We are aware that HM Revenue & Customs (HMRC) has recently initiated a programme of Structured Risk Reviews (SRR) across the charity and not-for-profit sectors. This is a very new approach from HMRC to the sectors, and below we consider some of the key points you should be aware of.
How is an organisation selected for a SRR?
Whilst HMRC has always undertaken reviews into individual taxes, the SRR is a concerted attempt to join forces across the different taxes, to understand how charities and not-for-profit organisations operate, as well as recovering any ‘lost taxes’, together with interest on any penalties.
HMRC has within its resources a powerful computer programme called “Connect”, which has been in place for some time now. Connect can pull together information from publicly available sources like social media in addition to over 30 databases. Whilst it was initially used in connection with fraud investigations, some of the questions we have seen being raised on SRRs indicate that Connect is now being used along with AI tools to examine all tax and payroll returns which have been filed and to test them against public statements. Certainly, some of the questions we have seen so far relate to data being included in the wrong box on a return, which could potentially result in an underpayment of tax.
Clearly, any potential errors will increase the likelihood of a review. However, the following are examples of other reasons why HMRC may initiate a SRR:
- Number of employees and where they work;
- Income sources;
- Whether any repayments are being claimed;
- Extent of any commercial activities;
- Nature of any overseas projects.
Whatever the reason the SRR has been initiated, the Social Purpose team at HaysMac is here to help!
What is the scope of a SRR?
HMRC will carry out a review across all taxes and duties which it believes are relevant to the organisation, including:
- Corporation Tax and charitable expenditure;
- Gift Aid;
- VAT;
- Employment taxes
As part of the review process, HMRC will have already undertaken an internal review of returns which have been submitted by the organisation, and this will form the basis of the ‘opening’ meeting. The focus of the review will include the following:
- What is the structure within the organisation?
- What internal controls and protocols are in place?
- Who is responsible for the tax reporting?
- What special arrangements or easements are in place and how are they monitored?
- Details of the organisation’s investment strategy.
- Fraud prevention and safeguarding.
- What is the organisation’s fundraising strategy?
The approach HMRC is adopting is to hold a fact-finding opening meeting, typically lasting between three to four hours. During the meeting, HMRC will raise specific questions based on tax returns that have been submitted. Some examples of the questions which may be asked include, but are not limited to, the following:
- What are the income sources and fundraising activities?
- Details of any trading subsidiaries, overseas subsidiaries, project partners and any connected parties.
- Basis upon which any creative tax reliefs have been claimed.
- How Gift Aid payments are monitored and reported to HMRC.
- Income recognition for VAT purposes.
- How any reverse charging is applied.
- Details regarding how any partial exemption method calculations are prepared.
- What controls are in place to monitor overseas grants and expenditure?
- What is the approach to paying directors and trustees?
- Details of employee expense procedures.
- What benefits are provided to employees?
- What arrangements are in place for employees who work overseas?
Following the initial meeting, HMRC will write to the organisation setting out any additional questions they wish to raise as well as inviting the organisation to re-visit any returns previously submitted to HMRC.
How HaysMac can help
Our Social Purpose Tax team has considerable experience working across VAT, Corporation Tax, Gift Aid and Employment Tax. We have a dedicated Tax Disputes and Resolution team who can provide strategic insight into HMRC reviews.
We will help you prepare for the initial HMRC meeting, which is usually the most daunting part. We’ll take care of managing the HMRC correspondence, either directly or as a sounding board, to guide you on the best way to reply to their questions. Put simply, we’ll be right there with you, giving you the support you need to make the whole SRR process feel a lot less stressful.
If you’d like to know more, please get in touch with your usual HaysMac contact, or connect with a member of our Social Purpose tax team, we’ll be glad to help!
