By email to HMRC

29 February 2016

Dear Sir/Madam,

Client notification requirement consultation

Introduction

The Northern Ireland Tax Committee of Chartered Accountants Ireland is pleased to have the opportunity to comment on the above informal consultation. Information about Chartered Accountants Ireland and the Northern Ireland Tax Committee are provided on the previous page.

We would be happy to discuss any aspect of our comments herein and to take part in any further consultations/initiatives in this area that there may be in the future.

We wish to comment on Section 50 of the Finance (No. 2) Act 2015 and the supporting draft regulations and guidance to that section. Chartered Accountants Ireland agrees that HMRC should have the powers it needs to tackle tax avoidance and evasion effectively. However, we have some major concerns about this measure and the draft regulations and guidance.

As an overall point, it seems to us that the purpose and objective of the measure as it may affect advisers and taxpayers is not clear to stakeholders, including HMRC. Furthermore, the guidance states that “both the HMRC document and letter should be in paper format and sent by post”: this requirement directly conflicts with HMRC’s digital strategy one important element of which includes minimising costs.¹

Who must be contacted

We note that the potential recipients of the letter include current clients, and those individuals who were clients within the tax year 2015/16 and who were UK resident at any time in that period. To comply will necessarily mean reviewing many (if not all) clients’ files which will incur time and costs (e.g. staff time, postage and stationery).

The cost of complying with the legislation and proving compliance, even for small practices, seems to us to be disproportionate suggesting that this aspect has not been properly considered. The guidance itself recognises this “for the majority of Relevant Persons it will be extremely onerous to identify the clients or services in question; hence the Regulations provide an option for Relevant Persons to send a notification to all of their clients.”

The draft guidance also does not make clear if the definition of “specified client” which means “an individual identified as a client…..” includes individual clients who act as trustees or executors. It is also not clear that this excludes companies, as there is currently no such exclusion in the regulations. Both of these points need to be clarified.

Definition of offshore advice or services

The adviser is required to write to those to whom it has given offshore advice or services within the three years to 5 April 2016. However, the definition of “offshore advice or services” in 12C is very wide; it includes completing the client’s UK tax return to report interest received from an offshore account and is likely to include secondary clients and contacts.

For example, if an adviser acts for an individual with branches or permanent establishments overseas to which they provide “advice or services”, this would appear to catch work such as the preparation of management accounts or accounting work where no taxation services have been provided.

What must be sent

The client must be sent an individually addressed covering letter from the adviser’s firm, using the firm’s normal branding and in the form usually used to contact clients. This covering letter must include certain wording that HMRC will set out. It must also enclose a HMRC branded letter which will be available to download from gov.uk.

The exact text of the HMRC letter has not been released yet. These aspects of the measure are vitally important and should be available for discussion and consultation before the regulations are implemented.

When and how

HMRC would prefer the letter, including the HMRC insert, to be sent in paper form by post. Clearly this goes against the current ethos of HMRC to move very much onto a digital platform. And whilst the regulations do allow email to be used if the firm is confident that the email will be read by the client, there is no further guidance provided for assessing how a firm would be able to arrive at this judgment.

As an overall point, we think that it would make more sense to send the communication direct to individuals using their personal tax account. This removes the potential cost and disruption to agents that the measure will no doubt create.

Penalties

The penalty for not complying with the regulations will be set at £300 per institution or firm. It is not clear how HMRC intend to police the implementation of this initiative. For example, an agent may send the letters but could be charged a penalty for not keeping file copies whilst another agent may have file copies and may never have posted the letters.

Miscellaneous issues

Imposing this obligation on advisers raises a number of potential issues. Firstly, the agent has been appointed by the client to act on their behalf. Requiring an adviser to send a letter on the advisers headed paper which has largely been authored by HMRC could be viewed as a breach of the adviser’s professional independence.

Secondly, the relationship between the client and the agent is covered by a letter of engagement which defines the legal relationship between adviser and client. There is no such letter of engagement between the adviser and HMRC; nor are we suggesting that one needs to be issued.

There can be no doubt that this will strain the client-adviser relationship. Advisers may seek to be compensated for their time and costs. Many advisers are already suffering fee pressure from clients and when setting prices review the amount of work that will be needed to look after a client and their circumstances. This will simply fall into the category of work that either cannot be billed or for which the client is not willing to pay.

Impact assessment

We note that the introduction of Section 50 was not subject to any impact assessment. We recommend that one be carried out. As this is likely to take a period of time, the planned introduction of the regulations on 6 April 2016 may need to be delayed to allow this to happen.

Conclusion

The proposed measure arises from Section 50 of the Finance (No. 2) Act 2015 and was introduced to the Bill not as part of the original Bill first published on 15 July 2015 but as part of the revised Bill published on 27 October 2015 (as amended on Report in the House of Commons).

We are not aware of any consultation having occurred on the introduction of this measure. Nor has any background been provided to explain why the Government has introduced a measure which seems to go beyond the requirement to notify individual reportable persons contained in Section 10 of the International Tax Compliance Regulations 2015 and thus, by definition, imposes obligations on those affected which exceed those contained in the Common Reporting Standard.

We find it surprising therefore that the regulations and guidance supporting Section 50 have had such a short informal consultation period; one that was much less than the 12-week period set out in the Government’s 2012 Consultation principles: guidance document.² This advocates that “For a new and contentious policy, 12 weeks or more may still be appropriate”.

Whilst mindful that the original informal consultation deadline was extended, which is to be welcomed, given the potential impact of this measure overall, the lack of consultation on the introduction of the measure itself is disappointing. The current informal consultation on the regulations and guidance supporting Section 50 tacitly assumes the measure itself to be proportionate and fair; for the reasons outlined previously we do not agree. We therefore suggest that a full consultation be held to explore the many and varied issues raised by this measure.

Freedom of Information

We note the scope of the Freedom of Information Act with regards to this submission. We have no difficulty with this response being published or disclosed in accordance with the access to information regimes. This response will be published on our own website and will be available to all of our members and the general public.

Do not hesitate to contact Brian Keegan (brian.keegan@charteredaccountants.ie) or Leontia Doran (leontia.doran@charteredaccountants.ie) of this office should you require anything further.

Yours faithfully,

Paddy Harty

Chairman

Northern Ireland Tax Committee

Chartered Accountants Ireland

Source: Chartered Accountants Ireland. www.charteredaccountants.ie

¹HM Revenue & Customs, Digital Strategy, November 2014

²Cabinet Office: Consultation Principles, London, July 2012