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HMRC's approach to third-party data. The potential impact of a separate consultation on tackling promoters of tax avoidance, in particular proposed new powers requiring financial institutions to disclose information about, and cease providing services to, suspected promoters, has somewhat flown under the radar.

Promoter Action Notices (PANs)

HMRC are concerned about promoters of tax avoidance using third-party businesses to enable their schemes, and specifically cite the example of a promoter receiving financial services from a bank. Receipt of a PAN would require a financial institution (or other business) to stop providing products or services where HMRC suspects that those products or services are connected to the promotion of tax avoidance. 

Greater clarity is needed as to how these proposals will operate in practice. The government envisages HMRC and businesses working "collaboratively", with HMRC sending an initial contact letter to alert the business and following this, "if required", issuing a PAN. The consultation therefore anticipates circumstances where the business might cease providing products or services before a legal obligation to do so even exists, which is likely to create various issues (not least in a financial services context). It is also unclear how any information sharing might work as part of this collaborative exercise. For example, the consultation suggests that HMRC would be able to "legally share information" with recipients of PANs, but does not explain what this means or whether such businesses would also be expected to disclose information to HMRC (where a separate, formal information notice would typically be required).

The consultation anticipates PANs applying broadly, not just to promoters themselves but also to connected persons, agents and "to stop any other activity which benefits these persons". Failure to properly comply with a PAN could also have potentially severe consequences: the consultation asks for views on civil penalties, 'naming and shaming' and even criminal offences.

On that basis, financial institutions would be well-advised to use the initial contact letter to help shape the scope of the formal PAN to ensure that any actions are specific and easily complied with. Businesses will have the right to appeal to the tax tribunal against the issuing of a PAN and any penalties/sanctions imposed for failure to comply.

Promoter Financial Institution Notices (PFINs)

The existing Financial Institution Notice (FIN) power was introduced from June 2021 to allow HMRC to request information from financial institutions without any of the normal safeguards associated with tax information notices, such as tax tribunal pre-approval. HMRC originally downplayed the impact of this new power by stating that it would apply to handful of banks and building societies and would be limited in scope. However, HMRC are now using FINs in ways not envisaged as part of the original consultation, for example to demand data on where customers of financial institutions have accessed online or mobile accounts. FINs were also originally justified on the basis that they were needed to comply with international exchange of information obligations but the latest report confirmed that approximately three quarters of FINs were related to domestic tax investigations. 

As FINs can only be issued in respect of known taxpayers, the recent consultation has proposed PFINs to allow HMRC to request information from financial institutions on suspected promoters of tax avoidance. PFINs follow the same model as FINs; for example, there is no tax tribunal involvement. Instead, HMRC would be able to issue a PFIN where they have a "reasonable suspicion" of the promoter's alleged activities and any information requested must be reasonably required. Again, we will need to see the draft legislation to see how this might apply in practice. However, the scope of PFINs is potentially extremely broad and caution should be taken from the history of HMRC's expansionary use of FINs.

There is an added element of secrecy involved in the proposed PFIN regime. Before issuing FINs, HMRC usually try to obtain the relevant information from the taxpayer – for PFINs they would not do this and indeed financial institutions would not be permitted to disclose the existence of the PFIN for 12 months.

This blog is co-written by Jack Prytherch, Tax Disputes Partner at Osborne Clarke LLP, and Michael Cusack, Trainee at Osborne Clarke LLP.