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Common Reporting Standard – what do charities need to do?

Most charities have little to no compliance requirements under the Common Reporting Standard, but there is not a blanket exemption for the charity sector. 

Numerous charities, especially those that make grants or have debt instruments, may find themselves caught by a reporting obligation.

The Common Reporting Standard (CRS) is a reporting model imposed from 2016 in the UK by the European Directive on Administrative Cooperation (DAC) to enable the exchange of certain financial information between tax jurisdictions under the Organisation for Economic Co-operation and Development (OECD).

The reporting requirements under CRS mainly catch financial institutions such as banks and investment managers; however the scope of the requirements is broad and can cover other types of organisation. With this in mind, whether a charity needs to report at all, and what needs to be reported, depends on the type of charity and its activities.

Follow our step by step process to give you an indication of what your charity needs to do in order to comply with the CRS. 

Please note that official regulations on the CRS are lengthy and cover a wide range of possible scenarios and although this short guide does not cover the full detail and every possibility, it does give you an essential outline of your requirements.

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Jon Daley

+44(0)20 7556 1292
DaleyJ@buzzacott.co.uk
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Numerous charities, especially those that make grants or have debt instruments, may find themselves caught by a reporting obligation.

The Common Reporting Standard (CRS) is a reporting model imposed from 2016 in the UK by the European Directive on Administrative Cooperation (DAC) to enable the exchange of certain financial information between tax jurisdictions under the Organisation for Economic Co-operation and Development (OECD).

The reporting requirements under CRS mainly catch financial institutions such as banks and investment managers; however the scope of the requirements is broad and can cover other types of organisation. With this in mind, whether a charity needs to report at all, and what needs to be reported, depends on the type of charity and its activities.

Follow our step by step process to give you an indication of what your charity needs to do in order to comply with the CRS. 

Please note that official regulations on the CRS are lengthy and cover a wide range of possible scenarios and although this short guide does not cover the full detail and every possibility, it does give you an essential outline of your requirements.

Step one – Is my charity a Financial Institution?

The first step is to determine whether the charity is treated as a Financial Institution for the purpose of the CRS. A charity will be a Financial Institution if it meets both of the following tests:

  1. At least 50% of the charity’s gross income is primarily attributable to investing, reinvesting or trading in financial assets (capital gains on fixed asset investments are excluded from this calculation).
  2. The charity’s financial assets are managed, in whole or in part (even if less than 50%), by a financial institution (e.g. an investment manager) which has discretionary authority to manage the assets on the charity’s behalf.

The first test is based on a three year period ending on 31 December, preceding the year in which the entity status is determined. Hence if a charity meets the first test with respect to the period from 1 January 2017 to 31 December 2019 (as well as the second test), then it will be a Financial Institution from 1 January 2020 to 31 December 2020.

If your charity does not meet both tests, it is not a Financial Institution and is not caught under the CRS. No further action needs to be taken, other than that you may be asked by your bank or investment manager to provide a self-certification of your status. If your charity meets both of the tests, proceed to Step two.

Step two – Is my charity a corporate charity?

The next step is to determine what due diligence your charity will need to carry out under step three.

If your charity is constituted as a charitable trust, an unincorporated charity or as a company holding property in trust, it will need to carry out due diligence on the following (known as “account holders”):

  • Beneficiaries of grants and donations
  • Settlors of a trust (this may include donors that have specified the conditions of use of a donation)
  • Debt holders (excluding loans from a bank or trade creditors)

If your charity is a company (under Companies Act, other government act or Royal Charter) or a Charitable Incorporated Organisation, it will need to carry out due diligence on the following “account holders”:

  • Debt holders (excluding loans from a bank or trade creditors)
  • Equity holders (excluding members with no shareholding)

Please note that charitable companies do not need to report on beneficiaries. Hence, for the majority of charitable companies there will be no reporting requirements as they usually have no equity holders and no debts besides bank loans and trade creditors, which are excluded.

If your charity has no account holders, no further action needs to be taken. Otherwise, proceed to step three.

Step three – What due diligence do I need to carry out?

Having identified your “account holders” in step two, you will need to request each account holder to provide the following information under a self-certification:

  • Name
  • Address
  • Jurisdiction(s) of tax residence
  • Only if not UK resident - Entity status under CRS (entities only)
  • Only if not UK resident - Tax Identification Number
  • Only if not UK resident - Date of birth (individuals only)

The self-certification can be provided in any form. Hence a trust which only makes grants to UK individuals can simply include a tick box stating “I am resident in the UK for tax purposes” on a grant application form as name and address is already a requirement.

Step four – What do I need to report to HMRC?

Reports only need to be made for account holders that are tax resident in any of the following overseas countries:

Austria, Argentina, Barbados, Belgium, Bulgaria, Colombia, Croatia, Curacao, Cyprus, Czech Republic, Denmark, Estonia, Faroe Islands, Finland, France, Germany, Gibraltar, Greece, Greenland, Guernsey, Hungary, Iceland, India, Ireland, Isle of Man, Italy, Jersey, Korea, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Mexico, Montserrat, Netherlands, Niue, Norway, Poland, Portugal, Romania, San Marino, Seychelles, Slovakia, Slovenia, South Africa, Spain, Sweden.

The following information will need to be reported for each reportable account holder:

  • Name
  • Address
  • Taxpayer Identification Number
  • Jurisdiction to which the information is reportable
  • The account number (or a functional equivalent, e.g. a grant reference number)
  • Your charity’s name and identifying number
  • The account balance at 31 December (for grants and donations, the amount paid in the calendar year)

If you have no reportable account holders, there is no requirement to file a “nil” return.

Step five – How do I send a report?

A return of reportable accounts will need to be submitted to HMRC using the HMRC Online Services web tool.

Guidance on the registration process for the online tool is available and reports are based on a calendar year and are due for filing on 31 May of the following year.

It is worth highlighting that although a penalty regime has been set out in regulations, HMRC have stated that in the early years of CRS they will not seek to penalise charities as long as they have made a suitable effort to engage with the requirements.

Speak to an expert

For further guidance on the Common Reporting Standard and the requirements for your charity, please do not hesitate to contact us by filling out the form below and one of our experts will be in touch.

 

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