Making Tax Digital for Charities

HMRC have, for some time, been considering the implementation of a real-time reporting structure for all businesses and individuals, called Making Tax Digital (“MTD”). This has already been implemented in respect of VAT for some VAT registered businesses, and will be expanded over the next couple of years to encompass all aspects of tax for individuals and businesses. The eventual aim is for all taxes to be reported to HMRC on a real time basis, rather than waiting up to two years after an event to receive information (and the tax).

Making Tax Digital for Charities

Most charities are probably looking to shut off now – tax isn’t relevant to charities, right?! Whilst this is practically the case for the majority of charities due to exemptions, all charities (whether companies or not) are technically within the corporation tax regime, and HMRC are within their right to request a corporation tax return at any point to ensure that the charity continues to operate within the relevant exemptions.

So how will MTD affect charities? HMRC are currently at a stage of taking consultations on how they aim to implement MTD for corporation tax, including making tax digital for charities. HMRC would particularly like views as to whether charities, CASC’s and other not-for-profit entities should be brought under the MTD heading and required to make real-time reporting to them, if they are requested to file a corporation tax return, or receive income on which corporation tax could be charged.

Earlier in February we participated in an exploratory session with HMRC on this topic and it was clear from that that many of the basic points behind charities and charity accounts had not currently been taken into consideration – such as the requirement for charities to report in accordance with the SORP, and the fact that minimal software is currently available. We have additional concerns regarding smaller charities, the irregular nature of tax return requests and the benefit (or lack of) of such potentially significant additional work for charities.

The consultation closes on 5 March 2021 and Albert Goodman will be making a submission. If you feel that there is a point that you would like to feed into this, please let Michelle Ferris know and we will ensure that your voice is heard.