Financial reporting for small trusts

Foreign Account Tax Compliance Act (FATCA) was proposed in October 2009 by the US government. Its aim was to combat tax evasion by US tax residents using foreign accounts.

Later, the Organisation for Economic Co-operation and Development (OECD) published the Common Reporting Standard (CRS) for the Automatic Exchange of Financial Account Information. Financial institutions resident in CRS countries will report account holder information to their local tax authorities who’ll exchange information with countries where account holders are tax residents.

These reporting standards were introduced for transparency to help fight against tax evasion and protect the integrity of tax systems in the registered countries.

Under FATCA and CRS, all entities need to consider whether they’re classified as a financial institution or a non-financial entity.  Entities can include trusts, companies, partnerships and charities.  Therefore, whilst most people think of financial institutions as being a big bank, or investment broker, it can include a small trust or family investment company.

If the entity is a non-financial entity, it will need to declare this on any self-certification forms requested, typically by the entity’s bank or investment manager.

If an entity is classified as a financial institution there are additional reporting requirements. 

Firstly, it may need to register for a Global Intermediary Identification Number (GIIN).  This is a registration directly with the IRS, however there are a number of UK agents or sponsors that can take on this responsibility instead.

Secondly, it will need to check, on an annual basis, if there are associated persons resident in either the US or one of the relevant CRS countries.  If there are, the financial institution will need to submit an Automatic Exchange of Information (AEOI) return.  The AEOI return will cover both FATCA and CRS reporting obligations.

It’s the responsibility of the financial institution to carry out the following tasks:

• Identify and record US persons and persons resident in a CRS country (of which there are over 100, with more added each year)

• Identify and record payments to or for those persons

• Report the relevant payments to the authorities

‘Associated persons’ is a wide definition and can include, for example, trustees and persons with significant control, even if they never receive any payment from the financial institution.

Reporting is for the year ended 31 December and returns need to be completed by 31 May following the relevant year end. Therefore, 31 May 2022 is the filing deadline for the year end 31 December 2021.

To submit a return, an AEOI account will need to be set up for that organisation via the government gateway website.

If returns are filed late or totally omitted, HMRC may issue penalties.

Need help?

If you have any queries, please don’t hesitate to get in touch with your usual Larking Gowen contact, and one of our specialists will assist you. You can find contact details on the Our People section of our website. Alternatively, you can email us at enquiry@larking-gowen.co.uk, or telephone 0330 024 0888.

Alex Coghill