Charities and not-for-profit organisations are facing increased scrutiny from HM Revenue & Customs (HMRC), with greater focus on financial governance, compliance procedures, and the correct application of tax reliefs. Through the introduction of Structured Risk Reviews (SRRs), HMRC is expected to examine payroll compliance, VAT returns, Corporation Tax (where applicable), and Gift Aid claims more closely.
In this blog, Lee Bradley, Tax Partner at Bevan Buckland, looks at what Structured Risk Reviews could mean for charities, the potential impact of HMRC enquiries, and the practical steps trustees and finance teams should consider to strengthen compliance and reduce risk.
Why HMRC Is Increasing Oversight
The charity sector continues to play an important role in the UK economy, with more than 170,000 registered charities contributing billions of pounds each year. At the same time, charities are operating in an increasingly challenging environment, with tighter regulation, growing financial pressures and greater expectations around transparency and accountability.
Structured Risk Reviews form part of HMRC’s wider compliance activity and are intended to assess whether charities have suitable systems, controls and governance arrangements in place. The reviews are not simply about identifying errors or unpaid tax. They are also designed to give HMRC a clearer understanding of how financial risks are managed within an organisation and the level of oversight being exercised by trustees.
As part of the process, HMRC may seek detailed information on payroll procedures, VAT treatment, Gift Aid claims, and, where relevant, Corporation Tax compliance. Organisations may also be asked to demonstrate how financial decisions are reviewed, approved and documented internally.
For charities with limited internal finance resources, responding to these requests can be both time-consuming and disruptive, particularly where processes have evolved over time or records are not easily accessible.
Areas Charities Should Review
Given the increased focus on compliance, now is a sensible time for charities to review key financial procedures and ensure appropriate controls are operating effectively. Areas worth reviewing may include:
- Gift Aid claims and supporting documentation – ensuring declarations remain valid, records are retained correctly, and claims are fully supported. Even relatively minor administrative errors can lead to delays, adjustments or additional enquiries.
- Payroll compliance and PAYE procedures – particularly where charities employ a combination of full-time staff, part-time employees and casual workers. Trustees should ensure that benefits, expenses, and pension obligations are treated appropriately.
- VAT treatment and partial exemption rules – reviewing whether VAT has been applied consistently across charitable and non-charitable activities, and identifying potential risks before they develop into more significant compliance concerns.
- Financial oversight and internal controls – considering whether reporting lines, approval procedures and internal review processes remain fit for purpose and can demonstrate strong governance if HMRC opens an enquiry.
- Accounting records and financial documentation – ensuring records are accurate, accessible and up to date so information can be provided efficiently if requested during a compliance review.
- Investigation insurance and fee protection – considering whether appropriate cover is in place to help manage the professional costs associated with HMRC enquiries and compliance investigations, and speaking with accountants or professional advisers about the options available.
The Potential Impact of an HMRC Enquiry
Even where no issues are ultimately identified, HMRC enquiries can place considerable pressure on internal teams. Responding to requests for information often requires significant management time, detailed reconciliations and professional support.
Professional representation during an enquiry can be particularly valuable where HMRC requests extensive documentation or undertakes a more detailed compliance review. Experienced advisers can help organisations manage communication with HMRC efficiently and ensure information is presented clearly and accurately.
Many accountancy firms now offer tax investigation insurance or fee protection services, which can help charities manage the potentially significant professional costs associated with HMRC enquiries and investigations.
Preparing for Greater Scrutiny
Early preparation can help reduce disruption and allow charities to respond more confidently should HMRC open an enquiry. Organisations that regularly review procedures, maintain accurate records, and strengthen internal controls are generally better positioned to manage compliance checks effectively.
As HMRC increases its focus on governance, financial oversight, and the correct application of tax reliefs, trustees and finance teams should ensure compliance remains an ongoing priority rather than a reactive exercise.
A proactive approach to payroll, VAT, Gift Aid and wider financial controls can help reduce risk, support good governance and provide reassurance to trustees, funders and stakeholders alike.
If you would like to discuss HMRC compliance, charity governance or our investigation insurance, our specialist team can help. Please get in touch by emailing mail@bevanbuckland.co.uk or by calling 01792 410100 to find out more.
