Common Reporting Standard

The Common Reporting Standard (CRS), which has its roots in the Foreign Account Tax Compliance Act (FATCA), has now been implemented into UK law by the International Tax Compliance Regulations 2015. The CRS is a global network of legislation, which aims to prevent individuals and entities using offshore structures to evade tax. Unlike FATCA, under which charities are exempt from reporting requirements, the CRS may require charities to make reports to HMRC.

The CRS divides all entities into two broad categories – “financial institutions” (FIs) and “non-financial entities” (NFEs). If a charity is considered to be an NFE, it will not have its own reporting requirements under the CRS.

Most charities do not provide financial services, and so would not expect to be classed as an FI. The definition of FI under the CRS, however, is very broad and some charities – particularly endowed charities and those that receive a large proportion of their income from investments – will be categorised in this way. If this is the case, charities should consider whether they are required to make reports. A charity will be considered an FI if it is managed by an FI and its gross income is at least 50% attributable to investing, reinvesting, or trading in financial assets. Under the CRS, these charities will need to identify whether they maintain “financial accounts” which must be reported to HMRC.

Charities maintaining financial accounts include those which have issued equity interests, bonds or other debt instruments and also those charities constituted as trusts which make grants to beneficiaries. Where such charities are FIs they will need to perform due diligence on their account holders or beneficiaries and will need to report certain information regarding these account holders or beneficiaries to HMRC. The majority of charities which are FIs will not maintain financial accounts, but it remains to be seen whether HMRC will require these charities to submit nil returns.

The first reporting deadlines for FIs under the CRS are not until 2017. However, charities that suspect they may be within scope should start considering their due diligence and reporting requirements now. If a charity is in any way uncertain as to its status in relation to the CRS, we would encourage them to seek professional advice to make certain of their situation and any subsequent reporting requirements.

CTG has been invited by HMRC to participate in a dedicated working group to discuss the implications of the CRS on the sector, and we will keep members updated on any further developments.

For more information consult HMRC’s guidance for charities on the Automatic Exchange of Information.

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