Structured Risk Reviews: what do they mean for charities?

HMRC's Structured Risk Review (SRR) has now been rolled out to charities, marking a significant development in regulatory scrutiny of the not-for-profit sector.

Whilst HMRC has always undertaken reviews of charities, these have generally been focused, limited reviews, such as Gift Aid audits, or overseas payments reviews. By contrast, the SRR is intended to give HMRC a holistic and complete picture of an organisation's operations as a means to ensuring tax compliance.

The scope of an SRR is therefore extensive, potentially across all aspects of a charity's organisational practices, such as governance, fundraising, investment, and relationships with subsidiaries. Charities involved in an SRR can expect HMRC to request wide-ranging documentation, trustee minutes, reports, and bank statements, as well as narrative explanations.

Whilst no formal selection criteria has been published, it appears that HMRC is being informed by data from its analytics platform 'Connect', which identifies inconsistencies across sources including tax filings, Companies House, the Charity Commission, banking data, the charity's website and social media. Any identified errors may trigger an SRR, but HMRC may also assess a charity's wider risk profile, taking into account factors such as number of employees, income sources, repayment claims or overseas operations.

The SRR process will be intense for any charity being scrutinised, comprising an introductory meeting, an information gathering phase and follow up analysis. At these meetings (which can be lengthy), HMRC can ask extensive, wide-reaching questions building on their analysis of submitted tax returns.

Upon conclusion of the review, HMRC can impose financial penalties if it identifies any errors in submitted returns, failures to comply with HMRC rules, late filings or other irregularities. The level of penalty will depend on the behaviour that led to the relevant error and the level of cooperation shown by the charity throughout the SRR process, but can be up to 100% of the tax liability. It is also important to note that HMRC and the Charity Commission can share relevant information with each other. Therefore, although the exact nature of any collaboration between HMRC and the Commission on SRRs is unclear, one can anticipate that HMRC may consider it necessary to notify the Commission if it has identified any wider shortcomings in the charity.

Charities must be aware that SRRs are not a review that can be adequately prepared for at short notice – instead, charities must ensure best tax, governance and documentation practices are in place in case they are subject to an SRR.

For advice on this topic, please get in touch with your usual Withers contact or the author of this article.