Free HMRC software for small companies will not work for charity trading subsidiaries using Gift Aid

Trading subsidiaries will have to buy their own software or pay for an audit, accountants say


Charity trading subsidiaries will have to buy specialist software to file their accounts online while most similar-sized commercial companies will be able to do so for free, HM Revenue & Customs has confirmed.

HMRC has made it compulsory for all companies to file accounts online using a system known as iXBRL. Free software is available for companies with annual incomes under the £6.5m audit threshold, but organisations that want to take advantage of Gift Aid  will not be able to use it. This includes almost all trading subsidiaries that covenant their profits to their parent charity and claim Gift Aid.

Charities themselves have been granted a temporary exemption from the requirement to file their accounts online because HMRC's free software does not comply with the rules governing charity accounting.

But charity trading subsidiaries have not been exempted, so they must buy either the services of an auditor or the correct software to file accounts. The total cost to the sector is likely to be several million pounds a year, auditors have claimed.

An HMRC spokesman said the software was designed for small companies with straightforward affairs and did not cater for Gift Aid payments.

"A non-charitable trading subsidiary company will therefore need to use commercial software to claim relief for Gift Aid donations made to its parent charity," he said.

Roger Chester, finance director of the chartered accountancy benevolent association LionHeart and deputy chair of the Charity Finance Directors' Group, said that HMRC had not properly considered the effects of the rules on charities.

He said a small charity trading subsidiary worth tens of thousands of pounds would now have to pay to file its accounts, whereas a commercial company worth millions of pounds would not.

"It's a pity they couldn't have tested how this would work before introducing it," he said.

Nick Brooks, head of not-for-profit at the accountancy firm Kingston Smith, warned that the requirement might cost the sector huge amounts.

"This means thousands of charities will have to pay to have their subsidiaries' accounts submitted, usually in the region of £500 to £750 each," he said.

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