In Summary

To determine whether you need to report to HM Revenue & Customs under the CRS, you should consider the following questions (see also the flowchart at the bottom of this note).


1              Are you a Reporting Financial Institution?

Charities will be Reporting Financial Institutions if they derive more than 50% of their gross income from investing in financial assets, managed for them on a discretionary basis. If you do not fall within this category, you do not need to report.


2              Do you make payments to Financial Account Holders?

A Financial Account Holder, in the context of an unincorporated charity, is a beneficiary of the charity. The settlor of the charity may also be a financial account holder. This only applies to unincorporated charities including trusts. Since grant-making charities will have identifiable beneficiaries, every unincorporated grant-making charity ticks this box. Other charities may also be affected. However, if you are an incorporated charity (a company, a SCIO or another form of body corporate), then you do not need to report.


3              Are the financial accounts held by Reportable Persons?

Financial accounts here mean the interests of beneficiaries. Beneficiaries will be Reportable Persons if they are not resident in the United Kingdom. If you only make grants to UK resident beneficiaries then you have nothing to report.


If you have answered ‘yes’ to all three of the above questions, you should read the detailed notes below and follow the action points at Steps 4 and 5 listed at the end of this Briefing Note.


In Detail


What is the Common Reporting Standard?


The CRS came into force in January 2016 and is part of the Automatic Exchange of Information (AEoI) regime which seeks to combat offshore tax evasion. It is a global standard which is implemented in the same way in all jurisdictions signing up to it. The CRS was implemented into UK law by the International Tax Compliance Regulations 2015.

There is no blanket exemption for charities and there is no de minimis threshold applicable under the CRS. This means that charities which meet the relevant conditions will have to comply with the rules. Put simply, if CRS is applicable, the rules require charities to check the tax status of reportable beneficiaries in non-UK jurisdictions in order to allow for the monitoring of the flow of funds to those beneficiaries.

The CRS seeks to achieve its aim by requiring ‘Reporting Financial Institutions’ to report information about their ‘Account Holders’ to the tax authorities. The wide definitions used in the CRS mean that some charities will have a reporting obligation. More detail on these definitions is set out below. Charities with a reporting obligation must make their first reports to HMRC by 31st May 2017.

Charities must consider their own circumstances and determine whether they are subject to the CRS regime or not. Charities should review their position annually (ideally at the end of each calendar year), and formally record (a) that they have done so, and (b) what the outcome of the review was for the calendar year in question. It is the 1 January to 31 December calendar year which applies and not the charity’s own accounting period.

Charities must put in place or extend existing governance systems and grant processes/applications, in order to make reasonable efforts to comply with the CRS. The complexity of the systems required by any one charity will depend on the size and activities of the charity.


Step 1 – are you a Reporting Financial Institution?           

The CRS only applies to entities which are Reporting Financial Institutions. There are a number of categories under the CRS definition of Reporting Financial Institution, and a charity may fall within the definition if it is a ‘managed investment entity’. A charity will be a managed investment entity if it satisfies both parts of the following test:

 1. if more than 50% of the charity’s gross income is derived from investing in financial assets,


2.  if its assets are managed in whole or in part by another financial institution (such as an investment manager) on a    discretionary basis.

 All UK charities which are not Financial Institutions will be categorised as Active Non-Financial Entities with no reporting requirements.


In relation to the first part of the test:

 A charity’s gross income can change from year to year, and a charity can therefore move from being within the regime to being outwith the regime from year to year. It is therefore important to consider the income of the charity over a period of more than one year in order to comply with the rules. This will allow a charity to ascertain its income split between investment income and non-investment income for the purposes of the CRS

 In order to calculate the income split for CRS purposes, income is calculated on a rolling 3 year basis to smooth out differences. The relevant period will be the 3 year period ending on 31 December in the year preceding that in which its status as an investment entity needs to be determined, or the period for which the entity has been in existence if shorter. 


 In relation to the second part of the test:

Where there is no discretionary mandate, and investments are made directly by the charity trustees, the second part of the investment test is not satisfied and the charity falls outwith the CRS regime.

 Investing in a single unit trust is not considered investment under ‘discretionary management’ for CRS purposes, but a portfolio of holdings in several unit trusts, managed on a discretionary basis, will qualify.

 If a charity has investment parameters or restrictions, such as restrictions in relation to ethical investment, this will not affect the nature of the discretionary management mandate.

 If a charity is unsure whether it satisfies the second part of the test, HMRC has case studies and examples on its website which may assist in determining whether any or all of the charity’s investments are under discretionary management.


Step 2 – review of you Financial Accounts – do you make payments to Financial Account Holders?

 There are a number of different categories of ‘Financial Accounts’, but the only one applicable to charities is ‘Debt or Equity Interests’. This is not terminology which charities will typically use in relation to their settlor and beneficiaries, but the impact of the rules is to bring the settlor of some charities, and their beneficiaries, into the definition of a Financial Account Holder.

 The Financial Account Holders of unincorporated charities (trusts and unincorporated associations) are the settlor and its beneficiaries.

 The Financial Account Holders of incorporated charities (companies limited by guarantee, bodies corporate established by Royal Charter or by Act of Parliament, and Scottish Charitable Incorporated Organisations) are their shareholders or equivalent. The CRS regime does not consider shareholders or their equivalent to hold reportable Financial Accounts. As a result, all forms of incorporated charity fall out of the regime, subject to two exceptions mentioned below.

