Forrester Boyd Practical Charity Handbook 2010
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Forrester Boyd Practical Charity Handbook 2010 Forrester Boyd Practical Charity Handbook 2010 Document Transcript

  • England & Wales Charities A Practical Handbook 2010independent quality assured professionals
  • Contents and Useful Contacts charitiesContents and Useful Contacts 1Introduction to UK200Charities Group 2Members of UK200Charities Group 3–4The Charities Act 2006 5 – 15Charity Accounting and Financial Reporting for financial periods ending on or after 1 April 2009 16 – 19Charity Governance 20 – 22Charity Tax 23 – 26Charities and Risk Management 27 – 30Cross Border Charities 31 – 33Instructing Investment Managers 34 – 35Fundraising for Charities 36 – 38Useful ContactsThe following organisations are useful points of contact for readers wishing to obtain information orclarification on issues covered in this report, either at the date of publication or in the future.UK200Charities Group Charity Commission3 Wesley Hall PO Box 1227Queens Road LiverpoolAldershot L69 3UGHants GU11 3NP 0845 3000218Tel: 01252 401050 mini com 0845 3000219admin@uk200group.co.uk enquiries@charitycommission.gov.ukwww.uk200group.co.uk www.charitycommission.gov.ukOffice of Scottish Charity Regulator (OSCR) HM Revenue & Customs2nd Floor, Quadrant House St Johns House9 Riverside Drive Merton RoadDundee BootleScotland MerseysideDD1 4NY L69 9BBTel: 01382 220446 Charities helpline number 08453 020203Fax: 01382 220314 www.hmrc.gov.uk/charitiesinfo@oscr.org.ukwww.oscr.org.uk Office of the Third Sector 2nd FloorInstitute of Fundraising Admiralty ArchPark Place South Side12 Lawn Lane The MallLondon London SW1A 2WHSW8 1UD Tel: 020 7276 1234Tel: 020 7840 1000 www.cabinetoffice.gov.uk/the_third_sector.aspxwww.institute-of-fundraising.org.uk 1
  • charities Introduction to UK200Charities Group The aim of this report is to set out the broad framework of Charities Legislation in England and Wales and provide an overview of key governance, investment and fundraising requirements. UK200Charities Group of quality assured accountants, business advisors and lawyers, wants to help Trustees’ and managers discharge their responsibilities properly and for charities to understand the complexities of the English and Welsh legislation. We work closely with the Charity Commission and the Office of the Scottish Charity Regulator (OSCR) on the application of the Statement of Recommended Practice for Accounting and Reporting for Charities (the 2005 SORP) working through to the annual report and accounts. Services Provided by UK200Charities Group members UK200Group is a global association of over 110 UK quality assured independant Accountant firms and Lawyer firms and 54 International Associate firms. Our Charities Group of specialist proactive accountants and lawyers possess expert knowledge of the charity sector and help Trustees and management comply with the changing charity regulations. UK200Charities Group provides training and professional networking for members. Charities Group products include client newsletters and a comprehensive charity risk matrix. Business planning services Legal services Sourcing finance ● Business planning ● Obtaining charitable status and ● Budgets and cash flow projections ● Strategic reviews incorporation ● Grant applications ● Systems reviews ● Restructuring ● Lottery applications ● Director & Trustee duties and ● Raising finance Compliance services responsibilities ● Audit ● Commercial agreements concerning Support services ● Accountancy charities ● Corporate governance issues ● Independent examination ● Financial control reviews ● Internal audit Sector specialisms ● IT support ● Registration ● Agriculture ● Management accounting ● Arts and leisure ● Payroll services Cross-border Charities ● Ecclesiastical ● Recruitment of personnel ● Advisory services ● Education ● Dual registration ● Grant making Taxation advice ● Healthcare ● Gift aid ● Housing associations ● Payroll giving ● Social welfare ● Property transactions ● Sporting hobbies ● Tax planning for development ● The implications of trading ● VAT planning This UK200Charities Group report is not intended as a definitive guide to all of the issues arising from Charity Laws as some issues, such as the public benefit test and its application in practice, merit separate detailed consideration in their own right. John Watkins Chairman – UK200Charities Group Partner at Dickson Middleton, Chartered Accountants Version 2 – April 2010 This handbook has been prepared for general interest and it is important to obtain professional advice on specific issues. We believe the information contained in it to be correct. While all possible care is taken in the preparation of this handbook, no responsibility for loss occasioned by any person acting or refraining from acting as a result of the material contained herein can be accepted by the UK200Group, or its member firms or the authors. UK200Group is an association of separate and independently owned and managed accountancy and lawyer firms. UK200Group does not provide client services and it does not accept responsibility or liability for the acts or omissions of its members. Likewise, the members of UK200Group are separate and independent legal entities, and as such each has no responsibility or liability for the acts or omissions of other members.2 View slide
  • Members of UK200Charities Group charitiesEngland COLCHESTER LONDON NE Griffin Chapman HaslersBIRMINGHAM Neil Raven 01206 771000 Laurence Jacobs 020 8418 3333Dains LLP neil@griffin-chapman.co.uk laurence.jacobs@haslers.comAndy Morris 0845 555 8844 www.griffin-chapman.co.uk www.haslers.comamorris@dains.comwww.dains.com HAMPSHIRE LONDON W1 SOUTHAMPTON Griffin Stone, Moscrop & CoCHESHIRE Fiander Tovell LLP Richard Hill 020 7935 3793NORTHWICH Mary Wallbank 023 8033 2733 rhill@gsmaccountants.co.ukHoward Worth marywallbank@fiandertovell.co.uk www.gsmaccountants.co.ukJulie Whalley 01606 369000 www.fiandertovell.co.ukjuliewhalley@howardworth.co.uk NE LINCOLNSHIREwww.howardworth.co.uk HERTFORDSHIRE GRIMSBY BISHOPS STORTFORD Forrester BoydCLEVELAND Price Bailey LLP Kevin Hopper 01472 350601MIDDLESBROUGH Catherine Willshire 01279 755888 k.hopper@forrester-boyd.co.ukAnderson Barrowcliff LLP catherine.willshire@pricebailey.co.uk www.forrester-boyd.co.ukDavid Robertson 01642 660 300 www.pricebailey.co.ukdavidr@anderson-barrowcliff.co.uk NORFOLKwww.anderson-barrowcliff.co.uk WATFORD NORWICH Hillier Hopkins LLP Price Bailey LLPSTOCKTON ON TEES John Barker 01923 232 938 Daren Moore 01603 709330Baines Jewitt john.barker@hhllp.co.uk daren.moore@pricebailey.co.ukMichael Firman 01642 632032 www.hillierhopkins.co.uk www.pricebailey.co.ukmf@bainesjewitt.co.ukwww.bainesjewitt.co.uk KENT NORTH YORKSHIRE CANTERBURY SCARBOROUGHEAST SUSSEX Larkings CoulsonsLEWES Stephen Wren 01227 464991 Paul Hodgson 01723 364141Knill James swren@larkings.co.uk phodgson@coulsons.co.ukSusan Foster 01273 480480 www.larkings.co.uk www.coulsons.co.uksue@knilljames.co.ukwww.knilljames.co.uk LANCASHIRE YORK BOLTON Barron & BarronEAST YORKSHIRE Bentleys Guy Ward 01904 628551HULL John Shaw 01204 388675 guysward@barronyork.co.ukSmailes Goldie john.shaw@bentleys-accountants.co.uk www.barronandbarron.co.ukMark Sharpley 01482 326916 www.bentleys-accountants.co.ukmarksharpley@smailesgoldie.co.uk OXFORDSHIREwww.smailesgoldie.co.uk LONDON BANBURY LONDON N3 Ellacotts LLPESSEX Berg Kaprow Lewis LLP Andy Jones 01295 250401CHELMSFORD Brian Wolkind 020 8922 9222 ajones@ellacotts.co.ukEdmund Carr LLP brian.wolkind@bkl.co.uk www.ellacotts.co.ukEric Williams 01245 261818 www.bkl.co.ukEwilliams@EdmundCarr.comwww.edmundcarr.com 3 View slide
