days to 197 days in the 2021/22 period and to 175 days in the 2022/23 year. 

  Target Pre 2018 2021/22 2022/23
 Average time to comply with international requests  180 days  365 days  197 days  175 days

 

This suggests that the new legislation has succeeded admirably in its stated aim. However, the report also tells us quite a lot about the wider impact of the new regime.

Quirk in the legislation

Although the new legislation came about because of the need to facilitate international reporting, it was not worded with any such restriction. Instead, the legislation as enacted enables FINs to be issued in respect of any taxpayer, domestic or international.

The results of this quirk become highly visible and somewhat alarming when studying the latest report.

   Nine months to 31 March 2022  Year to 31 March 2023
 Total number issued  355  647
 International  141 (40%)  131 (20%)
 Domestic  214 (60%)  516 (80%)

 

Those numbers are stark enough in their raw form; when adjusted to take account of the different lengths of period covered, they are even more telling.

 Average per month  2021/22  2022/23  Percentage change
 Total  40  54  36.8%
 International  16  11  (30.5%)
 Domestic  24  43  80.7%

 

Questions raised

For a power ostensibly granted to enable compliance with international information requests, why are only 20% of all FINs being issued in international cases – half the percentage from the previous period? 

In its report, HMRC noted that the overall increase from 2022 to 2023 was, in part, a result of: 

  • case workers becoming more aware of the FIN process, and
  • an increased capacity to authorise notices through the training of additional FIN authorised officers.

Cynics among us would be inclined to wonder how this heightened awareness and improved access to authorised offices would result in a 30% decrease in the number of international FINs being issued. One might almost think that the ostensible purpose behind the new legislation had been over-emphasised.

The 81% increase in domestic FINs issued certainly does bear out the suggestion that case workers are becoming more aware of the FIN process. However, once again the cynics among us might wonder precisely what it is that those case workers are becoming more aware of. Might it, perhaps, be the opportunity to circumvent the supervision of the tribunals?

Shift in the balance

HMRC’s report makes no comment on the huge shift in the balance towards domestic cases beyond merely stating the numbers. One might have expected some commentary about such a substantial shift of emphasis.

Instead, HMRC appears to be rather complacent about the situation. Its report concludes “the FIN is continuing to achieve its policy objectives”. Policy, maybe; mission creep, certainly.

Let us again be cynical and consider an analogous situation. Suppose that the Association of Chief Police Officers (ACPO) was to approach the Home Office with a somewhat ingenious suggestion: “It’s getting to be far too cumbersome, this business of having to approach a judge or a magistrate to obtain a search warrant – why not let our superintendents issue them instead?” One can only imagine the furore that would ensue in the press and, personally, I struggle to see the difference.

Conspiracy thoughts

My own mantra has always been: never attribute to conspiracy what can be adequately explained by cock-up. 

I am therefore unwilling to propose that HMRC cynically and deliberately used the excuse of international treaty compliance to sneak in a domestic information power for its officers free from the scrutiny and supervision of the tribunals.

However, I am fully prepared to believe that, fortuitously discovering itself benefiting from some loosely drafted legislation, HMRC has eagerly seized on this opportunity with both hands. Now that s126 of FA2021 exists, why would any HMRC caseworker not use the FIN as a basic workaday tool?

I think we can anticipate that, in a year’s time when the 2023/24 report to Parliament is submitted, the balance of FINs issued will have shifted even more radically towards domestic cases, and that the original stated purpose for this legislation will seem even less relevant to its execution.

Replies (2)

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Danny Kent
By Viciuno
18th Jun 2024 13:55

To be fair, 190 days is a ludicrous timescale. Even when compared to HMRC. What could possibly take that long. Serves the FI right, if they didn't take the p1ss HMRC wouldn't have been given Cart Blanche like this.

IMHO good on HMRC, use them as much as possible.

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By FactChecker
18th Jun 2024 21:59

Shock, horror!!
Disconnect found between HMRC policy objectives and their daily operations ... can't think that's ever happened before, surely?

I suppose it's a step forward from the usual 'failure to meet objectives' ... rapidly followed by a re-statement of those objectives as whatever happened during the 'failure' (thereby achieving 'success')!

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