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Most readers will be aware by now that HMRC hoovers up information from various sources to see what taxpayers may or may not be ‘up to’. I have said before that HMRC is becoming bored with simply assessing and collecting tax (which is not surprising really, given how much of this effort has already been delegated to taxpayers themselves) and has begun to realise that the data it holds is potentially much more interesting – and valuable.
This article considers several developments in the information gathering sphere, aside from the specific avenues where affected parties can ‘raise concerns’ by contacting HMRC directly.
General information powers
HMRC has powers to request any information ‘reasonably required to check a taxpayer’s tax position’ under FA 2008, Sch 36. This power is frequently exercised during an enquiry, but it is not limited to formal enquiries or business records, and it is not even limited to historic tax liabilities – it can be applied to anticipated liabilities as well.
HMRC can also ask third parties, such as banks or letting agents, to provide information about named taxpayers, or even as-yet-unnamed taxpayers, who may have been involved with a particular kind of transaction.
One notable development in this area is that HMRC has grown tired of having to ask the taxpayer’s permission in order to approach third parties, such as their bank or similar – or the hassle of having to seek an independent tribunal’s permission if it did not want to ask the taxpayer. It complained in a 2018 consultation that such hurdles were time-consuming and hampered HMRC in its duties to provide information to other tax jurisdictions within a reasonable timeframe. So, FA 2021, ss 126-128 provided for HMRC to be able to approach banks and other financial institutions without having first to seek consent from the taxpayer or a tribunal – a so-called ‘financial institution notice’ (FIN).
And, in HMRC’s first annual report on its use of FINs, it duly transpired that fewer than 40% of the FINs issued by HMRC in the initial period had, in fact, been required in order to comply with its duties to provide information to other tax jurisdictions. In other words, more than 60% of the FINs HMRC had initially issued had nothing to do with international tax reporting obligations – which was the highlighted reason why HMRC stated it needed such powers.
Bulk data powers
These powers are less in the public eye because here, HMRC approaches ‘data holders’ for bulk transactional data en masse relating to thousands of users, customers, etc. (FA 2011, Sch 23). Typical examples include:
customer lists from websites offering luxury items or services;
policyholder lists from insurance companies that provide specialised services, such as landlord insurance;
letting agents, who may be required to provide details of gross rents received (per property, per client) in a tax year (and note how closely this now aligns with landlords operating on a cash basis, as HMRC would very much like to be the norm);
mortgage providers – and particularly those that offer BTL mortgages; note this would not necessarily be information concerning just borrowers, but potentially also those who have just applied for a BTL mortgage; and
property websites – information on who has listed property for sale or rental; for example, Airbnb readily admits that it has shared “Data for all transactions on the platform during the 2017/18 and 2018/19 tax years, that took place in relation to either:
a listing in the UK; or
a listing owned by a Host that’s [sic] required to pay tax in the UK.”
Airbnb’s website also states that it “will provide data if HMRC makes similar requests for information in future”. Not so much ‘if’, as ‘whenever’.
HMRC is believed to be a prolific ‘scraper’ of data from social media sites to identify those who may appear to be living beyond their obvious means, holidaying in properties that may be owned overseas, or listing rooms, properties or other assets for rent or hire on more localised networks.
Other taxes and government channels
HMRC has, of course, long been able to access information from other departments and in relation to other taxes, such as:
stamp duty land tax notifications (and their devolved equivalents);
capital gains tax (CGT) reports in relation to disposals of UK residential property by UK tax residents (where the disposal is not CGT-free, thanks to only or main residence relief, for example);
the new trust registration service that should give HMRC much more information about who holds the beneficial interest in UK assets such as property;
HM Land Registry, as whoever is recorded as holding legal title will usually (but not always!) hold the beneficial interest as well;
local council information for details of properties let under house in multiple occupation licences or that are let to recipients of housing benefit.
Renters (Reform) Bill: Tax ‘conditionality’ incoming?
One further development in this area is that the draft Renters (Reform) Bill contains clauses that will require landlords to notify and maintain their details on a national ‘private rented sector database’ (see Part 2 of the Bill) and that a person must not market a dwelling for a residential tenancy unless both the landlord and the property are so recorded. There are fees for maintaining the database and penalties for failure to do so.
This will, of course, be of particular interest to HMRC; but there is, clearly visible in this writer’s crystal ball, a likely further twist. Readers may be aware that certain traders, taxi drivers and scrap metal dealers, who require an operator licence from their local council, cannot renew their initial licence unless the council is able to process a ‘tax check’ that HMRC has been updated as to the trader’s particulars (FA 2021, s 125, Sch 33).
What some readers may not know, however, is that HMRC has been angling to apply such licensing conditionality to the rental of premises since its first consultation on such schemes back in August 2016. What are the chances that updating this new register will require similar background checks with HMRC?
We know that information is power and that it can be valuable when processed and interpreted correctly. I suspect that HMRC is moving on from taking UK taxpayers for granted as a source of revenue and is focusing on how to exploit them as a source of financial information. Acting as the gatekeeper to such as-yet untapped resources can make HMRC more important to the rest of the government. We might surmise that HMRC wants to scare the average taxpayer into good behaviour, while not scaring them so much that they push back against the scale of information operations that HMRC now conducts on a regular basis.
In terms of the more mundane, day-to-day information requests made in the course of HMRC enquiries, I can say from long experience that HMRC has no qualms asking for information to which they are not legally entitled. In fact, I cannot remember the last Schedule 36 Notice that has come across my desk that I have not challenged, at least in part. These have included demands in relation to third parties – as to exactly whom and for what reason, HMRC appears not to have been overly concerned beyond to think that if they want to, they can. It falls to the well-advised taxpayer to resist such demands, as and where appropriate; and I should recommend advice be sought before challenging a request for information, even on an informal basis.
I should argue that such resistance is not mere pedantry; I am sure I am far from alone amongst professional advisers in finding it not uncommon for HMRC to demand a great many disparate papers that would cost many hundreds or even thousands of pounds in legal and professional fees to locate, copy and forward, with scant regard to the real tax risk in point.