  • charities Members of UK200Charities Group OXFORDSHIRE WEST MIDLANDS NEATH WITNEY EDGBASTON Watkins Bradfield & Co ReesRussell LLP J W Hinks Philip Hunkin 01639 635555 Theresa Rees 01993 702418 Robin Barnes 0121 456 0190 philiphunkin@watkinsbradfield.co.uk trees@reesrussell.co.uk robin.barnes@jwhinks.co.uk www.watkinsbradfield.co.uk www.reesrussell.co.uk www.jwhinks.co.uk SWANSEA SHROPSHIRE WEST YORKSHIRE H.W. Vaughan & Co SHREWSBURY LEEDS Rylan Lopez 01792 652108 Whittingham Riddell LLP Thomas Coombs rylan@hwv.co.uk Andrew Malpass Committee Member Christopher Darwin 0113 244 9512 www.hwv.co.uk Graham Murphy 01743 273 273 christopher.darwin@thomascoombs.com amalpass@whittinghamriddell.co.uk www.thomascoombs.com gm@whittinghamriddell.co.uk Scotland www.whittinghamriddell.co.uk WILTSHIRE SALISBURY GLASGOW SURREY Fawcetts Wylie & Bisset GODALMING Simon Ellingham 01722 420920 Jenny Simpson Committee Member Roffe Swayne simone@fawcetts.co.uk 0141 566 7000 John Fisher 01483 416232 www.fawcetts.co.uk jenny.simpson@wyliebisset.com jfisher@roffeswayne.com www.wyliebisset.com www.roffeswayne.com Wales STIRLING GUILDFORD Dickson Middleton Barlow Robbins LLP - Solicitors BRIDGEND John Watkins Chairman Christine Goodyear 01483 562901 Graham Paul Ltd 01786 474718 christinegoodyear@barlowrobbins.com Mark Loughran 01656 679800 john.watkins@dicksonmiddleton.co.uk www.barlowrobbins.com m.loughran@grahampaul.com www.dicksonmiddleton.co.uk www.grahampaul.com TYNE AND WEAR NEWCASTLE UPON TYNE CARDIFF Robson Laidler LLP Graham Paul Ltd Michael Moran 0191 281 8191 Brian Scott 029 2068 1980 mmoran@robson-laidler.co.uk b.scott@grahampaul.com www.robson-laidler.co.uk www.grahampaul.com WARWICKSHIRE CARDIFF LEAMINGTON SPA Watts Gregory LLP Wright Hassall LLP - Solicitors David Williams 029 2054 6600 Mark Lewis Committee Member d.williams@watts-gregory.co.uk 01926 886688 www.watts-gregory.co.uk mark.lewis@wrighthassall.co.uk www.wrighthassall.co.uk4
  • The Charities Act 2006 charitiesIn July 2001 the Prime Minister that all charities must provide a public not be unreasonably restricted andcommissioned his Strategy Unit to benefit and must satisfy the public people in poverty should not bereview the law and regulation of the not benefit test. However, the legislation excluded; andfor profit sector and this led to a report contains no statutory definition of publicin September 2002 entitled “Private benefit and charities are left to rely on ● any private benefits must beAction, Public Benefit”. case law. One change that has been incidental. made is to remove the presumption ofFollowing a consultation exercise the public benefit for certain types of The above principles are relevant to allgovernment published its response in charity, ie those that relieve poverty, charities but fee-charging charities needJuly 2003 entitled “Charities and Not- advance education and advance to be particularly mindful offor-Profits: A Modern Legal Framework”. religion. Charities that fall under these unreasonable restrictions and the factThis led to a draft bill which, following headings will have to demonstrate that that people in poverty should not bescrutiny, was introduced to Parliament they do provide a genuine public excluded from benefit.and finally received royal assent on the benefit.8 November 2006. The Charity Commission will be Whilst there is no statutory guidance on assessing public benefit by variousThe Act has the following objectives:- the public benefit ‘test’, the Charity means: Commission has been given a new1. To ensure that trustees of charities, regulatory objective - known as the ● upon registration of a new charity;especially smaller charities, have more public benefit objective - which involvesflexibility and are able to administer promoting awareness and ● through the inclusion of a publicthemselves more efficiently; understanding of the operation of the benefit section in the annual trustee public benefit requirement. To this end report. This is mandatory for2. To modernise the definition of the Commission issued general financial periods starting on or aftercharity, to update and expand the list of guidance on public benefit in January 1 April 2008. The wording must includecharitable purposes, and to introduce 2008. This was followed by a whole a statement that the charity trusteesnew public benefit requirements; series of consultations and subsequent have had due regard to the public guidance for particular types of charities, benefit guidance published by the3. To uphold public confidence in the including those charities advancing Commission. The Commission websitecharitable sector and to improve the education and religion, and charities contains sample trustee reports forregulation of charity fundraising; relieving poverty. Most controversially different types of charity; and there has been guidance for fee4. To modernise the Charity charging charities such as independent ● through a rolling review of publicCommission’s functions and powers as a schools and private care homes and benefit assessments for selectedregulator and to increase its hospitals. registered charities – the first 10accountability; and cases included independent schools, In its guidance, the Commission care homes and religious charities.5. To introduce a new legal form identifies certain key principles whendesigned specifically for charities. considering public benefit: Those existing charities that ‘fail’ the public benefit test are being given 3Many of the provisions of the Act are ● there must be a clear benefit or months to confirm that they will complynow in force but there are important benefits and this must relate to the with the public benefit requirement,areas which are not – in particular those objects of the charity; with a further 9 months to produce arelating to charitable incorporated plan of action for agreement with theorganisations and the new licensing ● the benefits must outweigh any Charity Commission. There is noregime. detriment or harm; indication in the initial reports of how long the charity has to implement theThis publication is by way of an update ● there must be benefit to the public new plan but the Scottish charityon some of the key provisions. or a sufficient section of the public regulator allows a further 2 years. If the and the beneficiaries must be charity does not comply within thisPublic Benefit appropriate to the aims; period, it is assumed that the Charity Commission will exercise its statutoryThe Charities Act 2006 refers to the fact ● the opportunity to benefit should powers and intervene. 5
