HMRC exempts charities from digital record-keeping plans

After a consultation, HM Revenue & Customs says, however, that charity trading subsidiaries will be expected to comply


HM Revenue & Customs has granted an exemption for charities from a new government scheme that will force most businesses to introduce digital record-keeping and produce quarterly updates.

HMRC has published its response to a consultation it ran on its Making Tax Digital programme. Its response says that charities will be granted an exemption, though their trading subsidiaries will be expected to comply with the proposed scheme.

Among the arguments put forward by respondents that were included in HMRC’s consultation response was that forcing charities to adopt the Making Tax Digital programme could discourage volunteers because of the scheme’s regulatory requirements.

Other respondents warned that Making Tax Digital, which is due to be introduced over the next four years, could lead to transition costs for charities, the consultation response says.

It says: "The consultation document made it clear that HMRC considered it appropriate for charities to be exempted from the Making Tax Digital requirements, while commenting that there were significant potential benefits for charities in maintaining digital records and in using software to update their digital tax accounts where they do need to make a return for corporation tax or income tax self-assessment.

"Having considered all the responses, our view remains unchanged, and the government will therefore introduce legislation to exempt charities from the Making Tax Digital requirements."

Community amateur sports clubs also received an exemption, the consultation response says.

Charity trading subsidiaries will not be exempted. HMRC’s consultation response says that doing so would lead to an unfair competitive advantage and all profit-making businesses should be subject to the new digital programme.

The Charity Tax Group welcomed the exemption for charities, but said it was clarifying with officials the process for how charities should manage their current tax-reporting requirements.

The CTG also expressed concerns about how the Making Tax Digital programme would affect charity trading subsidiaries.

It said: "If the decision is taken to require charity trading subsidiaries to maintain digital records and update HMRC at least quarterly, we believe it would be sensible to introduce some form of transitional period and consider a size threshold to protect smaller organisations.

"CTG is also hopeful that the government will take forward recommendations to consider options to integrate Gift Aid operations for both charities and donors (including higher-rate relief through personal tax accounts) as systems develop as part of the Making Tax Digital agenda."

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