The £1bn bill British investors will pay to help the US taxman

Some campaigners have celebrated the legislation, technically known as the Foreign Account Tax Compliant Act, as a step towards eradicating tax avoidance. But it is also much criticised for the disruption it causes to businesses all over the world, especially in countries such as Britain where legal obligations are observed.

The Investment Management Association, for example, the trade body for Britain’s fund managers, lists 1,000 documents on its website related to these rules. Many lawyers and consultants advising British finance firms have had a field day, working on nothing else for years.

The cost? Initially HMRC said the implementation of the rules would cost a one-off £2bn to £3bn, followed by ongoing costs “estimated to be in the region of £100m-£170m a year”.

But last year, after the Government had negotiated a less cumbersome version of the requirements, HMRC said it expected the one-off costs to fall to £900m-£1.6bn, followed by an annual £50m-£90m. HMRC’s own “one-off IT and project costs” would be £5m, with “annual costs of £1.4m incurred from 2016”.

Who in Britain is affected – and how?

Apart from the cost, which all of us must bear, the scope is wide, with hundreds of thousands of individuals expected to be affected. According to the Wealth Management Association, which represents brokers and financial advisers, firms must check for the following among existing customers: someone who is a US resident or citizen; someone with a US address, correspondence address or telephone number; or someone who regularly transfers funds to a US account.

The list could include US-born Britons, the thousands of people who travel frequently to the US or those owning property there.

If anything about your account or personal background suggests US associations, you can expect further questioning. This is what HSBC, for example, says to its British customers: “We are currently reviewing the effect of the legislation in order to identify where we need to report information to the IRS.

“We may be contacting you to request information or documentation. You may receive more than one request for information. It is important that you respond to all requests, even if you believe you have already supplied the requested information.”

That gives a flavour of just how much hassle might be involved for all parties.

As of now, new customers signing up to any sort of investment or banking service will also be asked about these things. What happens if you tick a “yes” box? Well, you may be turned away. In early May, specialist magazine Investment Week reported that some brokers were already refusing to sign up new British clients who had US connections.

And there are suspicions that some cases we have reported in these pages, where banks have asked customers to take their business elsewhere, were prompted by this legislation too.

On May 30, I wrote on this website about investment manager JP Morgan sending requests to 125,000 customers to complete a US “W‑8BEN” tax form. These forms, typically required only when investors own US shares, have not to my knowledge ever been mailed out in such a blanket way. JPM, which was cagey on the matter, said it was unrelated to this new legislation. Perhaps, but in the end it is a similar scenario: JPM undertook the exercise at the behest of the IRS.

No one wants tax evasion anywhere. But surely we shouldn’t be footing a £1bn-plus bill for initiatives of benefit to another country?

- richard.dyson@telegraph.co.uk

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