HMRC have a number of formal Information Notices coming in a variety of different flavours.
These may be issued either:
Information notices generally may be issued in the following forms:
Each of these is covered in turn below.
Clearly, HMRC’s ability to enquire into a return would be fettered if HMRC did not have corresponding powers to require taxpayers to provide information to enable them to check a return.
One such information power is the ability to issue a taxpayer with a taxpayer notice under para. 1 of Schedule 36 to FA 2008. The taxpayer must provide any information that is “reasonably required” for checking his or her tax position.
The power is very broadly drawn and there is a limited power of appeal.
Prior to FA 2021, HMRC could only obtain information from third parties by issuing a third-party notice. This notice requires the relevant third party to provide information “reasonably required” to check a person’s tax position.
Importantly, such a notice may only be issued if either:
Such a notice will usually be issued where HMRC are seeking information for their own enquiries into a taxpayer. However, in some cases, it might be issued where an overseas revenue authority is conducting an investigation into a taxpayer.
Legislation introduced by FA 2021 allows HMRC to issue a financial information notice (FIN) to a financial institution, requesting information about a financial institution’s customers for the purposes of domestic or overseas tax investigations. As the notice can be issued without HMRC first having to obtain the approval of the FTT or the taxpayer, this clearly removes a significant safeguard that existed previously.
More detail on FINs can be found here.
FINs may only be issued to a financial institution and not to any other third party.
A financial institution for these purposes takes its definition from the OECD’s common reporting standard (“CRS”) of the same name:
“The term ‘Financial Institution’ means a Custodial Institution, a Depositary Institution, an Investment Entity or a Specified Insurance Company…”
A custodial institution is “any entity that holds, as a substantial portion of its business, Financial Assets for the account of others”.
A “financial asset” is one of a wide category of assets. However, cryptoassets are not specifically included on that list, but the list is not exhaustive and therefore it might be construed to include cryptoassets.
This might mean that, if the earlier analysis that a centralised exchanges which holds its clients’ funds as custodians or on bare trust is likely to be considered a financial institution for these purposes. In addition, it might also be considered an investment entity.
My view that a decentralised exchange would not be a financial institution under either of these limbs.
HMRC also hold so-called “data gathering” powers (under FA 2011, Sch. 23). The powers may be used to require a “relevant data holder” to provide “relevant data”. That data may be general in nature or may relate to a particular person or issue.
It is clear that the power is wide enough to cover, say, a centralised exchange to check the tax position of its customers. Further, we know that HMRC have already used this power in relation to such entities.
In 2022, Coinbase sent the following email to some of its clients:
“We’re writing to let you know about a notice HMRC have issued to Coinbase under Paragraph 1, Schedule 23 to the Finance Act 2011. This notice requires us to provide information on your Coinbase account to HMRC.
The notice requires the disclosure of customers with a UK address who received more than £3,000 worth of cryptoassets from Coinbase from April 6, 2020 to December 31, 2020.”
It is likely that other popular centralised exchanges have already received, or will receive, similar notices from HMRC.
The Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (SI 2017/692) extend to:
One obligation under the regulations is that those covered by them (including crypto businesses operating the above activities) are required to make so-called suspicious activity reports (SARs).
In addition, banks are already obliged to make SARs, and are relatively proficient at doing so (when one compares volume to, say, lawyers and accountants). As such, when funds are converted into fiat currency, this creates a point where a SAR could be made if the bank has suspicions around the source of funds. It is likely that HMRC obtain significant information through this channel.
Under CRS, FATCA and double tax treaties, there is substantial exchange of information between jurisdictions. This is another potential source of information for HMRC
If you have any queries regarding HMRC’s information or data-gathering powers in relation to cryptoassets, or any assets, then please get in touch.