  • charities The Charities Act 2006 Charitable Incorporated – in the case of trusts and disqualified trustee of a CIO from Organisations unincorporated associations there acting as a trustee of another CIO will be no automatic conversion and rules prohibiting a CIO from A charitable incorporated organisation mechanism. using a name that is the same as, or (CIO) will be a new corporate structure, confusingly similar to, that of a registered and regulated by the Charity The disadvantages of CIOs are: recently dissolved CIO. The rules will Commission, which will specifically closely follow the rules contained in apply to charities. It will be an ● All CIOs will have to submit their the Company Directors alternative to incorporation under the accounts and annual returns to the Disqualification Act 1986 and the Companies Acts and will not require Charity Commission. Insolvency Act 1986; and regulation under both company law and ● Unincorporated associations and ● The accounting rules for CIOs will charity law. trusts are simpler to set up. closely follow the rules that apply to ● Third parties, such as funders, will be unincorporated charities. The main advantages of a CIO will be less familiar with CIOs than that it will afford the benefit of limited companies. As a result of the feedback received liability for its trustees and members as during the consultation exercise the draft well as providing a vehicle which can The results of the consultation regulations and model constitutions that hold property distinct from such procedure carried out by the Charity will introduce CIOs and govern how persons. Other advantages are: Commission and the Office of the Third they are to operate are being amended Sector in relation to Charitable by the Office of the Third Sector and the ● It will create a legal framework Incorporated Organisations (CIO) have Charity Commission. The Office of the designed for charities. now been published. Third Sector has indicated that the ● It will only need to be registered with introduction may take place in two the Charities Commission (and not Several points have been clarified by the stages, with the structure initially being the Companies Registry in addition, consultation exercise, including: available only for new incorporations. as with charitable companies at This will then be followed by the present), and therefore only one ● The minimum age for CIO trustees structure being made available to annual return to the Charity shall be 16; existing limited companies wishing to Commission will be required. ● The same general duty of care which convert to CIO status. ● There will be simpler reporting and applies under the Charities Act 1993 filing requirements. shall apply to CIO trustees; It is expected that the regulations will be ● There will be two main constitutional ● There shall be an automatic updated and make their way through forms – one where trustees are the prohibition on trustees of CIO Parliament with the objective that the only members and one where there participating in decisions where they CIO will become available at the is a wider membership than just the are likely to derive a personal benefit; beginning of 2011. trustees. These are designed to be ● There will be special procedural simple and flexible. There will be requirements in relation to decisions Charity Tribunal two models and certain clauses may to wind up a CIO and to make be compulsory and others optional. amendments to the constitution of a The newly introduced Charity Tribunal CIO and those rights will be the only came into existence on 18 March 2008. There are a variety of routes which will members’ rights enshrined in the Previously charities had little recourse be available to form a CIO as follows: CIO regulations; against decisions of the Charity ● There will be no statutory right to Commission, other than the internal ● Setting up as a CIO from scratch. remove a CIO trustee and the appeal process or an application to the ● Converting an existing charitable members will need to rely on High Court. The new Tribunal is company using the procedure set whatever right is contained in the designed to increase accountability for out in the legislation and possibly constitution of the CIO in order to the Commission and also to assist in also industrial and provident do so; building a more comprehensive body of societies. ● Unincorporated associations will be charity case law. It is intended to ● Transferring the assets and liabilities able to be members of a CIOs, either provide informal, speedy access to of a trust or unincorporated directly or through a representative; justice. The target is 30 weeks to association to the newly formed CIO ● There will be rules prohibiting a complete the appeal.6
  • The Charities Act 2006 charitiesTo date the Tribunal has formed part of orders relating to land, mortgages and It is possible to seek leave to appealthe Tribunals Service, an executive extending powers of trustees. These against decisions of the Tribunal itself,agency of the Ministry of Justice. As part decisions will be treated in the same way which will involve the Court of Appeal.of the process of reform of the Tribunals as matters for judicial review.system, the Charity Tribunal transferred Register of Mergersinto the new two-tier system as of 1 The table also gives details of who maySeptember 2009. There is now a apply to the Tribunal in each case. In Under Section 44 of the Charities ActGeneral Regulatory Chamber (GRC) most cases this includes the charity 2006 new provisions are inserted in thewhich will act as a court of first instance trustees, the charity itself for 1993 Charities Act whereby a charityand an Upper Tribunal which will deal incorporated charities, or any party who merger may be notified to the Charitywith more complex law and precedent is affected by the decision. It could Commission.setting cases. There will be a fast-track therefore extend to employees orreferral to the Upper Tribunal in beneficiaries if they are directly affected, There are two types of mergers whichappropriate cases. or to other charities dealing with the may be registered. The first is where a same issue. The procedure involves the charity transfers all its property toThe President of the Charity Tribunal has appellant submitting an application another charity and ceases to exist andbecome the Principal Judge for Charity within 42 days of receipt or publication the second is where two charities createAppeals, Reviews and References and of the Commission decision in question. a new charity and then transfer all of thewill sit as a Deputy Judge in the Upper The Commission will usually