Payments to overseas bodies

On 20 October 2026, HMRC updated Annex II: Non-charitable expenditure to clarify and expand its published guidance on due diligence, record-keeping, monitoring and payments to overseas bodies and individual beneficiaries. The underlying requirement to take reasonable steps in relation to payments to overseas bodies already exists. The update provides more detail on how charities should evidence their approach; it should not be read as making every expectation described in the guidance a new requirement.

This briefing focuses on grants and other payments to separate overseas bodies, including overseas charities and partner organisations. Direct payments to individual beneficiaries are addressed separately in HMRC's guidance. For overseas branches and projects, charities should establish whether the recipient is a separate body or part of the UK charity. These arrangements should not automatically be treated as identical for the overseas-body provisions. Appropriate controls and evidence of charitable use remain important in each case.

What is the tax issue?

A payment by a charity for its charitable purposes will generally constitute charitable expenditure. However, an additional statutory requirement applies where a payment is made to an overseas body.

Section 500 of the Corporation Tax Act 2010 for charitable companies and Section 547 of the Income Tax Act 2007 for charitable trusts address payments to bodies situated outside the UK. The key requirement is to take reasonable steps, in the circumstances, to ensure the payment is applied for charitable purposes. HMRC's guidance explains the evidence it expects charities to retain and provide to demonstrate that requirement has been met.

If this condition is not met, the payment constitutes non-charitable expenditure for UK tax purposes.

That distinction can have real tax consequences. Non-charitable expenditure may restrict exemptions on the charity's income and gains under the statutory calculation and may result in a tax liability. It does not automatically mean that the overseas payment itself is taxed or that all of the charity's tax exemptions are lost.

Where a charity incurs non-charitable expenditure, HMRC's guidance states that it must file an appropriate tax return for the period and account for any resulting liability.

What does HMRC expect?

Importantly, establishing that a recipient is recognised as a charity under the law of the relevant overseas jurisdiction is not, in itself, sufficient. Nor does HMRC consider the retention of records showing how expenditure was made as necessarily adequate. Trustees must be able to explain the steps taken to ensure the funds were applied for charitable purposes, demonstrate why those steps were reasonable, and provide evidence that they were undertaken.

When reviewing an overseas payment, HMRC says that it will generally ask for evidence concerning:

• who received the payment?
• the specific charitable purpose of the payment and how the decision to make it was reached
• guarantees or assurances regarding the use of the funds, potentially including partnership agreements or other written enforceable agreements
• the financial controls in place and records providing a robust audit trail
• safeguards, monitoring and oversight undertaken by the charity
• subsequent action to confirm that the money was actually applied appropriately.

HMRC makes clear that insufficient evidence may mean it cannot accept the expenditure as charitable expenditure, potentially resulting in a tax liability. Responsibility for retaining and providing this evidence lies with the charity.

A proportionate, risk-based approach

The guidance does not suggest that every overseas payment requires the same level of investigation.

HMRC says that what constitutes ‘reasonable’ steps depends upon the circumstances and identifies factors including the charity's existing knowledge and relationship with the overseas body, its history, the amount involved both absolutely and relative to the charity, and whether the charity has followed adequate internal financial and decision-making procedures.

For example, for a small, one-off payment, an appropriate exchange of correspondence may normally be sufficient. Its guidance gives an example involving a £500 payment to an overseas church already known to the UK charity, where a thank-you letter and subsequent photograph are sufficient evidence.

This is a fact-specific illustration, not a £500 threshold or safe harbour. The existing relationship, charitable purpose and supporting evidence matter: a small payment is not automatically low risk, and the steps required should reflect the circumstances.

Conversely, larger payments or ongoing funding commitments require more extensive work. HMRC indicates that this might include independent verification of the overseas body's status and activities, as well as reporting and verification of how the resources provided have been applied.

Particular areas of risk

HMRC's revised guidance highlights the importance of assessing risks associated with individual projects. Examples include language barriers, low literacy, limited access to banking facilities and remote locations, which make monitoring more difficult. Charities should document the risks identified and the appropriate controls adopted to address them.

The guidance also encourages use of formal banking arrangements. Funds paid to overseas branches or partner organisations should be held in regulated bank accounts and managed by authorised individuals where formal banking systems are available. Cash holdings should be kept to a minimum.

What should charities do now?

In light of the updated guidance, charities making overseas payments should consider reviewing their existing processes against HMRC's expectations. In practical terms, we suggest considering whether:

1. Overseas partners are subject to documented due diligence appropriate to the amounts and risks involved.
2. The charitable purpose of each payment is clearly documented when the funding decision is taken, with the extent of documentation proportionate to the circumstances.
3. Funding agreements contain appropriate restrictions and reporting requirements, particularly for significant or recurring funding.
4. Evidence demonstrates how funds were used after payment, rather than the process ending once the money leaves the charity's bank account.
5. Outward grants or transfers are adequately controlled and monitored.
6. The charity maintains a clear audit trail, including banking information, agreements, correspondence, monitoring reports and relevant trustee or committee decisions.
7. Higher-risk payment methods and jurisdictions receive correspondingly greater scrutiny.

These are practical recommendations based on the areas emphasised in HMRC's updated guidance, rather than a prescriptive checklist required by the legislation. Charities can also refer to the Charity Commission's guidance on monitoring and verifying the end use of charitable funds.

Where evidence is missing or concerns arise, charities should identify the gaps, request supporting information and record the follow-up undertaken. Trustees should reassess further funding, including whether payments should be paused pending clarification, and obtain advice on any non-charitable expenditure and tax-return implications.

Our view

The key message is evidence, not simply intention. Charities should be able to demonstrate that reasonable steps, appropriate to the circumstances, were taken before and after payment to ensure funds were applied for charitable purposes. The requirement should not be presented as a guarantee that every project will achieve its intended outcomes. The updated guidance provides a timely opportunity to review procedures, particularly for larger or recurring grants, onward transfers, higher-risk payment mechanisms and long-standing relationships supported by informal documentation.