This month, the professional tax community will be writing letters to clients which enclose an HM Revenue & Customs (HMRC) letter about correctly reporting overseas income and capital gains for UK tax.

We are obliged by law to send these letters and failure to comply may result in a firm being handed a £3,000 penalty.

By placing this obligation on professional firms the government has raised a debate about the ethics of professional firms acting on behalf of HMRC. Taken at face value, the obligations are innocuous: we are required to send a letter or email to our clients. This letter must enclose a letter from HMRC (a copy of which is available here), include HMRC prescribed wording and specify the client’s name and address.

However, in the context of the adviser-client relationship, sending this letter could be seen as shifting the balance from acting in a client’s interest to acting in HMRC’s interest.

In a consultation response to the proposed law, the Chartered Institute of Taxation (CIOT) commented: “In principle, we think it is wrong for HMRC to get involved in communications between tax advisers and their clients. It could affect the bond of trust that is a fundamental part of the adviser/client relationship. The idea of targeting clients for an HMRC message on offshore evasion runs counter to this and the public purse is not better protected as a result.” The full transcript of the CIOT’s response can be viewed here.

Our understanding is that HMRC intends this to be a one-off notification exercise, and we have therefore taken the decision to engage with it and send our clients the email or letter.

Our clients should expect to receive an email or letter this month. Please read it in the context that we are required by law to send it to you, and it in no way is an indication that we consider that you are not compliant with your UK tax affairs.

If you would like to discuss the email or letter further, please contact your usual USTAXFS adviser.