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The Common Reporting Standard: HMRC updates guidance for charities



Following the Charities Automatic Exchange of Information Event this summer, HMRC has updated its International Exchange of Information Manual and significantly improved its guidance for charities affected by the Common Reporting Standard (CRS). This provides some much-needed clarity which will help charities take a practical approach when considering whether or not they need to comply with CRS reporting obligations under CRS and how best to do so.

Charities and CRS

CRS forms part of the global tax transparency initiative aiming to prevent tax evasion, and it requires financial institutions to report certain information on account holders to their local tax authority. For more background on CRS, please see our earlier article.

CRS affects charities differently depending on whether or not the charity falls into the definition of "financial institution". If a charity is a financial institution, it needs to comply with the CRS in two stages: firstly, by gathering the necessary information relating to defined "account holders"; and secondly by reporting relevant information to HMRC. If a charity is not a financial institution, it will be an "active non-financial entity" and will not be subject to these requirements. However, it may still be required by other financial institutions that it deals with (e.g. banks) to confirm its status under CRS and should ensure that it is able to self-categorise correctly.

Is the charity a financial institution?

Generally, a charity will be categorised as a financial institution if 50% or more of its income derives from investments in financial assets and all or part of its financial assets are managed by another financial institution (such as a fund manager or wealth manager). This 50% threshold will be assessed by looking at the charity's income over the last three years. For charities with professionally managed financial assets overseen by an investment committee, the charity should look at the contractual arrangement with the asset manager and consider the extent to which the investment committee make the decisions, rather than the asset manager.

Broadly speaking, if a charity gets most of its income from donations and grants, it is unlikely to be a financial institution. At the other end of the spectrum, endowed charities which receive the majority of their income from investments managed by a professional investment manager are more likely to be a financial institution.

What are the reporting requirements?

Financial institutions need to provide information to HMRC on "reportable account holders" on an annual basis. They therefore need to gather certain information on account holders, including the account holder's name, address, tax residence, tax identification number and, for individuals, date of birth. If the account holder is an entity rather than an individual, then the entity will also need to specify whether it is a financial institution itself.

An account holder will be reportable if they are tax resident in a country which has signed up to CRS (there are 101 in total, including the UK). If an account holder has dual tax residence, being tax resident in the UK and another CRS jurisdiction, then the relevant information relating to them for both jurisdictions will still need to be gathered.

The first reporting deadline for CRS is 31 May 2017, by which time reporting charities will need to report information on any individuals and entities who were account holders in 2016.

Who are the account holders?

An account is broadly defined by reference to a debt or equity interest, and so the definition of account holder will vary depending on the type of entity. As a general overview:

  • for trusts (including charities governed by scheme), the account holders are the settlor, protector (if there is one), beneficiaries entitled to mandatory distributions, beneficiaries receiving discretionary distributions (including anyone receiving a grant or distribution) and any lender. For those receiving grants, they will only be account holders for the year in which they receive the grant;
  • for companies, the account holders will be any lenders or shareholders, or anyone with an interest in the profits or capital of the company. Members of a company limited by guarantee, charity incorporated by Royal Charter or CIO are not considered by HMRC to hold an equity interest in the company; and
  • for unincorporated associations, HMRC would consider the equity interests to be similar to those for charities set up as trusts.

For trusts, the definition of account holders has much wider reach. It seems surprisingly burdensome as affected trusts will have to put in much more effort than other entities when gathering the necessary information. For example, a trust may well have to expend a lot of effort in order to gather information on every single grant recipient, whereas if it were structured as a company – doing exactly the same thing – it would only have to produce a list of its shareholders.

What information needs to be gathered?

Reporting charities will need to ask reportable account holders to self-certify their name, address, tax residence and tax identification number (which can vary from country to country), and date of birth. As long as the information is received in good faith, the charity will not need to verify it separately.

There is no prescribed form and it is perfectly acceptable for self-certification to be verbal (the only requirement is that the self-certification is "positively affirmed") although it would be advisable for charities to keep written records where possible. Some precedent forms available online tend to be very long-winded, and charities may find that a pared down version will be just as effective – and much more user-friendly.

What if an account holder doesn't want to provide the necessary information?

