As reported to CTG members earlier this year, companies, partnership, groups or sub-groups need to publish a Tax Strategy if in their previous tax year they have either a: turnover above £200 million or a balance sheet over £2 billion. For groups and sub-groups, it’s the combined totals of all the relevant bodies that must be used.

The Tax Strategy needs to include sections on: how you manage tax risks; your attitude to tax planning; your tax risks; and working relationship with HMRC. The first strategy should be published before the end of your first financial year commencing after Royal Assent of Finance (No. 2) Bill 2016.

Following queries from members, CTG contacted the HMRC Charity Policy team to clarify whether charities would be required to produce a Tax Strategy. Officials confirmed that charities are required to comply if they meet the eligibility criteria outlined above.

However, CTG queried the definition of turnover and whether it would match the definition outlined in the Senior Accounting Officer (SAO) legislation which states:

For the purposes of the Senior Accounting Officer (SAO) legislation the definition of turnover is taken from Section 474 of the Companies Act 2006. This states that turnover means the amount derived from the provisions of goods or services within the company’s ordinary activities after deduction of trade discounts, VAT and other relevant taxes

Corporates which are charities almost certainly receive donations and other voluntary income which does not derive from the provision of goods and services. This would not therefore constitute turnover.

HMRC officials have confirmed that the same definition will be used, so donation income does not need to be included (see below). This will mean a number of charities will fall below the £200m turnover threshold. We understand HMRC consider grants to be voluntary in the context of charities where the receiver does not provide services to the grantor

Charities still have the option to provide a Tax Strategy if they wish, but this provides greater flexibility and ensures consistency in definitions across legislation and guidance.

E-mail from HMRC – 23 November 2017

Charities are included in the rules that require large businesses to publish a tax strategy. The rules will apply if in the previous tax year you have either a:

• Turnover above £200m
• Balance sheet over £2bn

Your first strategy should be published before the end of your first financial year commencing after 15 September 2016. Further information can be found on GOV.UK here.

Importantly for charities, the definition of turnover will be the same as that for the Senior Accounting Officer rules. The guidance for those rules is here. They explain: “Corporates which are charities almost certainly receive donations and other voluntary income which does not derive from the provision of goods and services. This would not therefore constitute turnover”.