Charities: Due diligence: Reasonableness test
IEIM404940: Charities: Due diligence: Reasonableness Test
The due diligence requirements include a reasonableness test, whereby the charity must confirm that the self-certification it receives from any individual or entity is reasonable, based on other information it receives as part of the grant making process, or creation of the debt/equity interest. A charity can accept the reasonableness of a self-certification where it does not know, or have reason to know the self-certification is incorrect or unreliable. Charities are not expected to carry out analysis of relevant tax laws or seek exhaustive documentation to confirm the reasonableness of self-certifications.
For charities the information and documentation obtained as part of a grant making process will vary depending on the size and purpose of the grant, and the nature of the recipient. Therefore the information available to charities with which to confirm reasonableness will vary, and should be tailored to the nature of the grants, recipients, and processes and governance already in place. HMRC’s approach to reviewing charities’ compliance will take into account these variations and the different expectations.
A self-certification shows an address that conflicts with that shown on other information and /or documentation held by the charity - that self-certification should be considered incorrect or unreliable.
A charity is making grants to homeless individuals in the UK and the volunteers verbally ask recipients to confirm they are resident in the UK. Such a verbal affirmation is reasonable in the circumstances, as there is nothing to indicate, from the information available to the volunteer, that the statement is unreliable.
A charity provides financial support to benefits claimants in the UK, as part of governance processes it asks all recipients to confirm they are in receipt of certain UK state benefits. The self-certification includes a tick box where the recipient can confirm they are resident in the UK, if that is ticked then the self-certification is reasonable as the other information held supports that the individual is tax resident in the UK.
A charity has asked for self-certification from an individual grantee. The grantee has indicated UK tax residence, including their National Insurance number, but the charity has previously been provided with a residential address in France. The banking details into which the grant is to be paid are not from a UK bank. The charity cannot rely on the self-certification form since the information it holds about the grantee more generally suggests the grantee may be resident in France. The grantee should be asked to provide a proof of identity and proof of address.
Where self-certifications fail the reasonableness test
Whatever the cause, where the charity cannot rely on the original self-certification it must obtain either:
- A valid self-certification that establishes the residence(s) for tax purposes of the Account Holder, or
- A reasonable explanation and documentation (as appropriate) supporting the validity of the original self-certification (and retain a copy or a notation of such explanation and documentation).