be the assets to the new charity. Once all of theTribunal. The other 5 legally qualified other party, although they may decide transfers of property have taken placemembers and 7 ordinary lay members of not to attend any hearing. The Tribunal the merger may be registered in thethe Tribunal will become Judges and has significant powers and can register of mergers maintained by themembers of the first-tier GRC, listening determine a case before a full hearing. Commission following a notification toto charity cases. the Commission with the prescribed Hearings may take place at Tribunal particulars.The Charity Tribunal may hear the Offices across England and Wales,following: although the Upper Tribunal is based in An entry in the register must specify London. All hearings will be public when the transfer(s) of property tooka) Appeals against decisions of the hearings unless there is good reason for place, if a vesting declaration wasCommission; a private hearing. Decisions may be entered into and such other particularsb) Applications for review of decisions given orally at the hearing. They will be as the Commission may require.of the Commission; given in writing, with reasons for thec) References from the Commission or decision, and will normally be A vesting declaration enables theAttorney General on points of law. published. automatic transfer of property being transferred in a merger, subject toNo decisions before 18 March 2008 will There is no cost involved in making the certain exemptions, and transferred landbe considered. The difference between application to the Tribunal. It has must still be registered with the Landa) and b) above depends upon the therefore been heralded as a cost- Registry.nature of the decision. A comprehensive effective way of appealing Commissionlist of decisions that may be appealed is decisions. However it still involves a Where a gift is made to a charity afterincluded in the table at Schedule 1C of judicial process and charities may not the date of a merger affecting theCharities Act 1993, as amended. The feel confident to appeal decisions charity, and that merger is registered inTribunal will have the power to quash or without taking professional advice. It is the register of charity mergers, such auphold decisions, to vary or substitute possible to seek financial assistance from gift takes effect as if the gift hadthem and to remit them to the the Bar Pro Bono Unit. Costs may be originally been made to the transfereeCommission. Decisions outside this awarded in two limited situations: charity save in the case of a gift oftable are not subject to appeal. These permanent endowment property.include decisions on public benefit and 1) against any party where the However the wording of gifts or legaciescharitable status. Tribunal considers they have acted may be such that the gift may still not unreasonably in bringing proceedings; or take effect as if it had been originallyCertain decisions are only ‘reviewable’. 2) against the Commission where their made to the transferee. This very muchThese include decisions to institute original decision was unreasonable. depends on the precise wording of thesection 8 inquiries and not to grant provisions in the will. For example, if the 7
  • charities The Charities Act 2006 will provides what happens if a charity provisions must constitute a minority ● a charitable company may amend its ceases to exist this may override the of the trustee body; constitution to remove a prohibition statutory provisions. ● any trustee who is receiving such on payment as long as there are remuneration is disqualified from sufficient members who are not Trustee Remuneration acting or voting in relation to that trustees to vote on and pass the decision or any matter connected necessary members’ resolution, and The basic premise relating to charity with the agreement, and will the level of remuneration does not trustees is that they should not derive a withdraw from any such discussions. exceed that permitted by statute. personal benefit, whether direct or indirect, from acting as a trustee Any such payments should be In all other circumstances Commission (although they may be reimbursed for mentioned in the annual accounts and approval of a Scheme will be required reasonable expenses). Remuneration of conflicts of interest managed before making any payment. There is a a trustee for provision of services may be appropriately. Any other form of fast-track procedure when applying to authorised in the constitution or remuneration would still need to be employ a trustee where the otherwise must be expressly authorised expressly authorised by the remuneration does not exceed £50,000 by the Charity Commission by way of a Commission, as would remuneration per annum. Section 26 Order. where there is a prohibition in the constitution. It is not valid for a trustee Trustee Indemnity Insurance The Charities Act 2006 introduces a new to retire simply to avoid issues of statutory power of remuneration. remuneration. The statutory power is Before the introduction of Charities Act However, charities may not avail available in addition to any ‘professional 2006 charity trustees could only take out themselves of this power if such charging clause’ in the constitution. trustee indemnity insurance if they were remuneration is expressly prohibited in legally authorised to do so, given that their constitution. The remuneration of ‘connected the payment of the premium from persons’ will also be subject to the above charity funds is considered to be a The new power allows for the payment procedure. The list of connected trustee benefit. This type of insurance of a trustee, for provision of services or persons has been updated and now covers the trustee against personal goods and services. The trustee may still includes the child, parent, grandchild, liability when legal claims are made not be paid for acting as a trustee. Such grandparent, brother or sister of a against them, either by the charity or by payment is subject to certain conditions, trustee, as well as the spouse or civil a third party. Provided that they have as follows: partner of the trustee or any of the authority, they are entitled to be insured above relatives. Child includes against claims that may arise from their ● there must be a written agreement – stepchildren and illegitimate children legitimate actions as trustees and will be separate from the minutes - between and spouse includes anyone living with covered against liability as long as they the charity and the trustee in another as if they were a spouse. have acted honestly and reasonably. question; Authorisation can come from the ● the agreement must set out the However, it is worth pointing out that governing document, the Charity exact or maximum amount of payment to a connected person is only Commission or from the Court. remuneration; relevant if their remuneration will ● the amount must be reasonable in directly or indirectly benefit the