Common Reporting Standard: Charity guidance completed

The Common Reporting Standard (CRS) went ‘live’ in January 2016, but it’s taken a full year of intensive working with HMRC to get comprehensive guidance for UK charities who must comply with this internationally agreed regime for the automatic exchange of tax information.  

Although aimed primarily at banks, investment houses and the like, charities will count as ‘financial institutions’ under the regime if they typically derive more than 50% of their income from investments, over some or all of which trustees have given discretionary management to external investment firms. You can use our flow chart to check your charity’s status here along with other materials to help you fulfil your charity’s obligations. Those duties include: registering with HMRC if you are a financial institution; carrying out due diligence which might involve all your grant-holders; reporting specific information to HMRC relating to those who are tax resident outside the UK; and also alerting HMRC to circumstances where supplying the information to that other jurisdiction might place the recipients at risk of harm or threaten their human rights. In those circumstances HMRC have agreed not to transmit to the other authority any information relating to the recipients at risk.

It’s been a long journey to get here, and writing this update provides an opportunity to reflect on an effective process of engagement with HMRC where ACF has, with the support of its members and other bodies, gained significant clarifications for the charities affected who will mainly be endowed grant-makers.

Although the regime went live a year ago, it was March 2016 by the time HMRC reached out to ACF, when, along with experts from the Charity Tax Group, Charity Law Association, Charity Finance Group, the Association of Charitable Organisations, and the Ariadne Network of Funders, I began to take part in monthly working groups to crunch through issues affecting charities. What became immediately apparent was that – while the decision to include charities and foundations within the regime was made at an OECD level – few allowances had been made for their specific context and no assessment of the impact of a potentially weighty burden of red tape. A small group of us met Lord Hodgson, a champion of charities and a campaigner against red tape, who helped raise the issues in Parliament. That combined with our joint pressure, and the unique intelligence I could offer based on ACF members’ practice, began to have an effect.

While quite properly stressing the importance of the policy intent to combat international tax avoidance, over the summer HMRC made efforts to alleviate the burden as far as they could. They confirmed that incorporated organisations would not have to carry out due diligence on grant-holders because their legal form excluded beneficiaries from the definition of ‘equity interest holders’ targeted by CRS. They concluded that investments in ‘unit trusts’ did not count as investments under discretionary management. And due diligence requirements became less burdensome when officials clarified that appearance on a UK register of charities would provide sufficient evidence of an organisation’s UK tax residency without having to ask for more. Another helpful accommodation was the recognition that some trusts might be making grants directly to vulnerable individuals who may be unable or unwilling to provide the information required. In those circumstances a verbal assurance can be sufficient and even if the information is not forthcoming the grant can still be made if in the circumstances it’s right to do so.

The trickiest area to work through however was where the supply of information itself might threaten the human rights of individuals or a class of individuals. For, while the international regime contains safeguards in relation to data security, it doesn’t make an assessment of the human rights context in countries. For example, a country may be a reportable jurisdiction under CRS, but could have an alarming record in relation to minority rights – the promotion or protection of which might be the specific focus of UK-based charitable work.

To get the point across we engaged the help of lawyers to comb through the guidance and frame our concerns in legal arguments which took account of CRS, UK human rights legislation and international data protection standards. Our lawyer, Melanie Carter, partner for public & regulatory law at Bates Wells Braithwaite has said “Unless ACF had made the robust legal intervention it did, enlisting the support of other organisations, HMRC would be very unlikely to have to constructed the clear, accessible and enforceable administrative arrangements that they have now put in place to review and then withhold from transfer any information which might threaten the human rights of individuals or groups of individuals abroad”.

That’s a good outcome to an intensive process. We’ll continue to monitor implementation and raise concerns with HMRC as they arise. We’ll also work with companion organisations in Europe to build up evidence of the unintended consequences of the regime for charities in time for its review in 2019.


Richard Jenkins
Head of Policy

We support UK foundations and grant-making charities