Common Reporting Standard – what do charities need to do?

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.

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.

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.

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.

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.