IEIM404980: Charities: Compliance
The main guidance manual includes information on HMRC’s approach towards compliance of Financial Institutions [see IEIM405010]. This guidance should be read in conjunction with those pages.
HMRC recognise that the AEOI regimes present a challenge for charities where they are required to carry out due diligence checks on grant recipients. We also recognise that general awareness around the impacts for charities started later than for other sectors, so they have had less time to become aware of the requirements and put processes in place ahead of the rules coming into effect. The compliance approach towards charities will reflect this [see IEIM404980] and what is reasonable will depend on the other governance processes in place, which will align to the sectors in which the charity operates.
For the early years of AEOI reporting HMRC’s approach to compliance by charities that are Financial Institutions will be a soft landing; we will not seek to apply penalties where charities have made efforts to carry out due diligence requirements and report accurately. However, we will not rule out the imposition of penalties where charities have failed to engage with the requirements.
When considering the due diligence processes and reasonableness checks that charities are carrying out we will take into account the size and complexity of the charity, its other regulatory and governance processes and the nature of the grants it is making. We would advise charities who are unsure about their processes to engage with HMRC early, via their Customer Relationship Manager or other contact, to agree what is reasonable in their circumstances.
We will seek to support charities in understanding the rules, and in applying them to their operations, taking into account the experience and knowledge of key personnel. Where a charity has made reasonable efforts to implement a process to carry out due diligence and reporting requirements but we consider it is not meeting the requirements of the AEOI regimes, we will seek to work with the charity to improve processes going forwards.
As the AEOI regimes become established we expect charities to keep up to date with the requirements and ensure that their processes meet requirements and allow accurate and timely reporting. Compliance of charities that are Financial Institutions will form part of HMRC’s general compliance approach towards charities.
The AEOI regimes include an anti-avoidance rule where a person enters into any arrangements and the main purpose, or one of the main purposes of the arrangements, is to avoid any obligations under the AEOI regimes. It means the arrangements are treated as having no effect.
HMRC will not consider that a change to a charity’s structure will fall foul of this rule where the change is part of a review of the operational structure and not made for the purposes of avoiding AEOI reporting.