Save content
Have you found this content useful? Use the button above to save it to your profile.
HMRC letter to clients
istock_Choreograph

Start date for HMRC letters to clients

by
11th Oct 2016
Save content
Have you found this content useful? Use the button above to save it to your profile.

Tax advisers must now send HMRC letters to certain clients to whom they have given advice concerning offshore income or assets.

This obligation was imposed by F(no.2)A 2015, s 50: International agreements to improve compliance: client notification, with the detail prescribed by regulations (SI  2016/ 899), which came into effect on 30 September 2016.

I have been warning about this imposition for months – see my articles in February and April 2016.

Who to write to

To identify which clients to write to, you need to refer to the detailed guidance contained in the new HMRC manual: International Exchange of Information manual at section IEIM600000+. This includes some useful flow charts that help you determine whether need to write to any or all of your clients.

Only tax advisers who are “specified relevant persons” are required to write to their clients. These are advisers who have given advice or services about offshore income, offshore financial accounts, or offshore assets in respect of capital gains, in the year to 30 September 2016.

This advice must relate to more than just the preparation and delivery of the client’s tax return. If the only advice you have given about offshore assets or income involved completing the client’s tax return, which also declared the offshore gains or income, you don’t have to write to that client. 

If it is too cumbersome to identify which individual clients you have provided such offshore advice to, you can take a general approach and write to all clients in a defined group. HMRC would prefer tax advisers to take the specific approach and target each client.

When?

Tax advisers must identify those UK resident individuals who were clients on 30 September 2016, and determine to which of those clients they must send a prescribed HMRC letter before 31 August 2017. The firm’s covering letter enclosing the HMRC document must be addressed to the client by name, and be issued in the firm’s branding. It must also include a paragraph set out in the part 2 of schedule 3 of the regulations (SI 2016/899). This letter can be sent in paper form or by email, if that is the means normally used to communicate with the client.

Why now?

This is part of the international campaign against tax evasion. From 2018 many tax authorities around the world will be automatically sharing large amounts of data about financial accounts and investments. Where the taxpayer can be identified, this information will allow tax authorities to check whether taxable income and gains have been correctly reported.

The UK government wants tax advisers and financial institutions to inform their clients about this new flow of information, to nudge those individuals into declaring overseas income and offshore assets, which may have been left off UK tax returns.

Non-dom clients

Clients who are not UK domiciled may have legitimately excluded foreign income and gains from their UK tax returns. But the non-dom rules are changing from 6 April 2017, such that anyone who has been resident in the UK for more than 15 out of the last 20 years will be deemed UK domiciled for all tax purposes (see technical briefing released in July 2015). Those affected by this rule change will have to declare all their worldwide income and gains on their 2017/18 tax return. 

Replies (20)

Please login or register to join the discussion.

By ireallyshouldknowthisbut
11th Oct 2016 12:43

Found the penalty, £3k penalty for non-compliance. In theory. Mechanism for levying this is going to be interesting given they don't have one.

So answer would seem to be we can now slap out a group email and attach the HMRC gubbins, topped and tailed with a cover email containing the relevant para, which we can highlight as being from HMRC.

I am pretty sure its HMRC job to do this and not ours so I will treat this with as much contempt as humanly possible.

Thanks (4)
By ireallyshouldknowthisbut
11th Oct 2016 15:53

And here is it:

Email Title: HMRC Circular we are obliged to send to you

Dear Client,

I am emailing you today as we have been forced by HMRC on the threat of a £3,000 fine levied on this firm to do so.

I am obliged by law to state the following to you, which for the avoidance of doubt, both paras in italics are HMRC's words and not my own:

"From 2016, HM Revenue & Customs (HMRC) is getting an unprecedented amount of information about people’s overseas accounts, structures, trusts, and investments from more than 100 jurisdictions worldwide, thanks to agreements to increase global tax transparency. This gives HMRC unprecedented levels of information to check that, as in most cases, the right tax has been paid.

If you have already declared all of your past and present income or gains to HMRC, including from overseas, you do not need to worry. But if you are in any doubt, HMRC recommends that you read the factsheet attached to help you decide now what to do next."

Anyway, there ends the section I am obliged to send to you.

Rather than clog up our respective mailservers, I enclose a link to the document you are very unlikely to read here:

Hopefully that's enough to avoid a £3k fine.

Regards

Your Accountant

Thanks (5)
Replying to ireallyshouldknowthisbut:
avatar
By richardterhorst
12th Oct 2016 12:31

Thanks. Have used it and send it to all my clients by email irrespective if I have advised them on foreign income or not.

Do agree with others this is the thin edge of the wedge.

Thanks (0)
Chris M
By mr. mischief
11th Oct 2016 18:49

Good advice thanks. But overall I can't be arsed. I'll risk the £3k hit.

Thanks (2)
avatar
By gordo
11th Oct 2016 22:51

Is this the thin edge of the wedge? If HMRC decide that they can force us to send letters with their prescribed wording then how long before their hired Behavioural Psychologists, Behavioural Insights Ltd, get involved in sending us prescribed letters to 'nudge' citizens that the government deem need help "making better choices for themselves"?