There can be practical difficulties with this kind of information gathering, for example where an individual prefers to remain anonymous, or there is a language barrier, or the recipient of a donation is homeless. Unfortunately, there is no obvious solution and no global solution has been provided by HMRC. Where self-certification is not possible, the fall-back position will be for the charity to look at various indicia of the account holder's tax residence. These criteria are set out in the HMRC guidance.

For account holders that are entities, it may be possible for charities to use publicly available information to ease the administrative burden. For example, if a UK charity is giving to another UK charity, it can rely on the recipient charity's publicly available information on the Commission's website (rather than getting the recipient charity to self-certify). At the time of writing, the OSCR website for Scottish charities cannot be used to confirm residence, but HMRC are looking into this.

How should the information be reported?

Once reporting charities have gathered the necessary information, they will need to report it to HMRC. Reporting charities should submit the relevant information via the HMRC Automatic Exchange of Information Service, an online platform accessible via the Government Gateway. Charities will need to register to use the Gateway (if they have not already done so).

The reporting deadline is 31 May each year, but ideally reporting entities should submit their information before the deadline. It is possible to set up a draft where information will be saved to which you can return and edit or add to the information and it will be possible to correct or amend information already submitted, even after the deadline.

How is the information dealt with by HMRC once it has been reported?

There are a number of safeguards in place to ensure that the data received by HMRC is and will remain secure upon exchange. The policies and governance of the jurisdictions exchanging under CRS are currently being assessed ahead of next year's first reporting deadline, so that jurisdictions can be confident that there are appropriate controls and systems in place. Once this assessment has been completed, there will be a definitive list of countries where the safeguarding has been assessed as being of a satisfactory level.

There may be situations where a charity has made a donation in a very sensitive context and it would potentially endanger the recipient if information was revealed about them. Whilst the practical and technological safeguards may ensure that data is used appropriately, if charities are aware of specific threats then this should be raised with HMRC as early as possible so that HMRC can discuss how best to deal with this. It may be possible to redact information where circumstances are deemed severe enough but it is not envisaged by HMRC that this will be a routine feature of CRS.

What if a charity misses the deadline for reporting?

The penalty for late filing is £300 and the penalty for inaccurate returns can be up to £3,000. However, HMRC is very aware that this is a new area of law and it will take some time before everything works smoothly. HMRC will aim in the early years of implementation to support rather than penalise.

HMRC will apply a test of reasonableness when considering any issues, looking at the size and structure of the charity, the types of governance systems already in place and what could reasonably have been expected. HMRC realises that some trusts and foundations will have already made donations this year without gathering any information on the recipient. In such situations, HMRC will apply a test of reasonableness but where possible charities are expected to try to gather the information retrospectively.

Next steps for charities

Charities should ensure that they understand their categorisation under CRS, and reporting charities should check that they are gathering the relevant information that they will need to report to HMRC by next year's first reporting deadline, 31 May 2017.

Reporting charities may also wish to consider the data protection law implications of holding personal data relating to account holders, and confirm that they have taken all necessary practical steps to ensure they are compliant.

55 countries are signed up to start exchanging from 2017 and 46 more have signed up to start exchanging from 2018. Reporting charities should therefore keep up to date with the list of countries which are reportable jurisdictions (this information can be found on the website).

If you require further information on anything covered in this briefing please contact Julian Smith([email protected] , 020 3375 7432), Louise Bralsford ([email protected] , 020 3375 7903) or your usual contact at the firm on 020 3375 7000. Further information can also be found on the Charities page on our website.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, October 2016

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Julian Smith


Julian Smith has a vast range of knowledge and experience and is widely recognised as one of the leading experts in the charities field. He advises high profile and wealthy individuals on their private affairs and their philanthropy. He is Private Solicitor to The King and was Private Solicitor to The late Queen between 2019 and September 2022.

Julian Smith has a vast range of knowledge and experience and is widely recognised as one of the leading experts in the charities field. He advises high profile and wealthy individuals on their private affairs and their philanthropy. He is Private Solicitor to The King and was Private Solicitor to The late Queen between 2019 and September 2022.

Email Julian +44 (0)20 3375 7432

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