New tax rules cost charities up to £8,500, according to Charity Finance Group

HM Revenue & Customs rules mean some incorporated charities and their trading subsidiaries face large costs in filing accounts, CFG finds

HMRC
HMRC

Charities are paying up to £8,500 to software companies and auditors to file accounts in order to comply with new HM Revenue & Customs rules, according to a Charity Finance Group survey of members.

HMRC has made it compulsory for all companies, including incorporated charities and charitable trading subsidiaries, to file accounts online using a system known as iXBRL.

Most companies with annual turnovers beneath the £6.5m audit threshold are eligible to file their accounts using free software provided by HMRC.

HMRC has granted a temporary exemption to charities with incomes of less than £6.5m until it creates free software they can use.

But because organisations that claim Gift Aid are ineligible for the software, incorporated charities and their trading subsidiaries must pay for alternative software or pay auditors to do it on their behalf.

It means some companies with multi-million pound turnovers may be able to file their accounts for free while some charity trading subsidiaries with turnovers of only a few thousand cannot.

The cost, which is in addition to the usual auditors’ fees, can run into several thousands of pounds for charities with more complex accounts, or with several trading subsidiaries.

The CFG, which surveyed 30 members, said one charity with several subsidiaries had paid £8,500. It estimates the total cost to the sector could be several million pounds.

Katherine Smithson, a policy officer at the CFG, said that in its present form iXBRL was a waste of charitable resources.

"Charities feel this is particularly unfair because they are spending time and money filling out forms to show they do not owe any tax," she said. "It’s not just the cost of paying auditors to file accounts. Most charities have used up a lot of staff time trying to work out what they have to do.

"For the moment, we’d like the exemption for small charities to be extended to trading subsidiaries.

"Ideally, we’d like any charity or trading subsidiary that is filing a nil tax return to be exempt from having to use iXBRL."

However, she said that if iXBRL was developed to allow charities to submit accounts for free, and if the same system was used by the Charity Commission and Companies House, it had the potential to be useful to charities.

"If those changes happen, it might be worth charities’ time," she said.

A spokesman for HMRC said: "HMRC is particularly sensitive to the costs imposed on the charity sector and has made particular arrangements to keep them to a minimum. We are always open to ideas and discussions to reduce burdens without undermining our duty to society to collect the right tax."

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