Savings Directive: reports needed on interest payments


Law firms have just three weeks to meet new reporting requirements - or they could face fines running into thousands of pounds, accountants have warned.



The end of the financial year on 5 April 2007 marks the conclusion of the first full year of the EU Savings Directive, which requires professional services firms to keep up-to-date records about any client living outside the UK (but within the EU) to whom they make interest payments. The firms must then, as well as notifying Revenue & Customs here, report the interest payments to the tax authority in the country in which the client is now living.



Roger Zair, head of the professional practices group at accountants Grant Thornton, said the new directive could impose a huge administrative burden on large and small legal practices alike. He said: 'The directive also requires firms to notify Revenue & Customs that they have a reporting requirement, keep records of payments and the addresses of recipients, and report interest used for alternative purposes, such as settling fees.'



He said that a firm has to keep track of all its clients, including checking that none has moved overseas without telling them, which could easily happen when a transaction has extended over months or years. 'And the directive applies equally to high net-worth clients and to someone's granny in Bognor Regis.'



If, in Revenue & Customs' view, the firm had been 'fraudulent or negligent' in its failure to comply with the directive, it would not only be heavily fined, but also see its business reputation damaged, he said, adding: 'The profession must take this directive seriously; it's not going to go away. Records must be updated on a regular basis - or firms will be faced with significant fines.'



After meeting the first full year requirements of the EU Savings Directive, firms have until 30 June 2007 to submit savings income reports and avoid financial penalties.



Jonathan Rayner