The opinions expressed here are those of the authors. They do not necessarily reflect the views or positions of UK Finance or its members.

Following an initial consultation, these proposals have been scaled back in new draft legislation. However, the new powers will still impose a significant additional compliance burden on financial institutions and key questions remain.

Promoter Action Notices (PANs) – what are the key changes?

HMRC are concerned about promoters of tax avoidance using third-party businesses to enable their schemes, and have specifically cited 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 goods or services to a "target" within a specified timeframe where HMRC reasonably suspects that those goods or services are being used wholly or partly in connection with the promotion of tax avoidance. 

Critically, the new draft legislation also requires HMRC to reasonably suspect that the promotion is in breach of a stop notice or universal stop notice. In other words, HMRC must have reasonable suspicion that a criminal offence has been committed by a suspected promoter. That is a significant change to the original proposals, made following representations by UK Finance. A related change is that only suspected promoters can be the targets of PANs (and not connected parties or others).

How will PANs work?

Prior to a PAN being issued, HMRC may issue a "preliminary notice" (with legal force) to "request information from the recipient". The idea is presumably to gather information necessary to issue a PAN. However, the draft legislation does not limit HMRC's ability to request information to this purpose. A preliminary notice will allow 30 days for a recipient to make representations, but there is no Tax Tribunal oversight whatsoever.

Usefully, HMRC must provide reasons for their suspicions about the target in order to issue a preliminary notice, and there are provisions that allow HMRC to share information with the recipient of the notice which might otherwise be confidential.

The existence or contents of a preliminary notice must not be revealed to the target (or any person who might reasonably be expected to disclose the same to the target). Any disclosure of information to HMRC pursuant to a preliminary notice is expressly stated to not breach any obligation of confidence that might be owed to the target. This does not strictly include data protection legislation, but receipt of a legal preliminary notice would be likely to trigger an exclusion from data protection legislation in any case.

There is no requirement on HMRC to issue a preliminary notice before issuing a PAN. However, HMRC will be required to notify the target of their suspicions and allow 30 days for representations. Subject to this and certain other conditions, an authorised officer of HMRC may then issue a PAN to force the recipient to stop providing some or all of the relevant goods or services (or otherwise restrict them in some way). The PAN must identify the target, the relevant goods or services, the actions required and the deadline for taking those actions. HMRC are permitted to share "information relating to the target" with a PAN recipient but, unlike preliminary notices, HMRC are not strictly required to provide reasons for their suspicions. There is also no requirement on HMRC to issue a preliminary notice beforehand. Moreover, a PAN is specifically not allowed to require the recipient to assess how the relevant goods or services are being used in connection with the alleged activities. Technically speaking, therefore, it could be the case that financial institutions are asked by HMRC to cease providing goods or services to a person without any proof as to whether this is justified.

PAN recipients have a right of appeal but only on the grounds that the specified goods or services are not being used in connection with the relevant promoted arrangements (which would be impossible to judge without proper information from HMRC or the target) or simply that the recipient is not in fact providing those goods or services to the target. Failure to properly comply with a PAN without any reasonable excuse can potentially result in daily penalties or public 'naming and shaming' of recipients. There is no criminal offence for failure to comply as previously mooted.

What is the potential risk to financial institutions?

Aside from the prospect of sanctions for non-compliance, a key concern around the original proposals was that having PANs issued only on the strength of HMRC's own suspicions, without also requiring pre-approval from the Tax Tribunal (i.e., independent judicial oversight), presented the opportunity for targets to make allegations of de-banking and similar, and bring associated legal actions. 

That concern remains and financial institutions will want to ensure that they extract as much information from HMRC as possible to help document their decision-making process. The change to require suspicion of criminal activity is helpful to an extent as it provides financial institutions with further justification for their compliance with a PAN. In fact, even in the absence of this new power, if HMRC were to inform a financial institution that a customer was suspected of criminal activity, existing internal processes may already be triggered in any case. 

The draft legislation envisages that PANs may be withdrawn, presumably from the date of the withdrawal notice but this is not expressly clear. If a withdrawal were to have retrospective effect (or if a PAN were to be otherwise rendered invalid by a court), there is an argument that a financial institution's previous compliance with the PAN would be unlawful. 

Practical issues remain. PANs may be issued where products or services are used "wholly or partly" in connection with the promoted arrangements. The practical impact on, for example, joint bank accounts is therefore not clear. A deadline to cease providing products or services as provided for in a PAN is stated to take "precedence over any statutory or regulatory requirement to provide a period of notice before terminating or modifying a contract". In the context of say a loan, the suggestion seems to be that a PAN would allow a financial institution to recall that loan notwithstanding what is in the contract. Illegality clauses are a common provision in facility agreements in any case, but financial institutions will need to consider those provisions carefully and take professional advice. For example, illegality clauses may also be accompanied by a requirement to mitigate the impact of having to recall a loan. Practically speaking, there is clearly a risk for financial institutions of losing money. 

It is hoped that the final legislation will address some of the issues referenced above.

Promoter Financial Institution Notices (PFINs)

The original proposals would have allowed HMRC to issue PFINs to request information from financial institutions on suspected promoters of tax avoidance, modelled after the financial institution notices (FINs) power introduced from June 2021. Following concerns raised, the draft legislation now requires a PFIN to be pre-approved by the Tax Tribunal, which raises the obvious question as to why FINs cannot be subject to the same judicial oversight. Interestingly, the draft legislation envisages PANs and PFINs capable of operating as separate regimes.