trustee. The new statutory power allows trustees the circumstances; It is possible to mount a defence that to take out trustee indemnity insurance ● the trustees must be satisfied that it there is no financial link between the as long as there is no express prohibition is in the best interests of the charity to two, in which case the employment of in the constitution. However, it will be enter into this agreement and must such a person is not restricted. available if the constitution merely observe the statutory duty of care (this contains a blanket prohibition on could include taking professional or Where the constitution prohibits the remuneration or where the power is other appropriate advice); remuneration of trustees, the following conditional on Commission approval. In ● the trustees must demonstrate that actions may be taken: these circumstances it can be assumed they have given due regard to the that the power is available. The trustees Commission guidance on this ● where the prohibition is stated to be have to be aware of their statutory duty subject; subject to Commission consent, such of care and ensure that taking out such ● the total number of trustees consent can now be assumed to insurance is in the best interests of the receiving payment under these have been obtained; and charity. However, there are no statutory8
  • The Charities Act 2006 charitiesconditions to comply with, as in the case were spent. Having passed the ● To increase public trust andof trustee remuneration. resolution they may access the capital confidence in charities. immediately. There is no requirement forThe new provisions reflect those that Charity Commission approval or for ● To promote awareness andhave been included in the Commission public notice. understanding of the operation ofmodel documents for some time. Any the public benefit requirement.policy will specifically exclude cover for Larger unincorporated charities –any liability incurred by a trustee in power to spend capital ● To promote compliance by charitydefending criminal proceedings where trustees with their legal obligationshe has been convicted of fraud, For the purpose of these provisions a in exercising control anddishonesty or wilful or reckless larger charity is defined as a charity that management of the administrationmisconduct, or for the payment of a has annual income above £1,000 and of charities.criminal fine or statutory penalty, or for where the market value of anyany liability incurred as a result of the endowment fund is above £10,000. ● To promote the effective use oftrustee not considering, or not caring However, this only applies to charity resources.about, the best interests of the charity. endowments where the property inIt would not usually cover liabilities question has been entirely given by a ● To enhance accountability to donors,arising from contracts entered into by particular individual or institution, or beneficiaries and the public.the charity, redundancy payments or two or more individuals or institutionsliabilities under a lease, or for liabilities for a common purpose. Functionsusually covered by public liability It has six general functions:-insurance, fidelity guarantee, insurance As above, the trustees may resolve by aor professional indemnity insurance. simple majority that the purposes ● Determining whether institutions are applicable to the permanent charities or not.Permanent Endowment endowment could be carried out more effectively if both capital and income ● Encouraging and facilitating theThe Charities Act 2006 introduces were spent. However, unlike the better administration of charities.several provisions intended to relax the situation for smaller charities, therestrictions on permanent endowment trustees must send a copy of the ● Identifying and investigating mis-funds. Permanent endowment is where resolution and their reasons for passing management or misconduct in thethe fund or asset is permanently the resolution to the Commission before administration of charities and takingrestricted so that only the income arising accessing the capital. The Commission remedial or protective action.from the asset may be used to further may require further information, maythe charity’s aims and not the capital wish to give public notice and may ● Issuing public collections certificateitself. However, all of these provisions refuse permission to release the in respect of public charitablerelate only to unincorporated charities and permanent endowment. They will collections.not to charitable companies or CIOs. ensure that the use of the fund accords with the original spirit of the gift. There ● Obtaining, evaluating andSmall unincorporated charities – is a deadline of 3 months for response. disseminating information withpower to spend capital regard to the Commission’s The Charity Commission functions and objectives.For the purpose of these provisions asmall charity is defined as a charity that The Charity Commission has been re- ● Giving information or advice, orhas annual income below £1,000 or formed as a body corporate called the making proposals, to governmentwhere the market value of any Charity Commission for England and departments.endowment fund is below £10,000 or Wales by way of a non-ministerialwhere the fund is not entirely given. government department; with a PowersThe trustees may now resolve by a significant degree of independence fromsimple majority that the purposes ministers and government departments. Power to suspend or remove trusteesapplicable to the permanent from membership of charityendowment could be carried out more Objectives The Commission may make an ordereffectively if both capital and income It has five regulatory objectives:- exercising the power of removing or 9
  • charities The Charities Act 2006 suspending membership of a charity any duties of his as a trustee in relation dispensation from the requirement for from a person who has already been to the charity or otherwise in relation to small unincorporated charities to obtain suspended or removed from the the charity’s proper administration. In the prior approval of the Charity position of trustee, charity trustee, acting on that advice a trustee is to be Commission to any change in their officer, agent or employee of a charity, taken to have acted in accordance with objects. This applies to unincorporated which prevents such a person seeking the trusts of the charity save in certain charities – trusts, associations and those re-election or re-appointment to their exceptions. subject to Charity Commission Schemes former position. – which have an annual gross income Power to resolve membership disputes below £10,000 and do not have any Power to give specific directions for The Commission may on the application interests in land. the protection of the charity of a charity or at any time at its The Commission can direct the actions discretion within the course of an The trustees of the charity may resolve of trustees, officers