Soon after 5 April 2016, financial advisers, tax advisers, lawyers and potentially many other professionals will be forced by HM Revenue & Customs to write to their clients using prescribed wording to tell them that they face penalties and, possibly prosecution, if they do not own up to having undisclosed income in offshore bank accounts. 
This is both distressing and potentially counter-productive.
One of the most rewarding aspects of being a professional adviser is getting to know your clients. In few other walks of life could you find yourself being told personal details about family, finances, hopes and dreams for the future within the first hour of meeting.
The role of the professional adviser is to take all of these facts and then use one’s expertise to guide the client to the best outcome - without falling foul of any rules or regulations which are completely indecipherable to anyone other than an expert.
The eco-system of professional advisers in the UK helps keep the economy ticking over as individuals and businesses can take decisions with confidence, certain in the belief that they have been advised on the correct way to proceed.
But what happens if clients stop trusting their professional advisers?
At worst, they stop taking advice and find themselves unable to make decisions. At best, they take advice but hold back on important facts so the adviser sends them in a direction which will create problems in the future.
The notes which accompany the legislation creating the obligation for advisers to write to their clients open by stating that this exercise will “increase the effectiveness of HM Revenue & Customs compliance activity as well as increasing the deterrent effect for those who attempt to evade tax by holding financial assets outside of the UK.”
Will this really be the case?
There will be a very small minority of financial advisers, lawyers and accountants who have built their own businesses by helping their clients hide their assets in places where it is hoped no-one will find them.
Maybe these rogue advisers will dutifully write to their clients using HMRC’s prescribed format of letter to warn their dodgy clients that they really ought to think about paying a bit more tax. In reality these shady, and potentially unregulated, advisers who ignore one aspect of the law are unlikely to comply with this new law either.
The vast majority of professionals will comply with this new law regardless of how much they disagree with it. Clients receiving this letter will react in different ways, but the professions and their respective institutes are concerned that it will erode the bond of trust that has taken years to create.
Sadly the law which creates this “client notification obligation” is not limited to the first letter in relation to offshore assets. If this experiment is heralded as a success, it can be repeated. Advisers may be at the thin edge of the wedge where they will shift from being a trusted adviser to the dogsbody of the taxman.
There is complete agreement between responsible professional advisers that the correct amount of tax should be paid by their clients. Advisers play an essential role in making sure the law is understood and adhered to. In the rare occasions where clients refuse to follow advice and pay the tax they should, the Anti-Money Laundering rules already exist to place a reporting obligation on advisers.
The new compulsory client notification regime feels unnecessary.
It is likely to be completely ignored by rogue advisers, who are themselves a factor in tax evasion using offshore accounts and structures, and will have no impact of individuals up to no good.
The benefit to the Treasury of this onerous obligation is completely outweighed by the risk of eroding the bond of trust between client and adviser – leading to a greater risk of non-compliance in the future.
Tim Stovold is head of tax at UK audit and accountancy firm Kingston Smith. The views expressed above are his own and should not be taken as investment advice.