Common reporting standard

15th August 2017

Common reporting standard

The Common Reporting Standard (CRS), which came into effect in January 2016, aims to reduce tax evasion by providing a co-ordinated approach to the exchange of information on an international level.

So far 101 countries, including the UK and all EU member states, have signed up to the CRS regime.

It means those organisations which meet the definition of “Financial Institution”, including charities, must carry out due diligence and report on financial accounts to HMRC where required. The first deadline was May 31 this year for the period January 2016 to December 2016, with penalties for non-compliance. Typically this will involve reporting on grant recipients for charities.

The CRS regime applies differently to unincorporated and incorporated charities and you need to understand where your organisation stands. Is your charity caught by the regime and do you fully understand your obligations?

If your charity is an "Investment Entity" (a type of financial institution), you will need to comply with CRS. Your charity will come under the "Investment Entity" umbrella if more than 50% of your income comes from investments and any of those investments are professionally managed by a "Financial Institution", such as a bank or investment manager, on a discretionary basis and it has been this way for at least three years or since its inception.

However, if most of your charity’s income comes from donations and grants then you are unlikely to be a "Financial Institution", and if so, you may not be subject to these requirements.

If your charity is a "Financial Institution", you need to carry out due diligence on account holders (anyone with a debt or equity interest in the charity, which is usually a grant recipient for charitable trusts) to establish whether they are a tax resident in the UK or overseas. This can be done by requesting information about tax residency and can be incorporated into your grant application process.

If you fall under the CRS regime you will be required to keep records and report to HMRC annually by 31 May, if necessary.

If an account holder pays tax in the UK only, then there is no need to report but you still need to retain evidence of the due diligence obtained. If they are tax resident overseas you may need to report to HMRC so they can share the information with the tax authority where they are a tax resident.

Penalties for non-compliance range from £300 to £3,000 for late or deliberately inaccurate information. However, the HMRC has confirmed a “soft-landing” for charities where efforts have been made to carry out due diligence and report accurately. However, there is no room for complacency and it is important trustees are aware of these obligations.

The CRS regime is complex and this article is only intended as an introduction. Action is needed now to make sure your charity complies and charities should consult HMRC guidance and take professional advice if required.

Our team is happy to advise charities on how the CRS regime affects them and what action they need to take to comply.


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