Yorkshire Charities Urged to Strengthen Compliance Amid HMRC Review Intensification

Charities and not-for-profit organisations across Yorkshire are being urged to tighten their procedures and record-keeping as HM Revenue & Customs (HMRC) steps up its compliance activities. This warning comes from Siobhan Holmes, a partner at the accountancy firm Azets, which has offices in Leeds, Bradford, and York. With new measures in place, it is essential for these organisations to ensure they are prepared for potential reviews and investigations.

Increased HMRC Activity

The recent announcement by HMRC indicates a shift towards a more rigorous approach to monitoring charities and not-for-profit organisations. This includes the launch of Structured Risk Reviews (SRRs), which are designed to identify any potential tax discrepancies and ensure compliance with regulations. Siobhan Holmes explained that this new method aims to recover 'lost' taxes and gain a better understanding of how these organisations operate. Using advanced technology, such as its Connect analytics system supported by artificial intelligence, HMRC can analyse data from various sources including tax filings, public records, and even social media. This comprehensive approach means that even small inconsistencies in financial records could trigger a detailed review.

What to Expect During a Review

Holmes noted that during these reviews, HMRC will closely examine several key areas:

• Payrolls: Ensuring that employee wages are accurately reported.

• Tax Returns: Checking if submitted tax returns align with other public statements.

• VAT Returns: Looking into how value-added tax is handled.

• Gift Aid Claims: Verifying the legitimacy of claims made under the Gift Aid scheme.

“This is likely to pick up a great deal of data which was previously not considered,” Holmes stated. She also highlighted that reviews can be time-consuming and cause stress for trustees and organisations facing investigation.

Common Triggers for Reviews

Azets has identified several common triggers that may lead to an SRR:

• Large or widely spread employee bases

• Multiple and complex sources of income

• Requests for repayment claims

• Engaging in trading or commercial activities

• Operations, projects, or subsidiaries located overseas

These factors can increase the likelihood of HMRC focusing on an organisation, meaning that those involved in charities and not-for-profits should be vigilant about their financial practices.

Key Areas Under Review

The reviews conducted by HMRC will cover a range of financial aspects, including:

• Corporation Tax: Ensuring proper reporting and payment.

• Charitable Expenditure: Verifying that funds are used appropriately.

• Gift Aid Governance: Confirming compliance with Gift Aid regulations.

• VAT Treatment: Investigating the correct application of VAT rules.

• Employment Taxes: Reviewing payroll controls and benefits provided to employees.

These areas are crucial for maintaining transparency and accountability within the charity sector, which is vital for public trust and support.

The Importance of Professional Advice

Holmes advises that if organisations suspect they may be subject to an SRR, or if they are unsure about the robustness of their procedures, seeking professional advice is essential. “The quicker action is taken, the more chance there is of mitigating against potential penalties,” she emphasised. With the charity sector in the UK being significant—there were 171,173 registered charities in 2024, employing around 827,000 people and contributing over £12 billion to the economy—it is vital for these organisations to operate within the law and maintain public confidence.

Support from Azets

Azets has over 25 years of experience in providing compliance, governance, and advisory services tailored to charities and not-for-profit organisations. Their expertise has been recognised in the Charity Finance Magazine Audit Survey, where they were ranked among the top charity audit firms in the UK. The firm received commendations for their service quality and commitment to client satisfaction. Siobhan Holmes expressed pride in the firm’s achievements, stating:

“Azets achieved 100% positive feedback for charity expertise, technical competence, and overall service—a result we are proud to have maintained consistently year on year.”

This level of support can be invaluable for charities navigating the complexities of compliance and financial management. In light of these developments, Yorkshire's charities are encouraged to review their processes and records carefully. Ensuring all procedures are robust and compliant with HMRC regulations will not only help avoid potential issues but will also contribute to the overall integrity and effectiveness of the charity sector.