You will hopefully be aware of the Common Reporting Standard, which affects investment managers, but also charities who classify as an ‘investment entity’. I am asking investment manager members to please highlight this new regulation to your charity clients in case they are unaware of their new obligations.
Which charities are affected?
Charities that are affected are those that get more than 50% of their income from investments over the preceding three years and whose investments are managed on a discretionary basis – where trustees have outsourced the decision making. Please note, a single holding in a unit trust/CIF does not constitute discretionary management if the trustees have made the decision to invest.
What are their due diligence and reporting obligations?
Investment entities have due diligence and reporting obligations. They must identify their ‘account holders’, carry out due diligence on these account holders and fulfil their reporting obligations to HMRC. There is no requirement to file ‘nil returns’.
For charitable trusts or unincorporated charities these account holders include all grantees and settlors. Due diligence requires tax residence data to be collected on all grantees and settlors, and to report any who are tax resident in a reportable jurisdiction to HMRC.
Incorporated charities (including those established by Royal Charter or Acts of Parliament) are likely to be less affected, although still have to report any equity or debt interest holders resident in a reportable jurisdiction. Please note incorporated charities may still hold assets in trust (e.g. permanent endowment) and may therefore have additional reporting obligations.
Reporting for 2016 should be submitted to HMRC online by the end of May 2017.
Richard Jenkins, Head of Policy at ACF and a CIG committee member, has prepared some useful material available on the ACF website – including a flow chart to help identify how an individual charity is likely to be affected.
Further guidance can be found on the HMRC website
Any queries do get in touch, and of course I am happy for you to use the above text for your own communications if useful.
Chair, Charity Investors Group