Hidden within the Finance Act (No.2) 2015, is a requirement placed on financial institutions and other tax advisers to notify their clients about information that HMRC will receive under international agreements to improve tax disclosure. These new rules could affect your practice if you have provided any of your clients with tax advice which relates to their overseas assets, income or bank accounts.
The International Tax Compliance (Client Notification) Regulations 2016 came into force on 30 September 2016.
The sting for tax advisers is a penalty provision in the Regulations. Paragraph 4 of the Notification Regulations make a financial institution or other adviser liable to a penalty of £3,000 if they fail to comply with the notification requirements. Recently published guidance from HMRC states:
A Specified Financial Institution or Specified Relevant Person who fails to notify their specified clients will be charged a penalty of £3,000. The notification must be sent by 31 August 2017, so if this deadline is not met the penalty will be due. This is a flat rate penalty, and not charged per client not notified.
Gosh. The key part of the Notification requirement is that it includes sending to clients an HMRC branded PDF under the heading 'If you have money or other assets abroad, you could owe tax in the UK'. This is the first time I can recall that tax advisers are being told to supply an HMRC fact sheet to their clients under the threat of a penalty if they don't.
Does it affect your firm?
If your firm are tax advisers, the answer is probably yes. In brief, this conclusion is reached as:
- your firm will have some personal tax clients who own assets outside of the UK or have received income from an overseas source;
- one or more of those clients may have asked for advice from a partner, director or employee in the firm about one of those assets or that income;
- that advice was given at some point in the 12 month period to 30 September 2016.
The provision of offshore advice to just one client means the firm is a 'specified relevant person' and is therefore affected by the Notification Regulations.
If however the only service your firm provides for any client with overseas income or assets is to complete and submit a tax return by copying details from offshore bank accounts and P60s, then your firm is not a 'specified relevant person'. But how sure can you be that this has been the limit of your tax services in the year to 30 September 2016?
If the firm is a 'specified relevant person' what then?
If your firm is a 'specified relevant person', your firm needs to determine which of the clients are 'specified clients'. This can involve a lot of work. How much work depends on whether your firm adopts a 'specific approach' or a 'general approach'. Simply put, a specific approach entails identifying clients to whom your firm has provided offshore advice or services in the year to 30 September 2016 (unless the firm has submitted or will submit a personal tax return for the client which reflects the offshore advice or services). Those clients will need a notification letter under the Regulations. For safety's sake, your firm should retain records of the due diligence work it has performed in reaching this conclusion.
Under the general approach your firm must identify and notify all of their clients to whom they have provided any advice or services about their personal tax affairs in the year to 30 September 2016. In crude terms this means sending a notification letter to all your firm's personal tax clients.
When do any notifications have to be sent out by?
The notification must be sent by 31 August 2017, so, at first sight, there seems to be plenty of time. However the criteria for deciding who are specified clients is based on client information for the one year up to 30 September 2016. So the earlier the task is performed, the easier it should be to satisfy the requirements of the legislation.
Client letter and guidance prepared for you
To make this compliance task easier for you to manage, we have prepared a client letter which you can send to clients. Included with the letter is our guidance on the decisions you will need to make and the due diligence work required. We also include the relevant source material. For more details, visit our website.