HMRC Structured Risk Reviews: What charities need to know

HMRC has started using Structured Risk Reviews as part of its work with charities and not-for-profit organisations. For many charities, this will feel different from a normal tax enquiry: it's broader, and looks closely at how tax risks are managed in practice.

A Structured Risk Review (‘SRR’) is, in effect, a review of a charity’s tax governance, systems and controls across the main taxes that may affect it, including employment taxes, VAT, corporation tax and Gift Aid. Rather than simply checking whether a return has been filed correctly, HMRC will want to understand how the charity makes sure its returns, claims and payments are accurate, timely and supported by appropriate records.

From HMRC’s perspective, the review is designed to identify areas where tax may have been underpaid or where controls could be strengthened. From a charity’s perspective, it is also a reminder that tax risk is a governance matter, not just a finance team issue. Trustees and senior management should be comfortable that the right processes are in place and that any difficult areas have been properly considered and documented.

How might a charity be selected?

HMRC has not published a precise selection formula. However, reviews appear to be informed by data analysis, including HMRC’s Connect system, which compares information from tax filings and other available sources. A charity may be more likely to attract attention where its activities are complex or where the data suggests potential inconsistency. Examples might include:

• a complex group structure;
• a diverse range of activities, including commercial activities;
• a large number of employees;
• international operations;
• a history of late or incorrect returns, or late payments of tax; or
• large VAT, Gift Aid, or creative sector tax relief claims.

Some charities may also be selected simply because of scale. Where the numbers are large, even a small error in process can lead to a significant tax exposure.

What happens during an SRR?

A charity will normally be contacted in advance and told that it has been selected for review. The process will often begin with an opening meeting, attended by HMRC officers with responsibility for the different taxes under consideration. HMRC will usually set out the areas it wants to discuss so that the charity has time to prepare.

The questions are likely to be practical and wide-ranging. HMRC may ask about:

• the charity’s legal and group structure, including any overseas operations;
• the charity’s activities, income streams and how these link to its charitable purposes;
• who has day-to-day responsibility for tax, what support they receive, and how they keep up to date;
• how tax returns and claims are prepared, reviewed and approved, and whether those processes are documented;
• procedures for preventing tax evasion and meeting wider fraud-prevention obligations;
• overseas expenditure and how the charity satisfies itself that funds are applied for charitable purposes;
• the types of income on which Gift Aid is claimed;
• Gift Aid processes, including the checks over declarations and supporting records;
• how income is treated for VAT purposes, including standard-rated, zero-rated, exempt and outside-the-scope income;
• the basis of any partial exemption calculations and business/non-business apportionments for VAT;
• benefits and expenses for employees, trustees and volunteers, and how these are reported where necessary;
• the basis of any PAYE Settlement Agreements;
• the tax treatment of employees who come to the UK to work, or who leave the UK to work overseas; and
• how professional advisers are used to support the charity’s tax affairs.

In practice, we would encourage charities not to treat the opening meeting purely as an examination. It is also a chance to explain how the charity operates, where judgement has been needed, and where the tax rules are difficult to apply in a charitable context. Where there are areas of uncertainty, it is generally better to be clear about them, explain the position taken and show the supporting rationale.

What might the outcome be?

After the initial discussions, HMRC will normally provide notes of the meeting and may ask for follow-up information. This might include policies, calculations, working papers, reconciliations or evidence supporting particular claims or filing positions.

If HMRC identifies a risk of tax loss, that area may be taken forward for more detailed review and, in some cases, through formal enquiry procedures. HMRC may also make recommendations aimed at reducing future compliance risk. For a charity, the best outcome is not simply “no adjustment”; it is being able to show that tax risks are understood, managed and evidenced properly.

What should charities do now?

An SRR can be time-consuming, particularly if key documents are hard to locate or processes have developed informally over time. Some risk factors, such as size, complexity or overseas activity, cannot be changed. However, charities can put themselves in a stronger position by making sure filings and payments are made on time, tax positions are properly reviewed, and key processes are documented.

A practical first step is to carry out a tax health check or internal review. This should look at the charity’s tax processes, procedures and controls, including whether responsibilities are clear, whether review points are evidenced, and whether higher-risk areas are captured in a tax risk register. Done well, this is not just a defensive exercise. It can help trustees and finance teams understand where the charity is exposed, what needs tightening, and what can be explained confidently if HMRC asks.

If your charity would like an independent review of its tax processes, has received notification of an SRR, or would simply like to talk through an area of uncertainty, we would be happy to help. Our charity tax advisers can support with practical health checks, preparation for HMRC meetings, responding to information requests and strengthening tax governance for the future.

Need help?

Get in touch with your usual Larking Gowen contact or send an enquiry to our team:

• 0330 024 0888
• Submit an enquiry

Andrew Robinson | Partner | Based in Ipswich & Norwich