 In the event that an incorporated charity holds funds on separate charitable trusts (for instance, where the incorporated charity itself is the sole trustee of a charitable trust), then those separate charitable trusts will fall within the regime and could have reporting implications.

 In the event that a charity (whether incorporated or unincorporated) has debt interests, that is, where it has made any loans including informal loans but excluding trade creditors, then such debt interests are Financial Accounts and must be reported. 


Step 3 – Are financial Accounts reportable?

 Financial Accounts are reportable if they are held by a ‘Reportable Person’. Charities will need to take reasonable steps to properly identify their beneficiaries in order to determine whether any of them are Reportable Persons. A Reportable Person is someone who is tax resident in a Reportable Jurisdiction: in other words, most beneficiaries or grant recipients who are not resident in the UK.


If a charity is a Financial Institution and has Financial Accounts, it must collate information about the tax residence of all its beneficiaries in order to identify those which are reportable. The charity must hold this information for 6 years in compliance with Data Protection rules, and renew the information held and revisit its conclusions at least every 6 years or when the charity knows there has been a change in circumstances for the beneficiary, whichever is shorter. This is particularly important where regular payments are made to beneficiaries.

In summary, the CRS regime is only likely to affect grant-giving charitable trusts with non-UK resident beneficiaries.


Step 4 – Are financial Accounts reportable?

There are no fixed HMRC templates for information gathering for CRS purposes. Reporting charities are permitted to obtain information from all of their beneficiaries in whatever way they deem most appropriate. In most cases, it would appear that the easiest way to do this is to expand existing due diligence checks or grant application forms in order to prompt beneficiaries to include the information required for the CRS.

 The information required is:

(i)      name

(ii)    address

(iii)   if it is an entity, its status (whether it is a Financial Institution, Active Non-Financial or Passive Non-Financial Entity), and

(iv)  self-certification that confirms tax residence status, and, if the beneficiary is not tax resident in the UK:

           a. which jurisdictions he/she/it is tax resident, and

           b. their Tax Identification Number (NI Number or other HMRC tax reference or equivalent in their country of residence), or

           c. date of birth (for an individual).


As the UK is not a reportable jurisdiction no further information is required for UK resident beneficiaries and the charity does not need to report on those beneficiaries.

 To make information gathering less onerous, HMRC has advised that charities can rely on these general principles:


  • self-certification can be verbal but must be positively affirmed and recorded,


  • a tick box form can be used,


  • if the beneficiary is normally resident in the UK, the charity does not need to dig any deeper,


  • information which is publicly available, such as Scottish, Northern Irish and English & Welsh Charity Registers, is sufficient proof of UK tax resident status for charitable organisations, and


  • charities only have to make ‘reasonable’ enquiries.


If charities are unable to obtain valid self-certification within 90 days, and there is no indication of residence other than the UK, then the account is to be treated as not reportable.

 Charities do not need beneficiaries’ permission to report their personal information to HMRC, but they do need to let the beneficiaries know what they are doing with the information, (i.e. that they are reporting it to HMRC and it may be shared with other jurisdictions). This information can be incorporated into grant application or due diligence forms.


 Step 5 – When, How and What to Report

 When - Charities must submit information on beneficiaries in non-UK, reportable jurisdictions by 31st May for the previous calendar year to 31st December (NB: not financial year).

 How - HMRC has an online portal for submitting the CRS information which charities must register to use. Charities should register with HRMC ahead of the reporting deadline of 31st May to ensure there is no undue delay. The system allows for files containing information to be uploaded directly or data can be inputted individually, depending on circumstances and volume.

 What – charities must report due diligence information on beneficiaries, details of any payments made to the beneficiaries during the calendar year and the balance of any outstanding grant amounts assigned to that beneficiary but not yet paid. Charities do not have to report nil returns.


Follow up questions 

 We are concerned that our beneficiaries might be subject to abuse or discrimination in their home jurisdiction if knowledge of our grant to them became known – what can we do?

If a charity is concerned that there is a potential human rights risk if the information reported to HMRC is shared with reportable jurisdictions, charities can apply to HMRC to redact certain information. Any charity concerned about this should contact HMRC as soon as practicable.

My charity would be submitting a nil return under the CRS this year. Do we still need to register with HMRC?

No. If a charity has a nil return to make, then HMRC does not require that nil return to be lodged in any formal way. The nil return should simply be noted in your charity’s records. There is no need to register with HMRC in this event.

 My charity does not make cash available to non-UK resident beneficiaries, but we do provide such beneficiaries with advice, guidance or other non-financial benefits. Do we need to report those under the CRS?

No. The purpose of the CRS is to help to tackle tax evasion, and only grants, donations and loans of cash are reportable.


Are you in the CRS regime?  Flowchart Summary:




Once you have ascertained whether or not you are in CRS, the next stage is to identify those beneficiaries who may need to be reported to HMRC. See the guidance above for more information.


Information provided in this document and any opinions expressed are for general use and not personal to your circumstances, nor are they intended to provide specific legal or financial advice. No responsibility can be accepted for any action taken in reliance of this note and specialist advice should be taken in every case. Turcan Connell would be happy to provide such advice.

©Turcan Connell April 2017.