If you're involved in financial record-keeping, or deal with Gift Aid or tax returns for a charity, you need to be aware of the new HM Revenue & Customs compliance checking framework and accompanying safeguards, which come into effect on 1 April this year.
The changes mean record-keeping requirements will be clearer and more consistent. There will also be more consistent inspection and information-gathering powers for HMRC and revised time limits for making claims and assessments. The new regime will apply to income tax, including Gift Aid, PAYE, corporation tax, capital gains tax and VAT.
This has several implications for charity record-keeping. In general, charities should keep their records for at least six years, although Gift Aid declarations with enduring effect currently need to be kept until after the charity stops claiming on them, as they form part of the records for every claim they support. HMRC is, however, in the process of considering proposals that would ease this requirement.
It's very unusual for HMRC to ask a charity for records, other than enduring declarations, that are more than six years old. To do so, a tax officer would have to have the approval of a senior officer and the records would have to be requested by written notice. Charities will always have the right of appeal against requests for older records unless the request is authorised by a tribunal.
It is expected that the time limits for charities to submit tax assessment claims will be reduced from six to four years from 1 April 2010. Charities should bring any late claims up to date over the next year. Officers will normally ask to see records only for periods that can be assessed - so, if an accidental mistake is suspected, they will ask to see only those records that are no more than four years old. Where a charity has been careless, the period is set at six years.
If charities are suspected of deliberate understatement, or failing to notify HMRC of liability for tax, inspectors may view their records for the past 20 years.
The rules on visiting charities have also been made clearer. HMRC can inspect only charities' statutory business records, business premises and business assets. An officer must always give at least seven days' notice of a visit or have authorisation from a senior officer. A fact sheet should be provided setting out the taxpayer's rights, how officers should behave and what taxpayers can do if they have concerns. Unannounced visits to charities will be very rare and subject to additional safeguards.