Policy paper

Tackling offshore evasion: requiring financial intermediaries and tax advisers to notify their customers

Published 8 July 2015

Who is likely to be affected

Financial institutions, tax advisers and other professionals that may be aware of, or may have given advice in respect of, an offshore account.

General description of the measure

The government will take a power in legislation under which financial intermediaries, tax advisers and other professionals will be required to notify their customers or clients that:

• the UK will begin to receive information on offshore accounts in 2017 and at the same time will begin to share information with other tax authorities on accounts held in the UK - this will allow HM Revenue and Customs (HMRC) and other tax authorities to check that the right amount of tax is being paid on money held abroad.
• HMRC will open a time-limited disclosure facility in early 2016 to allow non-compliant taxpayers to correct their tax affairs under certain terms before HMRC start to receive data under the Common Reporting Standard (CRS) - this new facility will be on tougher terms than the previous offshore disclosure facilities HMRC have operated.
• if non-compliant taxpayers continue to conceal their tax affairs, HMRC will enforce tough penalties for offshore evasion through the existing offshore penalty regime, new civil penalties for tax evaders and the new simple criminal offence for failing to declare taxable offshore income and gains

HMRC will informally consult financial institutions and tax advisers to develop targeted and cost-effective communications including the points above, and to ensure the right people are involved in delivering the messages.

Policy Objective

The UK has been an international leader in implementing automatic exchange of information agreements, including through its G8 Presidency. The agreements are a key part of the government’s wider offshore evasion strategy. They will increase the effectiveness of HMRC’s compliance activity as well as increasing the deterrent effect for those who attempt to evade UK tax by holding financial assets outside of the UK.

We know from experience that direct communication to a customer about their accounts from HMRC, their account provider or their adviser is more likely to encourage a disclosure than general communications and advertising. This measure will ensure that customers receive targeted and effective messages that help to make sure that they are aware of the new information arrangements and that they disclose any offshore tax liabilities.

Background to the measure

In September 2012 the UK became the first jurisdiction to sign an enhanced automatic tax information exchange agreement with the US to implement the reporting required under US Foreign Account Tax Compliance Act (FATCA) legislation. In 2013 the UK signed automatic tax information agreements with its Crown Dependencies (Isle of Man, Jersey and Guernsey) and Overseas Territories (Anguilla, Bermuda, the British Virgin Islands, the Cayman Islands, Gibraltar, Montserrat and the Turks and Caicos Islands).

The US agreement and the agreements with the Crown Dependencies and Gibraltar are reciprocal. They impose obligations on UK financial institutions to report financial account information to HMRC for onward transmission to those territories. HMRC will in turn receive information about UK tax residents with accounts in those territories. The agreements with the remaining Overseas Territories are non-reciprocal since those Territories do not have income taxes. So while the UK will receive information no information will be provided.

In April 2013 the UK announced an initiative for multilateral exchange based on FATCA with France, Germany, Italy and Spain (the G5). The UK also worked closely with the Organisation for Economic Cooperation and Development (OECD) on the development of a new global standard on automatic exchange of financial account information (the CRS). The CRS is designed to provide maximum consistency with US FATCA in order to minimise the additional costs and burdens to business from the increased reporting requirements. To date, following on from the G5 initiative, over 90 countries have committed to exchange information under the CRS with first reporting in 2017 or 2018.

HMRC published a discussion document setting out its plans for implementing the CRS together with draft regulations in July 2014. A summary of the responses was published in March 2015.

The European Union (EU) Revised Directive on Administrative Cooperation (Council Directive 2014/107/EU) (DAC) implements the CRS within the EU. The UK and other Member States are required to implement the DAC via domestic legislation by 31 December 2015.

Detailed proposal

Operative date

The power will have effect on and after the date of Royal Assent to the Summer Finance Bill 2015. Regulations will be made after Royal Assent and after the informal consultation has concluded. The Regulations are expected to have effect from early 2016.

Current law

Current law is contained in section 222 to the Finance Act 2013. The International Tax Compliance Regulations 2015 (S.I. 2015/878) implement the CRS and DAC. They also incorporate the provisions of the (revoked) International Tax Compliance Regulations (S.I. 2014/1506), which implemented FATCA.

Proposed revisions

Legislation will be introduced in Summer Finance Bill 2015 to amend Section 222 of the Finance Act 2013.

Section 222 will be amended to allow HM Treasury to make regulations to impose customer notification obligations on financial institutions, tax advisers and other professionals. This may include obligations to notify customers or clients of certain information relating to information HMRC will receive under international agreements to improve tax compliance, the law relating to offshore tax evasion and associated criminal and civil penalties, and opportunities that HMRC will make available to individuals to disclose their tax affairs.

Regulations will be made after the date of Royal Assent to Summer Finance Bill 2015.

Summary of impacts

Exchequer impact (£m)	2015 to 2016	2016 to 2017	2017 to 2018	2018 to 2019	2019 to 2020
	-5	+90	+270	+75	+130
	These figures are set out in Table 2.1 of Budget 2015 as 'Evasion: Common Reporting Standard', and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Budget 2015.
Economic impact	This measure is not expected to have any significant economic impacts.
Impact on individuals, households and families	There are no expected impacts on tax compliant individuals and organisations. The sanctions and offences will only apply to individual offshore evaders.
Equalities impacts	The measures to tackle offshore evaders are likely to affect those of above average wealth and who may be non-UK nationals or have significant family links outside the UK.
Impact on business including civil society organisations	This measure is expected to result in a one-off cost for financial institutions and tax advisers. The government is not able to quantify the burden at this stage, but intend to consult with the affected businesses to develop a targeted and cost effective communications strategy. This measure will have no impact on civil society organisations.
Operational impact (£m) (HMRC or other)	This measure is not expected to have any significant operational impacts.
Other impacts	Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be monitored through the disclosure facility HMRC will provide, tax returns and compliance work undertaken by HMRC.

Further advice

If you have any questions about this change, please contact Hardeep Soor on Telephone: 03000 589516, email: hardeep.soor@hmrc.gsi.gov.uk.