Do you give advice or services about tax or finance relating to offshore income or assets?

The new International Tax Compliance (Client Notification) Regulations 2016 came into effect on 30 September 2016

Under the UK’s Automatic Exchange of Information (AEOI) agreements, HMRC will soon begin to automatically receive data from over 100 jurisdictions about UK tax residents who have assets in offshore accounts.

Before HMRC receives this information, people in industry who advise about overseas income and investments, and those that provide accounts overseas, are in a better position to know which clients are more likely to have offshore accounts or assets and should be given advance warning.

If you give advice or services about tax or finance relating to offshore income or assets, you may need to send a Client Notification letter to your clients. The letter is under HMRC branding, and aims to raise awareness among those individuals most likely to be affected when HMRC receives the offshore data. It will also make them aware that there is still an opportunity to come forward and use the Worldwide Disclosure Facility.

The Obligation to Notify under the Regulations

Under the Regulations, an obligation to notify applies to Specified Relevant Persons (SRPs) and Specified Financial Institutions (SFIs).

You are a SRP if you provide offshore advice or services, or refer individuals to a connected person overseas for offshore advice or services, in relation to an individual’s personal tax affairs. Simply filling in a tax return for someone is not enough to fall within the obligation. There’s also no obligation to notify legal persons or arrangements, such as companies and trusts.
There are two approaches available to SRPs to identify which clients they need to send the notification to:

  • A specific approach, which would target those individuals to whom you have provided advice or services about offshore income or assets, or referred offshore for advice or services, or;
  • A general approach, which would be to notify all clients or all clients for whom you have not reported the advice given (i.e. not submitted a return) to HMRC.

A SFI is broadly a Financial Institution under the definitions for the Common Reporting Standard, except one that is a non-reporting Financial Institution. You will have to send the notification if you maintain an offshore account for an individual or have referred clients to a Financial Institution, wherever located, for the purpose of opening an offshore account. The requirement also applies to overseas branches of UK SFIs.

There are two approaches available to SFIs to identify which clients they need to send the notification to:

  • The services approach, which targets specific account holders who are tax resident in the UK, and for whom the SFI either maintains a financial account overseas, or refers to another financial institution for them to provide a financial account overseas; or
  • The high-value approach, which targets all account holders with an account balance of more than US$1 million in the UK.

If you are both a SFI and a SRP, you must comply with the rules as a SFI. Even if you’re not covered by the rules, your clients may be if they are SFIs.

If you do not fulfil the Obligation

The obligation to notify must be met by 31 August 2017. There is a flat-rate penalty of £3,000 per SRP or SFI for not complying with the notification requirements.

Further information

You can find the Client Notification Letter and a guide to sending it on GOV.UK: https://www.gov.uk/government/publications/client-notification-income-or-assets-abroad
Full guidance on the regulations can be found in the International Exchange of Information Manual: https://www.gov.uk/hmrc-internal-manuals/international-exchange-of-information/ieim600000

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