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Common reporting standards – time to get involved

This article details the requirements of the Client Notification Regulations and considers what advisers must do in order to comply with them.

The Common Reporting Standards (CRS) is far reaching. The CRS is a global standard for the automatic exchange of information where over 100 countries have committed to follow the standards. The number of countries signing up to the CRS is growing and will continue to rise over the next couple of years.

Whilst financial institutions in CRS countries are very much aware of the impact of the automatic exchange of information rules and processes and the impact the rules have day-to-day, individuals and firms such as advisers and other non-financial institutions are possibly less informed of the impact.  CRS regulations have not had a direct effect on them, until now where many adviser will be required to assess their client base and determine if the latest set of Regulations do apply.

UK HM Revenue and Customs (HMRC) have recently issued the International Tax Compliance (Client Notification) Regulations (‘the Regulations’). These impose an obligation on financial institutions and advisers to provide relevant clients with prescribed information which will act as a reminder to them about their tax obligations, the automatic exchange of information regime, disclosure opportunities and penalties for non-compliance.

The Regulations apply to:

  1. all UK financial institutions for example banks, building societies, life assurance companies, fund managers and wealth managers; and
  2. to specific relevant persons which include but are not limited to UK tax agents, advisers, solicitors or financial advisers.

How to identify the clients who must be contacted?

1. UK Financial Institutions

Financial institutions must identify any individual who the financial institution reasonably believes to be a UK resident for income tax purposes for the tax years 2015/2016 or 2016/2017.

The individual must have owned a financial account, such as a bank account, unit linked life assurance policy or unit trust with that financial institution on 30th September 2016 or an account which is deemed to be a high value account (exceeding $1m).

It is up to the financial institution to decide which approach to take.

2. UK Advisers

For advisers the identification process is slightly different and they can follow one of two approaches. 

Approach 1 – Specific approach

If this approach is followed and the  adviser can answer ‘yes’ to  either of the below statements, the adviser must notify those clients.

  1. Has provided the individual with offshore advice or services from1 October 2015 to 30 September 2016?
  2. Has referred the individual to a different adviser or connected individual outside of the UK for offshore advice or services relating to the persons tax affairs

Approach 2 – General approach

If this approach is followed and the adviser has provided the individual with any advice or services relating to the persons tax affairs from 1 October 2015 to 30 September 2016, those clients must be notified

Neither approach has to be followed if an exclusion applies. The assessment is made when reviewing each client.

Exclusions

  1. The adviser reasonably believes the client was not resident in the UK for income tax purposes for the tax years 2015/2016 or 2016/2017; and
  2. The adviser had no reasonable expectation of providing further advice or services to the client, as at 30th September 2016; or
  3. The adviser has prepared and delivered, or expects to prepare and deliver a self-assessment tax return, on their behalf, disclosing the effect of the offshore advice or services offered to that individual.

If (i) and (ii) or (iii) of the above exclusions apply, advisers don’t have to contact clients.

Writing to customers

When a relevant client has been identified they must be sent a covering letter and a notification letter, both of which must include prescribed wording set by HMRC.

The intention behind this is to ensure that everyone in receipt of the notification is receiving the same message and will be in receipt of identical notifications. The wording is fixed and can’t be changed.

Notification must be sent as a paper copy unless the financial institution or adviser wholly or mainly communicates to that individual by email and the financial institution or adviser believes that the client will become aware of the client exchange of tax information notification if it is given to them by email it will be read by them.

The covering letter must include:

  • The usual company branding; and
  • The clients name and address; and
  • Set text (identified below).  HMRC have stated that the exact text must be used and that changes can’t be made.

Apart from the set text financial institutions or advisers  can decide what else to include in the covering letter.

Set text for financial institutions:

Financial institutions in more than 100 jurisdictions around the world are being legally required to find out the tax residence of their account holders and report details of their accounts, structures, trusts, and investments to be exchanged with the appropriate tax authorities. As a UK tax resident, any overseas accounts you have will be sent to HM Revenue & Customs (HMRC). 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.

Set text for advisers:

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.

A HMRC factsheet must also be sent, a copy of which can be found at www.gov.uk/government/uploads/system/uploads/attachment_data/file/557296/client-notification-letter.pdf

Non-UK Financial institutions and non-UK advisers

The Regulations do not directly apply to non-UK Financial institutions or non-UK advisers unless a UK financial institution or UK adviser has any control over any similar overseas business(es).

If this is the case the UK financial institution or UK adviser must take all reasonable steps to ensure that the same prescribed rules are followed by the overseas business.

If a financial institution or adviser is aware that another financial institution or adviser has already made a client exchange of information to a specific client, this fulfils the notification requirements for all.  This will potentially prevent the customer from receiving duplicate notification from different sources, however determining whether a client has already been sent a notification by another financial institution or adviser could be a challenge.  By relying on a third party to notify relevant clients could result in non-compliance and a £3,000 penalty for financial institution or adviser which has failed to comply with the obligations they impose. 

A less risky approach is for all financial institutions and advisers to follow the Regulations and satisfy themselves that they have complied.

All notifications must be sent by 31 August 2017.

Article creation date December 2016

Last reviewed August 2017


The information provided in this article is not intended to offer advice.

It is based on Old Mutual International's interpretation of the relevant law and is correct at the date shown on the title page. While we believe this interpretation to be correct, we cannot guarantee it. Old Mutual International cannot accept any responsibility for any action taken or refrained from being taken as a result of the information contained in this article.

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