The regulations create an obligation on financial institutions (banks, building societies, insurers, fund managers, wealth managers and professionals that offer tax or financial advice or services) to notify their clients about the tax information that HMRC will receive about their offshore affairs under international agreements.
Financial institutions are defined in the same way as in the Common Reporting Standard (CRS) and capture trusts that are financial institutions, however all charities are specifically excluded and will not have to notify their grant recipients.
Clients must be notified that:
- Tax information must be shared with HMRC regarding their overseas assets under the Common Reporting Standard (CRS),
- There are opportunities for clients to voluntarily disclose information about their overseas tax affairs if they need to; and
- There are likely to be sanctions for those who do not come forward.
The notifications are targeted at practitioners who provide advice about offshore assets or income which is not disclosed in their clients’ tax returns. The affected clients are UK tax residents for whom the practitioner has provided offshore advice or services for a period of up to one year, or up to three years ending on 6 April 2016 (depending on the nature of the advice given).
While the wording of HMRC’s notifications has not been finalised yet, the notifications must be sent to clients by 31 August 2017 with a covering letter from the practitioner using set wording provided by HMRC.
HMRC has no objection to notifications being sent out to every client in the firm’s database if identifying individuals is too time-consuming or onerous. Failure to do so by 31 August 2017 may result in a £3,000 fine.
STEP will provide an update once further guidance from HMRC is available.