Under new rules introduced by the Finance Act 2021, HM Revenue & Customs (HMRC) have acquired some extra powers when it comes to collection of tax and information gathering.
Will HMRC contact my bank directly?
A new “financial institution notice” was created to speed up the process of getting information to tackle tax evasion. HMRC will not need prior approval from either the taxpayer or a tax tribunal. Previously banks were already reporting some information such as interest, dividends and account balance. This new notice allows HMRC to ask for more.
The extension of power is the ability to issue notices directly to the financial institutions such as banks, building societies and credit card companies. HMRC can now access an individual’s records directly. You are unlikely to hear about this unless your bank decides to tell you.
This will come as a shock to most tax payers ! Until now if HMRC needed further information from your bank they would ask you first.
So how far will the new powers go?
From June 2021 institutions will be required to provide information to HMRC that are, in the ‘reasonable opinion’ of the HMRC officer issuing the notice. Moreover it needs to be ‘of a kind that it would not be onerous for the institution to provide or produce’.
But not surprisingly there is no definition of what is onerous! It falls entirely upon the officer at HMRC to decide.
However, HMRC must demonstrate that the documents required are necessary to check the tax position of the taxpayer concerned and there is potential tax debt relating to that taxpayer. The financial institution in return must comply with the request and if they fail to comply civil penalties will be imposed. Furthermore, there is no right to appeal against the request for information. The banks can if they wish not give the information to HMRC and when the penalties are imposed, they can appeal against these penalties. A bit of a long way going about ignoring the request.
This includes most banks and building societies.
How does the new HMRC powers affect me?
The request of information will be made directly to your bank and chances are that the first you would hear of it will be from your bank if HMRC feels that there a need to use this power. In most cases and in our experience most clients want to comply with HMRC requirements and do so perfectly. Errors or omissions normally happen due to a simple mistake or oversight.
The basic underlying message here is please take your tax affairs seriously. You should not consider yourself immune from the watchful eye of HMRC. The last eighteen months or so have placed considerable pressure on our public finances due to the pandemic. The Treasury and HMRC is determined to collect every drop of tax that is owed to them, so they are going to use the powers where necessary.
The extra powers assigned also have further implications. It enhances HMRC’s reach because any non-compliance will mean that the penalties are imposed on the banks and building societies etc. This will not go down well in the press and will result in negative image and so these institutions will have a strong incentive to comply with the notices.
On the flip side these powers are not limitless. The banks and other financial institutions might consider these requests of information a bit more carefully because if they do go about adopting an “automatic compliance” mode then that may create certain problems with their clients. There is also the impact of data protection and GDPR and the stress on their internal resources to comply.
Will these HMRC powers extend to taxpayers abroad
However, it is unlikely that HMRC powers extends to those financial institutions who are not based in the UK.
But if you are banking in the UK via a branch of a foreign Bank then your affairs can be reported under the new rules.
It is also likely that this will include an individual based abroad, so long as that individual is or may be liable to UK tax.
What can you do to avoid HMRC making direct contact with your Bank? Our top tip is always consult your accountant and discuss in full if you are not sure when a particular transaction is taxable or not. Make sure you do not exclude any transactions from your tax return unless you have checked it out before and you are sure it does not need reporting.
This is not exclusive to investments held with banks or building societies. As you can see, HMRC have now acquired powers to request information from credit card companies and other similar institutions without your knowledge. Other institutions such as the land registry already report directly to HMRC.
Ultimately HMRC wants to speed up the process of gaining information and bringing the UK in line with international standards. Their policy of Making Tax Digital is also part of the bigger picture to improve transparency into your tax affairs.
If you need any help or are not sure about what you are reporting to HMRC each year, please contact your normal account manager at Myers Clark or if you are not yet working with us you can contact Priya at firstname.lastname@example.org