The government has made changes to the Common Reporting Standard (CRS), which all charities should be aware of.
HM Revenue and Customs (HMRC) has updated the CRS after concerns were raised by the Charity Finance Group and the Association of Charitable Foundations.
What is the Common Reporting Standard (CRS)?
The CRS is a global standard which tackles tax evasion by releasing information on an individual’s wealth to financial departments of a member state. In January 2016, the CRS began slowly replacing the Crown Dependencies and Overseas Territories (CDOTs) agreement in an attempt to rid C-level misconduct and increase trust, with first reporting due by 31 May 2017.
However, on 3 June 2016, HMRC announced that only charities that were considered a financial entity would be subject to the terms of the reporting standard. This is if:
- They are managed by a financial institute
- They have more than 50% of income deriving from financial services.
Only charities that satisfy both conditions will be considered a financial entity and will have to comply. It is important to note that for charities with a significant amount of income coming from gifts, grants, legacies and/or donations they are not classified as financial entities and will not need to produce reports under the CRS, unless requested.
However, HMRC has announced that this is subject to change as excluding charities could create misconduct and evasion by those trying to avoid tax through the use of loopholes.
Those that comply with the new standard should be aware that a new chapter on how the guidance impacts charities and their human rights has been included. HMRC has now recognised that in some instances, the activities of an individual, about whom a report must be submitted, may mean that reporting their data will put them at risk. The new chapter therefore sets out the process by which charities can notify HMRC about its concerns of an individual. It also includes details on how information can be redacted when there is a threat to human rights, and information on how to apply for a redaction.
Yet concerns have been voiced that this will create more issues for charities as there is still a lack of clarity. Chief Executive of the Association of Charitable Foundations (ACF), Carol Mack, says, “…it is extremely disappointing that HMRC did not engage at an early stage with the charity sector – the abject failure to do this has created months of unnecessary anxiety and uncertainty…..While we fully support the aim of combating tax evasion, we deeply question the need to inflict this degree of red tape on funders and will be monitoring implementation closely in the coming months and years.”
ACF has provided an in depth guide on the changes to the CRS which can be found here. The original updates to the guidance can be found at gov.uk. For further information, please contact firstname.lastname@example.org .