The common reporting standard (CRS) was approved by the OECD Council in 2014 as a global standard to facilitate the automatic exchange of financial information between OECD tax jurisdictions on an annual basis.

It is similar to the US Foreign Account Tax Compliance Act (FATCA) which has been in operation since 2010 and requires foreign financial institutions to report to the US tax authorities details of financial accounts held by US taxpayers. FATCA has a specific exemption for charities but unfortunately, so far the CRS in the UK does not.

Any charity that derives most of its income from an investment portfolio, such as a grant making trust, is likely to be caught by the definition of a financial institution. It will have to identify the tax status of all grantees, whether institutions or individuals, which will create a hugely expensive administrative burden and not all the information and evidence required will even be available.

These charities will need to report and perform due diligence on all of their grantees, whether they are individuals or institutions and say whether they are resident in the UK or overseas.

The items to be reported are:

For individuals:

• the name, address, jurisdiction(s) of residence, TIN (tax identification number) and date and place of birth of each reportable person that is an account holder of the account i.e. any individual receiving a grant or the benefit of a grant.

For any entity that is an account holder and that, after application of the due diligence procedures, is identified as having one or more controlling persons that is a reportable person:

• the name, address, jurisdiction(s) of residence and TIN of the entity and the name, address, jurisdiction(s) of residence, TIN and date and place of birth of each reportable person.

The definitions of all these terms is in the OECD’s document but good luck if you actually need to read and understand them – they were not written in plain English.

CRS came into force on 1 January 2016 in the UK and the first reporting will be required from 31 May 2017. HMRC has now issued specific guidance for charities.

Small grants and CRS

A significant number of grant making charities pay out hundreds or even thousands of small grants each year to individuals in need. They certainly undertake due diligence to ensure the intended recipient is in need of their support, whether in the UK or overseas, but not all children, asylum seekers and others living in extreme poverty have an address, a tax identification number or a passport to prove their country of residence – what happens then?

Charities paying out grants to or for these people will not generally be making the payments to people over the tax threshold let alone involved in tax evasion so how will all this extra bureaucracy and information gathered – even when it is possible to comply – be of any practical use?

Charity sector bodies are lobbying the government to minimise the impact on charities – hopefully to obtain a full exemption as in the USA. These bodies include the Association of Charitable Foundations, the Charity Finance Group and the Association of Charitable Organisations who all have ‘deep concerns’ about the new regime.

They have written to Rob Wilson, minister for civil society to raise concerns that CRS could cause funders to scale back on grants, as well as give charities additional “red tape” to deal with and call for an exemption. Let us hope this will work and leave the government free to pursue real tax evaders, as of course they are very keen to do.

HMRC Automatic Exchange of Information: guidance for charities published on 3 June 2016 is available here

About the author

Helen Elliott is a partner at Sayer Vincent, specialising in charities and not for profit organisations