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Automatic Exchange of Information (AEOI): client notification regulations

Introduction

On 8 September 2016, regulations were published that implement the client notification obligations set out in s222 of the Finance Act 2013 taking effect from 30 September 2016. These regulations impose an obligation on financial institutions and other advisers that provide offshore advice or services to give their clients prescribed information about the automatic exchange of financial information, disclosure opportunities and penalties for non-compliance in the prescribed form set out by HMRC. Financial institutions and other advisers should make themselves aware of this as failure to comply with the obligations provides for penalties of up to £3,000. 

Background

The aim of the regulation is to ensure that individuals are disclosing all their taxable income and gains on their UK tax returns. It was therefore announced in the March 2015 Budget that HMRC would be able to require that financial institutions and advisers must tell certain clients about the Common Reporting Standard (CRS). The CRS is a global standard for the automatic exchange of information which was commissioned by the Organisation for Economic Cooperation and Development. The new regulations have been inserted into the International Tax Compliance Regulations 2015 and will come into force on 30 September 2016.

Who is required to notify?

The regulations specify when financial institutions and advisers are required to give their clients the prescribed information. A flow chart at annex-1 sets out the circumstances when financial institutions and advisers are under the obligation.

Please note that the regulation also puts an obligation on financial institutions and advisers who control overseas persons who would have been caught by the regulations if they were in the UK to take all reasonable steps to ensure that they also identify and notify their relevant clients. For the overseas person, the relevant clients are individuals who they reasonably believed to be resident in the UK for the year ending 30 September 2016 and the overseas person will have provided them with an account in a participating jurisdiction (listed in annex-2) or in the USA or given offshore advice or services to at some point in that period.

What does the notification say?

The notification tells clients about the CRS and also informs them that:

  • Tax information must be shared with HMRC in relation to their assets that are offshore;
  • There are opportunities for clients to voluntarily disclose information to HMRC about their offshore assets if they need to; and
  • There are likely to be penalties and sanctions for those who do not come forward.

The prescribed form of notification is set out in Schedule 3 of the regulations and is set out in annex-3. It must also be accompanied by a covering message which must state that clients name and a standard statement which differs depending on whether it is being given by a financial institution or an adviser. These are set out at annex-4.

When must this be done by?

Notification must be given to the relevant clients by 31 August 2017. Failure to do so may result in a fine of up to £3,000, but they must be assessed within a year of the date HMRC becomes aware of the failure, but in any event not later than 6 years from the date the person became liable and the penalty can be appealed.

This note has been written by Grace Shek. If you have any questions about the contents of this briefing please contact Richard Monkcom.

This news was posted on 26 September 2016.