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The Common Reporting Standard - what charity trustees need to know

By: Charities team Date: 20 January 2017
Category: Charity

The Common Reporting Standard (CRS) has been established to promote transparency and prevent fraud and tax evasion. In certain circumstances, charities will fall into the scope of the CRS as explained below.

If the majority of your charity’s income comes from a managed investment portfolio, then it is likely you will be affected by the new CRS legislation. If your charity needs to report, the first reporting period is the 2016 calendar year, and the return needs to be filed by 31 May 2017, so affected charities need to be aware of this now.

Is your charity affected?
Whilst the legislation is aimed at ’financial institutions’, if a charity meets the following two criteria, then it is classed as a financial institution under this legislation.

  • the charity’s financial assets are managed, in whole or in part, by a financial institution (ie an investment broker, note this must be on a discretionary basis)
  • the charity’s gross income is primarily attributable to investing, reinvesting or trading in financial assets (ie at least 50% of income over the last three years has come from those investments managed by the broker on a discretionary basis)

Investment income, for the purposes of this test, does not include rental income or gift aided income from subsidiaries.

If the criteria are not met then your charity has no reporting requirement.

What do affected charities need to do?
If your charity does meet the criteria then you will need to identify who your ‘account holders’ are. These are people, or organisations, with a debt or equity interest in the charity.

For the purposes of CRS reporting, an ’equity interest’ is held by any person treated as a settlor or beneficiary of all or part of a trust, or by any individual exercising ultimate control over the trust who has the right to receive distributions.

For most charitable trusts, the beneficiaries will be the individuals and entities to which they make grants and other distributions.

However if your charity is set up as a company, including Charitable Incorporated Organisations (CIOs), the recipients of grants and distributions would not be classed as beneficiaries, unless they have an interest in the charity.

A ‘debt interest’ is a loan made to a charitable trust. (This would not include trade creditors).

What information needs to be reported?
Once you have identified your ‘account holders’ for the period, you are required to carry out due diligence checks on each of them. If the account holder is resident in a ’reportable jurisdiction’ then it is a ’reportable account’ and an entry needs to be made on the return. A list of reportable jurisdictions is available on the HM Revenue and Customs' (HMRC) website, and includes most European countries and a large number of other countries.

Where an account holder is found to be resident in a reportable jurisdiction, the charity needs to allocate an ’account number’ to it and disclose certain details including name, address, date of birth for individuals, taxpayer identification numbers and the value of grants paid during the calendar year.

How do charities report this information?
Charities should refer to the publication Automatic Exchange of Information: registering and reporting guidance which is available from the publications section of GOV.UK.

For charities with few or no reportable accounts, there is a form based system that can be completed. For more complex reporting requirements there is a portal for charities to upload their data.

How strictly will the regime be monitored by HMRC?
HMRC do recognise that this presents a challenge for charities, but they will be expecting charities to make efforts towards compliance in the first reporting period, and will not seek to apply penalties where charities have attempted to carry out due diligence and reporting. However charities who fail to engage with the requirements will face penalties.

Please contact a member of our charity team if you would like further assistance regarding this.
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