or employees or a inquiry determine who are the members to alter the objects as long as: charitable corporate body if there is any of a charity. inquiry under way. This arises if the ● the trustees are satisfied that the Charity Commission believes that Power to enter premises and seize existing objects no longer provide a misconduct or mismanagement has documents or information suitable application of charity assets occurred in the administration of the If an inquiry is under way the Charity and that it is expedient in the charity or it is concerned about the Commission has the power to enter interests of the charity for the security or proper application of charity premises if a warrant has been issued. amendment to be made. This property for the purposes of the charity. This power may be given for certain decision must be minuted; purposes relating to the inquiry and in ● the objects consist of or include Power to direct the application of certain conditions. purposes that are as similar in charity property character to the original purposes as The Commission has power to make an Updating the Constitutions of is practical in the circumstances; order directing a person in possession or Companies ● the new objects are exclusively control of charity property to apply the charitable; property as it specifies if it is not satisfied There are now three circumstances in ● the resolution is passed by not less that the property is being applied which a charitable company requires the than two-thirds of trustees voting, properly for the purposes of the charity. prior written consent of the Charity subject to constitutional This applies even if an inquiry is not Commission to amend its constitution requirements for voting and under way, but such an order must be and is ineffective if the consent has not quorums; and consistent with the purposes or trusts of been obtained: ● the trustees send a copy of the the charity and must not be unlawful. resolution to the Charity ● Any alteration of the objects clause Commission with a statement of Relaxation of publicity requirements in the Memorandum; reasons for the change. The The Commission is given discretion with ● Any alteration of any provision in the Commission may seek further regard to the requirement in relation to constitution which directs how information or give public notice of schemes and certain orders for giving property can be applied on a the resolution. public notice or advising the parish dissolution; and council, if it is a local charity, either with ● Any alteration of any provision The Commission are required to give regard to the timing or alternatively where the alteration would authorise their approval to the change, even if the disapplying the publicity requirements any benefit (whether direct or charity is below the threshold and not altogether. indirect) to the directors or members registered. The change will not be or to other people connected with effective in any event before 60 days them. from receipt of the resolution by the Commission. Power to give advice and guidance Updating the Constitutions of This is a decision that may be taken by The Commission may on the written Unincorporated Charities the trustees and does not have to be application of any charity trustee give its ratified by the membership, should opinion or advice in relation to any Amending Objects there be a separate membership. matter relating to the performance of The Charities Act 2006 provides a10
  • The Charities Act 2006 charitiesAmending powers or procedures gratia payments. If there is no power Whilst the provisions in respect of theThere is a similar power to alter the under the constitution to deal with these agreements have been successful inpowers or procedures of an issues, the charity will need to apply to achieving their aims, the 2006 Act hasunincorporated charity, assuming that the Commission for a Scheme. For made some important changes mostthis power is not available in the unincorporated charities with annual notably in respect of the requirementsconstitution. However, this applies to all income over £10,000 who want to relating to the solicitation statementsunincorporated charities and is not change their objects and have no power that must be made by professionalsubject to any limit on annual income. within their constitution, a Commission fundraisers of commercial participators Scheme must be obtained. to ensure that the public are sufficientlyThis decision may be taken by: informed of the fund raising activity. Copies of all resolutions and updated With effect from 1 April 2008, the 2006● a resolution of the majority of constitutions must be sent to the Act requires details of the remuneration trustees where there is no separate Commission to update the register. of the professional fundraiser/ membership; or commercial participator to be included,● a resolution of no less than two- Fundraising incorporating the basis of calculation thirds of members attending a and the amount or an estimate of the general meeting, subject to the The Charities Act 2006 (“2006 Act”) amount as accurately as possible in the necessary quorum; or introduced new fundraising circumstances. Statements must also● a unanimous written resolution of all requirements which effectively extend make it clear what proportion of members. the provisions as previously set out in donations will actually go to the charity’s Part 2 of the Charities Act 1992 (“1992 work. In addition, the 2006 ActWhere there is a separate membership, Act”) and the Charitable Institutions introduced, for the first time, thethe decision must be taken by the (Fund-Raising) Regulations 1994, as requirement for a solicitation statementmembers. There is no statutory list of amended by The Financial Services and to be provided by charity employees,considerations. There is no requirement Markets Act 2000 (“1994 Regulations”). officers and trustees who act asfor Charity Commission approval or for a It was felt that certain requirements of collectors, which includes the fact that60 day waiting period. However, the the 1992 Act were too general and did he is such an officer, employee or trusteeCommission will need to be notified of not encourage transparency in and is receiving money in such capacityany changes for their records. The fundraising activity. More detailed or for acting as a collector. Thischanges become effective upon the date provisions have also been introduced in requirement is also extended to personsstipulated in the resolution. relation to the Regulation of Public who are not professional fundraisers or Collections to replace Part 3 of the 1992 commercial participators but who in theFor unincorporated charities that are the Act which was never brought into effect. course of their normal business activitysubject of a Commission Scheme this engage in a promotional activity duringprovision removes the need to apply for Control of fundraising which they represent that charitablea ‘power to vary’ the Scheme itself. contributions are to be applied for Under the 1992 Act, professional charitable purposes. The requirementsThe Commission do state that this fundraisers and commercial participators do not apply to volunteers.power may be used to alter the name fundraising for the benefit of a charitableof a charity. However, this is subject institution or institutions must have a Licensing Public Charitable Collectionsto checking the register to ensure written agreement in place with thethat the name is not already in use relevant charitable institution(s) which The 2006 Act also introduces a newand the Commission has the power to identifies the parties involved, the unified system to regulate publicorder a name change if considered methods of fundraising to be used, the charitable collections in England andinappropriate. period of the agreement, details of any Wales. The term public charitable remuneration to be paid to the collections includes appeals forHowever, this statutory power cannot be professional fundraiser of commercial charitable, benevolent or philanthropicused to change the objects, change the participator and other specified purposes and accordingly non-charitiesdissolution clause, grant rights to third information. Commercial participators are also covered by the legislation.parties to appoint trustees, remove are persons who carry on a businessrights from third parties, remunerate other than a fundraising business who The new system introduces thetrustees or connected persons, deal with take part in a promotional venture to requirement that all promoters ofpermanent endowment or make ex raise or apply money for a charity. charitable collections hold a valid Public 11
  • charities The Charities Act 2006 Collection Certificate (“PCC”) to be issued Local short-term collections are exempt a determination that registration is not by the Charity Commission. Prior to from the requirements to obtain a PCC required at this stage. issuing a PCC the Charity Commission will or permit, but organisers must inform be required to make checks to ensure that the local authority that the collection is Excepted charities with an annual the organisations are “fit and proper” to taking place. income below £100,000 will not need to carry out such collections. Failure to register until 2012. However there are a obtain the necessary PCC, and/or permits Guidance on fundraising, incorporating group of churches including The Church will result in a new criminal offence. the new requirements is provided by of The Nazarene, The Free Church of PCCs may be granted for up to 5 years both the Charity Commission (“Charities England, Independent Methodists, and can be suspended or withdrawn by and Fundraising (CC20)” updated April Wesleyan Reformed Union and Churches the Commission or have further condi- 2008) and the Office of the Third Sector. of Christ, that are required to register tions added or any existing conditions immediately if their annual income is varied. Given the extent of the new role, Exempt and Excepted Charities over £5,000. This will be phased, with the Charity Commission has indicated those over £25,000 being registered that it needs time to develop the The Charities Act 2006 has changed the first. The £5,000 threshold also applies appropriate regulations and guidance, way in which excepted and exempt to charitable funds associated with and will also need additional resources charities are regulated. The aim is to registered places of worship – usually to set up and administer the system. ensure that eventually all of these legacy funds for the maintenance of a Accordingly, the Charity Commission charities are registered with the Charity church or chapel. has indicated that it will be a few years Commission, with the exception of before they take on the role and the certain exempt charities that will have As far as exempt charities are concerned, requirements of the Act implemented. “principal regulators”. the majority of these are listed in Schedule 2 of Charities Act 1993. How Previous legislation referred to “street” From 31 January 2009 excepted these charities are dealt with will depend collections. The 2006 Act extends this charities with an annual income over upon whether or not they will be to collections in “public places” which £100,000 must register. It is estimated governed by a principal regulator in the includes privately owned land, such as that 4,000-5,000 charities will be future. Certain principal regulators have supermarkets. In the case of collections affected and that the registration already been identified. These include in a public place the collection is process will take several months. The the Department for Culture, Media and conducted in accordance with a permit deadline was October 2009. These Sport for Museums and Galleries, the issued by the local authority in whose charities are largely connected with Department for the Environment, Food area it is conducted. There are certain religious denominations, the armed and Rural Affairs for Royal Botanic specific criteria upon which the local forces and scouts and guides groups. Gardens Kew, and the Higher Education authority may refuse an application and Armed forces’ charities will be registered and Funding Council for England for all these relate to the causing of a public on a phased basis over 18 months the Universities in England with the nuisance. Regard will be had to the commencing October 2008. The exception of Oxford, Cambridge and existence of other collections in the Commission website contains a Durham. These charities will continue same locality and which are occurring at comprehensive list, details of who to to be unregistered but nonetheless the similar times. The permit can be contact and the phased timetable. In Commission has powers that can be withdrawn by the local authority or have the case of many church organisations, exercised in relation to these charities. further conditions added to it or existing an approved governing document has These powers have been enhanced by conditions varied. been agreed with the Commission so Charities Act 2006 and include the that the on-line fast-track registration power to institute a section 8 inquiry but Previous legislation also referred to process can be used. In many cases only where this has been requested by “house to house” collections. This has these approved constitutions contain the principal regulator. been amended by the new legislation to only the charity name, objects and “door to door” collections, to make it details of trustee appointments. The Some exempt charities will become clear that business premises are remainder of the constitution is excepted on 1 June 2010 and subject to included. A charity with a PCC will be contained in separate rules or schemes. the excepted charities registration able to conduct door to door collections threshold. These include all Universities without local authority permission, but it If a charity has received a one-off legacy in Wales, Oxford, Cambridge and must inform the local authority that a that takes it over the threshold, it is Durham Universities, and all Students’ collection is taking place. possible to apply to the Commission for Unions.12
