HM Revenue & Customs has updated its guidance on the forthcoming common reporting standard after receiving concerns from charities.
The CRS is an international standard for the automatic exchange of information and has been developed by the Organisation for Economic Cooperation and Development.
The rules, designed to prevent tax evasion, have been implemented in the UK by HMRC after an EU directive passed the OECD agreement into law. They are due to be implemented on 31 May.
HMRC claims that exempting charities from the CRS would create loopholes that could be misused by those wanting to avoid tax, and said it would apply to charities that fall under the definition of "financial institutions".
The Association of Charitable Foundations said today that it had worked with the Charity Finance Group and the Ariadne Network of human rights funders to raise concerns over the lack of clarity about which charities would be affected by the CRS, the bureaucratic requirements and potential human rights concerns.
HMRC has now updated its CRS guidance for the charity sector in light of those concerns.
Carol Mack, chief executive of the ACF, said: "We welcome the completion of this guidance, which follows a long and intensive period of engagement from us and our partners.
"Thankfully, the ACF was able to highlight the implications of CRS for endowed foundations by drawing on our knowledge of and connection with our varied and supportive membership.
"However, it is extremely disappointing that HMRC did not engage at an early stage with the charity sector – the abject failure to do this has created months of unnecessary anxiety and uncertainty.
"While we fully support the aim of combating tax evasion, we deeply question the need to inflict this degree of red tape on funders and will be monitoring implementation closely in the coming months and years."
Andrew O’Brien, head of policy and engagement at the CFG, said: "It is critical that all charities understand the CRS. Tax-compliance regulation is constantly evolving and old assumptions about charities are giving way to increased reporting and scrutiny. Charities must not assume that they will not be affected because of their charitable purposes.
"We are pleased to have been able to support ACF’s leadership on improving government’s understanding of the impact of the CRS on the charity sector, and developing materials that will help charities stay on the right side of the rules."
The ACF and the CFG have released guidance for charities on how the CRS will work.