Regulations have been issued requiring financial institutions and service providers, such as tax advisers, to issue notifications to those who are ‘specified clients’ on 30 September 2016. The notifications concern the possible tax implications of overseas financial affairs. In contrast to earlier drafts, there is a wider range of situations excluded from notification and the notifications must be sent by 31 August 2017. Changes include excluding clients for whom a return is completed.
These are onerous notification requirements, which financial institutions and those providing offshore services or advice concerning personal clients, will need to address. It is likely that the specified clients will receive similar communications from all their offshore service and advice suppliers, so they will need to be prepared for the volume of incoming mail on this matter.
The notification communication must contain an HMRC-designed fact sheet and a covering message, which includes the name of the specified client and a standard form of wording from HMRC as provided.
The notification requirement will apply to two types of UK businesses:
Specified financial institutions - these are all reporting financial institutions for EU DAC or CRS (concerning international exchange of financial information requirements) purposes except financial institutions that would be active ‘charitable’ or ‘non-profit’ NFEs if they were NFEs.
Specified relevant persons, such as tax advisers -these are businesses providing offshore advice or services relating to overseas jurisdictions within CRS or the US. It will cover services or advice relating to a financial account, a source of foreign income, a source of employment income arising abroad, or an asset held or located abroad. If the business refers clients to connected offshore person for such services or personal tax advice (instead of providing it directly themselves), they are also within scope.
Financial institutions (FI) can identify the clients, who are ‘specified clients’ on 30 September 2016, to notify in one of two ways:
- clients for whom they maintain a financial account (or have referred a client to a specified FI for such services) in a CRS jurisdiction or the US in relation to which the individual is an account holder, unless the financial account can no longer be offered as a new account under regulatory rules in force on 30 September 2016; or
- clients for whom it maintains a ‘high value’ account (for EU DAC and CRS purposes) on 30 September 2016.
In each case, notification is required only if the FI reasonably believes the client is UK resident in the 2015/16 tax year or will be so for 2016/17.
Specified relevant persons can identify the clients, who were individual clients as at 30 September 2016, to notify in one of two ways:
- the specific approach – where the relevant person has, within the year ended 30 September 2016, provided the client with offshore advice or services relating to their personal tax affairs or referred them to a connected person outside the UK for such advice or services; or
- the general approach – where the relevant person has provided within the year ended 30 September 2016 the individual client with advice relating to their personal tax affairs. This encompasses all personal tax clients, whether or not an offshore service or advice was provided.
In both cases there is no need to notify if there is a reasonable belief the client was not UK resident in 2015/16 and will not be in 2016/17, or the relevant person has no reasonable expectation of providing further services or advice to the individual client.
Crucially, and in relation to the specific approach, there is no need to notify if the relevant person has prepared and delivered, or reasonably expects to prepare and deliver, a self-assessment tax return on behalf of the individual disclosing the effect of the personal tax offshore advice or services.
Unfortunately, if one entity in a group is excluded from notification, because it dealt with the client’s tax return, that does not mean other connected entities can rely on that exclusion and may need to notify the client.
There are two further exclusions for notification, despite other conditions for notification being met.
These are:
- where the notifying person is aware a UK connected person has already made the notification to the client; or
- despite maintaining proper records, there is insufficient information at 30 September 2016 to contact the specified client.
The notifications must be sent in paper copy, though email can be used where the notifying person wholly or mainly communicates with the client by email and expects the client to be aware of the content of the notification email to be sent to them. The required HMRC paragraphs and fact sheets may be translated into a foreign language. The penalty for default has been raised to £3,000.
Guidance is due to be published before 30 September.
http://www.legislation.gov.uk/uksi/2016/899/pdfs/uksi_20160899_en.pdf