Financial Institutions now required to deliver HMRC message on new disclosure facility.

17 November 2016

The Client Notification Regulations, came into force on 30 September 2016.

As part of HMRC’s efforts to tackle offshore evasion, and coinciding with the new flow of information that the Common Reporting Standard will generate, a new worldwide disclosure facility has been created that will allow UK tax residents to bring their UK tax affairs up to date. Awareness around this opportunity, which HMRC stresses will be the last chance to do so before the approach is toughened, is to be raised by using financial institutions and certain professional businesses to deliver HMRC’s message.  

The rules also apply to professional businesses that offer advice or services in respect of: financial accounts or assets outside the UK, or sources of taxable income outside the UK.

HMRC views financial institutions and professional businesses as best placed to reach their target audience, as these organisations often know whether their clients have overseas assets and income.

Once an organisation has determined which entities are within the scope of these rules, they then need to consider how to identify whether their client accounts are in scope. The rules only affect accounts held by UK tax residents that were in existence on 30th September 2016 or those clients who received advice or services in the 12 months ending 30th September 2016.

The rules offer two ways to identify the potential accounts in scope: identifying specific clients, or where that is not possible looking more holistically at groups of clients.

The requirement to notify clients can also apply to overseas corporates. If an overseas corporate is controlled by a UK specified financial institution or specified relevant person, then the UK entity must take all steps reasonably open to them to ensure that the overseas corporate complies with the rules.

When the impacted entities have been identified and the necessary due diligence carried out, the rules require a notification be sent to the client by 31 August 2017.

The notification must consist of a document under HMRC branding, and also a covering letter from the business sending the notification, with certain set wording including the name of the account holder or client.

HMRC can levy penalties for failure to meet the obligations under the regulations of up to £3000 depending on the nature of the offence. 

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