Our previous article, ‘There may be Trouble Ahead!', alerted churches and charities to the possibility of having to register with HMRC as part of the ‘Trusts Registration Service’ (TRS). This comes about as a result of implementation of the 5th Money Laundering Directive (5MLD).
Since our last article, HMRC and the Treasury have published a Technical Consultation Document on 5MLD. Following representations, they have confirmed that:
“The government proposes that charitable trusts are not in the scope to register because the risk of these kinds of trusts being used for money laundering or terrorist financing activity is low.”
The Technical Consultation is accompanied by draft legislation to implement the new rules and to exclude certain types of trust from registration under the TRS.
This is good news for churches and charities that are registered with the relevant UK charity regulator or are excepted from registration (churches that are part of one of the mainline denominations named in the excepting Regulation and with an annual income of under £100,000) or are exempt charities.
But, at the time of writing, we have identified three problems with the way that the draft legislation is written:
- If your church or charity has either restricted funds or endowment funds, these may still need to be registered on a fund by fund basis.
The reasons for this are both technical and, we believe, unintended. We have therefore taken this matter up with HMRC with the hope that all charity funds will ultimately be excluded.
- If your charity is in Northern Ireland (incorporated or unincorporated) and it is not yet registered with Charity Commission Northern Ireland, then the legislation as presently drafted will require your charity to register.
- Charities with an income of under £5,000 are not required to register with the Charity Commission in England and Wales. As such, the draft legislation requires registration under the TRS.
HMRC has confirmed to us that requiring the charities described in paragraphs 2 and 3 above to have obligations under TRS is unintended. HMRC will address this prior to its launch.
Non compliance with the TRS regime will eventually carry a £100 penalty per offence. However, further good news is that the earliest date for registration is now 10 March 2022 (replacing previously proposed deadlines from as early as May 2020).
We are expecting that all charities and all charitable funds will be excluded from the TRS regime.
However, this needs to be confirmed by the government prior to the launch of TRS in March 2022.
Watch this space!