Key points
- Advisors need to write to clients before 31 August 2017
- HMRC’s ojective is to encourage taxpayers with undeclared offshore income/gains to come forward
- Advisors have a choice as to how they go about identifying clients to contact – a choice between a “general approach” or a “specific approach”
- The impact of CRS reporting means it is essential for clients to protect themselves by ensuring they are fully tax compliant
- A failure to comply will result in penalties for advisors
On 30 September 2016, the International Tax Compliance (Client Notification) Regulations 2016 came into force. These new rules require tax advisors (and financial institutions) to write to their clients on or before 31 August 2017, in a prescribed format, telling them that HMRC will be receiving information from overseas jurisdictions for the purposes of ‘improving tax compliance’. Clients must also be reminded about their tax obligations – this would include, for example, disclosing overseas taxable income and gains where that is appropriate. HMRC’s policy objective is to encourage taxpayers with undeclared offshore income/gains to come forward, by implying that HMRC will likely discover under-declarations within information shared internationally e.g. via the Common Reporting Standard. An advisor (or financial institution) which fails to comply with these new regulations will be vulnerable to a penalty of £3,000.
HMRC has published guidance material to support the new regulations. The guidance can be found within the ‘International Exchange of Information Manual’ at IEM603000 onwards.
Summary of obligations for advisors
Advisors have a choice as to how they go about identifying those clients to whom they must write – described in the Regulations as a choice between a “general approach” or a “specific approach”.
The “general approach” requires identification of all individual clients who were provided with any advice or services relating to their personal tax affairs by the advisor at any time in the year ended 30 September 2016, whether or not the advice or service related to offshore matters. The “specific approach” requires identification of all clients who, in that period, were provided with advice or services relating to offshore tax matters, or were referred by the advisor to a connected person outside the UK for the provision of such advice or services. Both approaches can, however, exclude individual clients whom the advisor reasonably believes were not (or will not be) resident in the UK for the tax years 2015-16 and 2016-17 or for whom, on 30th September 2016, the advisor has no reasonable expectation of advising further or providing more services. The “specific approach” can exclude individuals for whom the adviser has prepared and delivered (or expects to do so) a personal tax return disclosing the effect of the advice or services provided. An individual identified using the general approach may be similarly excluded if the advisor so chooses.
If the advisor has a controlling interest in a similar advisory business overseas, the advisor is required to take all reasonable steps to ensure that those clients who the overseas business reasonably believes were UK resident and received advice or services in the year ended 30 September 2016 are also written to in the prescribed terms.
Summary of obligations for financial institutions
The customers to be identified and contacted by financial institutions (including tax advisors) are those reasonably believed by the financial institution to be resident in the UK for income tax purposes for the tax years 2015-16 or 2016-17 and holding an account with the institution on 30th September 2016 where either that account is a high value account (exceeding $1m or equivalent) or where, in the year ended 30 September 2016, the individual held offshore account(s) with the institution (or were referred by it to another financial institution for such an account to be provided).
Those who take the “general approach” may receive questions from some clients in relation to offshore structures for the first time. Following the “specific approach” may still result in questions about structures on which advice was given in the year to 30 September 2016, because clients will want reassurance that all relevant issues have been identified and dealt with.
The impact of CRS reporting means it is essential for clients to protect themselves by ensuring they are fully tax compliant. Please contact us if you would like to discuss any aspects of reviewing offshore assets and structures.
If you would like to discuss this in more detail then please do not hesitate to contact a member of our team.