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Can HMRC check your bank account without your permission?

3-minute read

Sam Bromley

21 August 2020

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HMRC has the power to check personal information about taxpayers they're investigating by issuing a ‘third party notice’ to banks and other institutions.

This power does have some restrictions, but HMRC now wants to introduce a separate ‘financial institution notice’ for gathering financial information.

HMRC won’t need approval from a tax tribunal to issue this notice (the independent tax tribunal is responsible for appeals against decisions made by HMRC).

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HMRC will have to let the taxpayer know why they’re asking for the information – unless a tax tribunal rules that this condition shouldn’t apply. This means HMRC could potentially ask for financial information without the taxpayer’s permission.

Ultimately HMRC wants to speed up the time it takes to get information, bringing the UK in line with international standards.

Does HMRC check bank accounts?

HMRC has the power to obtain relevant information from taxpayers to check they’re paying the right amount of income tax, capital gains tax, corporation tax and VAT.

This information is sometimes held by third parties, and if HMRC wants to see it, they can issue a ‘third party notice.’

Third parties include banks and other financial institutions, as well as lawyers, accountants, and estate agents.

HMRC can’t issue a third party notice without taxpayer or tax tribunal approval. Plus, HMRC needs to prove that the information is ‘reasonably required’.

And if HMRC has got permission from the tribunal to keep its tax investigation secret, the third party is still legally allowed to tell the taxpayer they’ve been asked for the information.

But HMRC wants to check your bank account without permission

In 2018, HMRC published a consultation document called ‘Amending HMRC’s Civil Information Powers’.

In this document, HMRC argued that getting permission from the taxpayer and tax tribunal to issue a third party notice slowed down its information gathering process, both in domestic and international investigations.

So, HMRC outlined some options for getting taxpayer information quicker, including:

  • getting rid of the need for taxpayer or tax tribunal approval before issuing any third party notice
  • plus, in cases where the tribunal gives permission, HMRC was asking to prevent third parties from telling taxpayers they’ve been asked for the information

So what’s becoming law?

Two years later, in July 2020, HMRC announced that it’s creating a new ‘financial institution notice’ to speed up the process of getting information from banks and other organisations about a known taxpayer's tax position.

HMRC will create this new notice instead of amending its powers for all third party notices. Respondents overwhelmingly objected to that proposal, saying the change would be wider than what’s needed to tackle this particular problem.

The tax body won’t need approval from the taxpayer or tax tribunal to issue financial institution notices, but HMRC claims there will be safeguards:

  • the information will need to be reasonably required (although it seems HMRC itself can judge what’s reasonably required, as an ‘authorised officer’ of HMRC needs to approve notices)
  • the information shouldn't be too onerous for the financial institution to produce
  • the taxpayer will get a summary of why the information is needed – unless a tax tribunal rules that this condition shouldn’t apply (and in these instances, the third party won’t be allowed to tell the taxpayer about the request)
  • the financial institution can appeal against any penalty it gets for not complying

Hugh Gunson, legal director of private wealth disputes at Charles Russell Speechlys, said the financial institution notice “is a powerful new weapon for HMRC in tax enquiries and investigations.

“Financial institutions and taxpayers alike should be prepared for HMRC to deploy these with increasing regularity – and when faced with one they should ensure they are fully aware of their legal obligations.”

What do you think of these proposals? Let us know in the comments below.

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