Thanks (1)
Replying to gordo:
Head of woman
By Rebecca Cave
12th Oct 2016 08:44

I do think it is the thin end of the wedge, that's why I have been writing about this issue for so long. I have also been trying to persaude the professional bodies to push back harder on letter requirement as it definately crosses a line. But who listens to me?

Thanks (7)
Replying to Rebecca Cave:
avatar
By Iain1961
12th Oct 2016 11:13

Crosses which line? The one that eats in to your profits?

I find nudge theory fascinating .....

Thanks (0)
avatar
By brianheg
12th Oct 2016 10:44

Fine of £3k x probability of being fined = expected fine.

A bag of the fag packet calculation reveals that larger firms need not concern themselves with this on a cost / benefit basis as the fine is likely cheaper than contacting the clients. The burden falls on the smaller firm, which is less likely to be advising this type of client in the first place.

Thanks (0)
avatar
By North East Accountant
12th Oct 2016 10:57

As professional accountants we advise our clients that they must follow the tax law at all times.

Even though this is another waste of time how can we ignore it and not be a hypocrite or is it do as I say but not as I do.

Thanks (0)
avatar
By Ian McTernan CTA
12th Oct 2016 11:10

Another burden passed on by HMRC to us, with the threat of massive fines if we don't comply.

Thin end of wedge which ends in HMRC telling us how to do everything and telling us who can act for clients and who can't under their own register.

Thanks (2)
avatar
By Johhny
12th Oct 2016 11:13

I think HMRC misses a key point entirely when asking us to write only to a relatively small number of specific clients, eg only [some of] those we have given offshore advice to. What about those clients we, as advisers, simply don’t know have offshore interests because (for whatever reason) they have never told us? We cannot dismiss this; almost all of the huge number of LDF clients I dealt with had tax advisors/accountants, some very long term, who knew nothing about their clients’ offshore interests.

There is also a PI potential – this relates to clients who are later challenged by HMRC after CRS data is received and are then hit with massive penalties, which start at a minimum of 100% of the tax. Despite the fact that the undeclared tax is the client’s own doing, we are at risk of a “you should have told me” argument even though we didn’t have to tell that client. There are obviously numerous examples of us telling clients about tax matters that we don’t strictly have to but where there may be potential benefit to the client.

Overall I think it is crucial that advisers write to all personal tax clients, not just a chosen few that we strictly have to contact after removing the permitted exemptions.

Thanks (0)
avatar
By Johhny
12th Oct 2016 11:23

I also note the comments about e-mailing clients. This is not necessarily the answer as the new rules state we must send paper copies unless we wholly or mainly communicated with a client by e-mail during the year to 30 September 2016 when providing tax advice or services. I expect the "wholly or mainly" requirement will not be met in a lot of cases given that tax advice is often followed up in writing or contained in a letter in the first place.

The cost of a lot of stamps and envelopes may be high, but probably dwarfed by the time taken to try and review our portfolios and decide which ones we don't have to write to as well as the time spent determining if we wholly or mainly communicated tax advice/services by e-mail.

Thanks (0)
avatar
By norstar
12th Oct 2016 11:44

I shall be adopting the approach recommended by one of the great Generals of the first World War:

"If nothing else works, a total pig headed unwillingness to look facts in the face will see us through…"

General Melchiot.- (Blackadder)

Thanks (0)
avatar
By richardterhorst
12th Oct 2016 12:01

Will HMRC pay my fee? Or is slave labour now legislated for if it involves tax?

Thanks (1)
By ireallyshouldknowthisbut
12th Oct 2016 12:31

If you are an "old school" firm and do it all in paper letters, then you could write something similar, and slip it in with the normal post to the client. You have a long time to send this - whole 12 months - it doesn't have to be a separate mailing.

Or take the punt for the fine, I cant see HOW the fine will be imposed given HMRC wont know what you have or have not sent your clients, and if push ever came to shove then I guess you would be able to find the letter you sent which vanished in the post. "Fancy that" as Private Eye might say. Its a fair response to a stupid law.

Thanks (0)
By cheekychappy
12th Oct 2016 13:04

Just have a note on file when you wrote to your clients. You can't be held responsible for the failings of Royal Mail.

Thanks (1)
Morph
By kevinringer
12th Oct 2016 13:23

Larger firms will ignore it because if using post the cost will be maybe £1 a client so cheaper to pay the fine. Also the cost in lost goodwill will be more than £3000.

Thanks (0)
avatar
By Casterbridge Hardy LLP
12th Oct 2016 14:45

For the first time in 52 years I feel the urge to quit this circus and either retire or work out of my office in Gibraltar for my last years of professional activity!

Thanks (1)
Replying to Casterbridge Hardy LLP:
avatar
By North East Accountant
13th Oct 2016 08:41

Casterbridge Hardy LLP wrote:

For the first time in 52 years I feel the urge to quit this circus and either retire or work out of my office in Gibraltar for my last years of professional activity!

Congratulations on getting to 52 years without wanting to quit. I've only done half that, and if money were no object, would quit tomorrow.

Thanks (0)
avatar
By AndrewV12
16th Nov 2016 13:03

HMRc are closing the net in, 40 years to late but there you go.

Thanks (0)