Charity sector bodies have raised further concerns about the burden the incoming Common Reporting Standard will place on charities and the lack of time they will have to prepare for the reforms after HM Revenue & Customs released new guidance about the measure.
The HMRC guidance, which was published yesterday and explains how the CRS works and which charities will be affected, says that charities whose main income is from investing in financial assets will be treated as financial institutions where those assets are managed by a financial institution.
The rules, designed to prevent tax evasion, are being introduced to the UK on 31 May 2017.
Richard Jenkins, head of policy at the Association of Charitable Foundations, told Third Sector that the CRS would require grant-makers to collect tax information from all their grant recipients, which could cause an administrative burden.
He said that a sizeable proportion of the top 300 independent foundations – which accounted for approximately 90 per cent of all giving in 2014 – would be affected.
"A conceivably high number of voluntary sector organisations that get any kind of independent foundation funding will be brought within the scope of the CRS," Jenkins said. "The net spreads very widely, very quickly, and that’s why people need to be aware of it.
"HMRC’s guidance is specifically tailored to a charity audience, so it ought to be much easier for people to know now if they are in scope and, if so, what their obligations ought to be. But this has been live since January 2016 and known about before then, but at no point did any of the communications reveal that charities were going to be in scope.
"We’re grateful that the guidance is there, but it could have been a lot easier if we had started further upstream."
Andrew O’Brien, head of policy and engagement at the Charity Finance Group, said he welcomed HMRC’s acknowledgement in its guidance that it had not given charities as much time as organisations in other sectors to become aware of the requirements of the CRS.
But he said questions remained around how charities would meet HMRC’s due-diligence requirements and how charities that worked in sensitive areas would be able to protect grantees.
"There is not a lot of time to resolve these issues, because charities are supposed to be gathering information right now and are due to make their first reports in May 2017," he said. "HMRC, the Charity Commission and sector bodies will need to work closely together to get this information quickly and in a format that charities, unaccustomed to this kind of tax reporting, can understand."
In May, a letter was sent to Rob Wilson, the Minister for Civil Society, by the ACF, the CFG and the Association of Charitable Organisations warning of the administrative burdens of implementing the CRS and saying that other countries in Europe and the US had excluded charities from their CRS regimes.