HM Revenue & Customs is concerned its power is no longer fit for purpose given the extent to which financial information is now held electronically.
HMRC already uses information gathered from banks, peer-to-peer lenders and other financial institutions, then checks it against individuals’ tax returns. Its Connect system draws on information from myriad government and corporate sources to create a profile of each taxpayer’s total income.
Connect broadly deals with information spontaneously available in government departments or as part of the digital footprint people leave when they use the internet. Where this varies from the information provided by the taxpayer, the account is flagged and could be subject to further investigation.
But HMRC is now seeking further powers to obtain such information without independent oversight from the tax tribunal. Plans set out in a consultation could allow it to submit information requests to financial institutions, accountants, lawyers, estate agents and other third parties without first seeking approval from the tax tribunal.
Information requests covering basic bank account information are likely to become more frequent following the introduction of the Common Reporting Standard, through which overseas tax authorities will automatically receive data on taxpayers’ UK accounts. However, obtaining prior consent from the tribunal in other cases is an essential check which basically helps safeguard taxpayers against fishing expeditions.
As an alternative, the consultation proposes introducing a new financial institution information request right to allow HMRC to obtain bank statements, transaction histories and other basic banking information “reasonably required to check a taxpayers’ tax position” without tribunal approval. Should HMRC adopt this approach, other requests for information would remain subject to tax tribunal approval.
The consultation, which closes on 2 October, makes a number of other proposals for reform of the schedule 36 power intended to “ensure that HMRC’s powers remain effective and in line with international standards”.
These include extending the power to allow HMRC to access any information reasonably required for its tax functions, potentially extending to information that would enable it to seize assets or make a taxpayer insolvent, and streamlining the process for imposing penalties on third parties which do not comply with requests.
Make no mistake, this is the tipping of the scales. Five years ago, those making minor tax errors would feel fairly safe. But HMRC now has more information and more access.
Phil Wickenden is managing director at Cicero Research