Combatting tax evasion: Charities must report under CRS by 31st May

You may recall an earlier blog, posted in October last year, which addressed the new requirements for charities under the Common Reporting Standard (CRS).

To recap, the CRS requires those charities classified as ‘financial institutions’* to report to HMRC on the following:

• Any funds constituting maintained ‘financial accounts’
• Relevant payments made to tax residents outside of the UK and,
• Findings of due diligence conducted on those considered to be account holders/beneficiaries.

*for a definition of what constitutes a ‘financial institution’ read our previous blog.

Any reportable information, relating to 2016, must be submitted to HMRC by 31st May.

Despite the impending deadline, there are concerns about a multitude of ‘teething problems’ that may arise as the legislation takes effect.

The CRS rules are not unique to charities and, therefore, for these organisations there is a certain lack of clarity when it comes to understanding their obligations and how exactly to fulfil them.

The process itself, of identifying reportable accounts and conducting the necessary due diligence, is full of complexities, some of which will not have been accounted for by HMRC’s guidance documents, webinars and presentations.

It’s true also that many charities and not-for-profit organisations operating in this sector will still lack an awareness of the regulations. The concern here is that the CRS rules will be overlooked, particularly when you consider that the US Government FATCA reporting regime includes an exemption for charities.

Charities should bear in mind a few key particulars of the regime, which should help them to begin to understand how it operates, namely:

1. Reporting periods are calendar years and NOT financial years.
2. Income level test is based on 3 cumulative years, starting with the year before the reporting period.

When it comes to those organisations who either fail to report, or otherwise submit Picture1-111inaccurate information it is likely that, for the first few years at least, HMRC will implement a softer penalty regime. Saying that, HMRC will want to see that organisations have made a genuine attempt to comply with the regulations and perform the appropriate due diligence.

With the 31st May just a little over two weeks away, preparation is of paramount importance and it is important that charities put their best foot forward. You must first identify whether you fall within the scope of a ‘financial institution’ and, if so, you must then perform the necessary due diligence on any accounts that are reportable to HMRC.
If you’re unsure of your obligations under the CRS, or indeed whether you fall within its scope, you should seek professional advice at the earliest opportunity.

We offer a range of services, designed to ensure that charities are compliant with current regulations and legislation; whilst also enabling them to minimise their tax responsibilities and make the most out of their finances.

Huntingdon accountant, Toni Hunter, has a Diploma in Charity Accounting, awarded by the ICAEW, and specialises in offering accounting, taxation and advisory services to charities.

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