The failure of platforms to provide ERI reporting tools leaves investors at risk of significant fines from HM Revenue & Customs, new research has warned.
Data published by tax software provider Financial Software Ltd. And Raw Knowledge found that while nine out of ten (93%) platforms offer offshore funds, only 55% provide tools to help advisers and their clients correctly identify and report Excess Reportable Income liabilities.
ERI is income earned by an offshore fund that is not distributed to investors but is instead retained within the fund. When these funds are held in general investment accounts, investors may still be liable for tax on that income, despite not directly receiving it.
The duo warned that the gap in support may leave clients exposed to unforeseen tax consequences where offshore funds are held within general investment accounts. Failure to do so or reporting incorrect information could lead to penalties of up to 200% of the tax due, plus any interest and late payment penalties.
The research also found little progress has been made since 2023, with platform support for ERI reporting increasing by just 13%, despite growing use of offshore fund ranges.
The issue is heightened by increased demand for MPS solutions, with a recent lang cat report finding that 42% of advice firms in the UK use MPS for all or most of their clients and almost two thirds (61%) of MPS ranges on its Analyser software include offshore funds which require ERI reporting if held in a general investment account.
Michael Edwards, managing director at FSL, said: “Platforms have expanded access to offshore funds in recent years, giving investors more choice and more opportunities for growth, but unfortunately the supporting tax reporting infrastructure hasn’t kept up, creating a real Consumer Duty blind spot for advisers.
“In my view, if platforms allow exposure to offshore investments, they should equip advisers with the tools to manage the resulting tax complexity. Anything less leaves clients vulnerable to potentially significant and avoidable penalties from HMRC.”
HMRC is intensifying its focus on overseas income as it seeks to plug an estimated tax gap of around £46.8 billion. The tax authority’s 2024/25 annual report and accounts show it sent around 20,000 letters to taxpayers who may not have declared all their foreign income, contributing over £80 million in compliance yield.
Preya Patel, managing director at Raw Knowledge, added: “Frustratingly for everyone, ERI data remains fragmented, inconsistent, and difficult to access. There’s no standardised framework for how funds publish this information, meaning even the most experienced advisers can struggle to get complete and reliable figures for their clients.
“From a Consumer Duty perspective, this raises an important question for platforms. You could argue that offering offshore funds to invest in, without being able to satisfy ERI reporting requirements, means that investors are not provided with the support they need to avoid foreseeable harm.”
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