We’d like to take the opportunity to remind charities of their potential reporting requirements under the Common Reporting Standard and Automatic Exchange of Information (‘AEOI’).
We envisage that these compliance requirements (explained below) will not affect many charities that receive a majority of their income from other sources, such as donations, grants, legacies, etc. However, the main type of charities that would be affected would be those that rely on the income generated from their investments to further their grant-making objectives.
The Common Reporting Standard is a global standard for the automatic exchange of information on financial information between government bodies around the world in order to combat offshore tax evasion and protect the integrity of taxation systems. This Standard has been in place since 2017 and applies to entities that are deemed to be Financial Institutions.
The definition of a Financial Institution is very broad, and can include charitable companies, or trusts, where a charity’s investments are managed by a Financial Institution and where over 50% of the charity’s gross income is derived from its investments.
Charities that are classed as Financial Institutions are required to undertake due diligence checks on their beneficiaries to check their tax residence and obtain further information, such as the beneficiary’s address, country of residence and their Tax Identification Number where a beneficiary is outside of the UK. Payments made outside of the UK would need to be reported to HMRC on a AEOI return.
These returns require financial institutions to report overseas beneficiaries and any payments made in a calendar year and are required to be submitted to HMRC by 31 May following the end of the calendar year.
If you have any questions, please get in touch with Frankie Coombe, or a member of the tax team.
