Incorporated charitable grant-makers will not be required by the new Common Reporting Standard to carry out due diligence on organisations they fund, according to the Association of Charitable Foundations.
HM Revenue & Customs has provided new guidance to the ACF on how the CRS, which is an international information standard for the automatic exchange of information and is designed to prevent tax evasion, will affect certain types of charities when it comes into effect next year.
The standard is being implemented worldwide, and will come into force in the UK on 31 May 2017, albeit with a "soft landing" for the charity sector because of the relative lack of time to prepare for its introduction.
HMRC guidance published in August said charities that derived their main income from investing in financial assets would be treated as financial institutions under the CRS, prompting concerns about how the policy would affect charities.
According to a statement on the ACF website, HMRC has clarified to the umbrella body how the CRS will affect incorporated organisations, such as royal charter charities, and unit trusts, which are trusts formed to manage stockmarket portfolios in which small investors can buy "units".
The ACF said incorporated organisations, though still able to qualify under the CRS, "will not have to carry out due diligence or report on grant-holders, and will only be required to do so for members of the company who have a debt or equity interest".
It said this would reduce the bureaucratic burden on the affected charities.
In regards to unit trusts, the ACF said HMRC had confirmed that trusts or foundations that had placed all of their investments in unit trusts would not be covered by the CRS.
This was because they were deemed to be taking a share of the profits of the unit trust, rather than directly investing in the market, according to the ACF statement.
The ACF statement also said: "This feels like welcome progress. However, ACF is still in conversation with HMRC about the process to be put in place to cover those occasions when exchange of information with a foreign jurisdiction could give rise to human rights concerns for the individuals concerned. We expect specific guidance soon."
This clarification from HMRC comes after fears were expressed by prominent charity sector representatives about how charities would be affected.
Earlier this year, a letter to the Minister for Civil Society from the ACF, the Charity Finance Group and the Association of Charitable Organisations warned of the administrative burden placed on charitable funders by the CRS requirement to collect and report tax information on grant-holders.