  • The Charities Act 2006 charitiesVoluntary and Foundation schools Furthermore, if a scheme provides that The Charities Act 2006 extends thisbecame excepted charities on 1 January property is to be transferred to another power to grant relief to the Charity2009 but a transitional regime is in force charity the scheme may require that the Commission, although it is still possiblewhereby they continue to be treated as property is applied for purposes which to make a court application. Theexempt charities, pending further are as similar as reasonably practicable Commission will be able to make anconsideration of their position. to the original purposes. This is relevant order relieving a trustee wholly or where the original purposes are still partly from personal liabilityAll further exempt charities where a useful but in the view of the court or the where he has acted honestly andprincipal regulator is not ready to take Commission the property can better be reasonably and ought fairly to beon the role or where possible used in conjunction with property of excused for the breach. This applies toconsequential changes are being another charity. all charities, whether incorporated orconsidered (for eample, to accounting unincorporated, and applies equally toand reporting provisions) will eventually In addition where a charitable donation holding and custodian trustees. Thebe registered. These groups of charities has been made in response to a order for relief may be on such terms asare Charitable Registered Social solicitation for specific charitable the Commission thinks fit.Landlords, Further Education purposes which includes the statementCorporations and Charitable Industrial that in the event of those purposes The advantage of the new provisions isand Provident Societies (which are not failing the property will be applied as if that there is no court process, soRegistered Social Landlords). Those given for charitable purposes generally, obtaining relief should be faster andwith an annual income over £100,000 and in the event that the donation cheaper. There is also the great benefitwill be the first to be registered. cannot be used as originally intended, that the Commission may be able to similar principles will apply and the grant relief where the trustee is notCy-Près Commission and the court will be able absolutely certain that he is liable. It is to have regard to the spirit of the gift not necessary to prove that anThe Charity Commission or the court is and the social and economic actual breach has occurred. However,able to make a scheme to change a circumstances prevailing at the time of this will not necessarily provide acharity’s purposes if they are no longer the propose alteration of the original blanket protection against any futurerelevant because they are out of date or purpose. Thus donated money will be breaches. Along with the power tonot workable. Either the property can able to be used more flexibly, unless the grant Section 29 advice, this allows thebe transferred to another charity or the donor makes a relevant declaration Commission to provide significantpurposes of the charity which holds the requiring the trustees to give him the comfort to trustees.property can be changed. This is known opportunity to request the return of theas the Cy-Près doctrine. property in question. The Charities Act 2006 allows the Commission to grant relief not only toThere are three matters to which regard Also where donors of property for trustees but also to auditors,must be had: specific charitable purposes cannot be independent examiners or anyone else identified both the court and the appointed to examine a charity’s1. The spirit of the original gift; Commission (and not just the court) can accounts, provided that they have decide if the property should be treated acted honestly, reasonably and ought2. The desirability of choosing new as belonging to the donors. to be excused for any breach of trustpurposes which are as close as possible or duty.to the original purposes; and Relief from Liability Waiver of Disqualification3. The need to ensure that the charity Historically a charity trustee could applyhas purposes which are suitable and to the Court for relief from personal The Charities Act 1993 includes a listeffective in the light of current social and liability. This could either be under of circumstances in which a trusteeeconomic circumstances. Section 727 Companies Act 1985 (now may be disqualified. These are when repealed) for incorporated charities or they have:Henceforth not only the spirit of the gift Section 61 Trustee Act 1925 forof the property must be taken into unincorporated charities. It was also ● been convicted of any offenceaccount but also the social and possible to apply to the High Court for involving dishonesty or deception;economic circumstances prevailing at equitable relief, assuming that the ● been adjudged bankrupt and havethe time of the proposed alteration of trustee had acted honestly and made a not been discharged;the purpose. genuine mistake. ● made a composition or arrangement 13
  • charities The Charities Act 2006 with creditors; Charges over Land charities be registered who had a gross ● been removed from the office of annual income exceeding £1,000 charity trustee by the Charity The basic position is that the authority of and/or the use or occupation of land Commission or the High Court; or the court or the Charity Commission is and/or any permanent endowment, and ● been disqualified from acting as a required if a mortgage is to be granted were not exempt or excepted from company director. over charity land unless it is being registration. granted by way of security for the The Charity Commission has the repayment of loans or grants and the The Charities Act 2006 increased the discretion to waive this disqualification charity trustees, before executing the financial threshold to £5,000 gross in respect of the trusteeship of a mortgage, obtain and consider proper income per annum. This came into particular charity or class of charities, as advice from a prescribed person on the effect on 23 April 2007. There is no long as it is not prohibited by company following relevant matters: longer a requirement to register simply law for directors (nor can they grant a by virtue of holding land or permanent waiver that overrides a provision in the ● Whether the loan or grant is endowment. constitution that automatically necessary for the trustees to be able disqualifies the trustee). However, the to pursue the particular course of Excepted charities with gross annual onus is on the charity trustee to action; income over £100,000 were registered convince the Commission that a waiver ● Whether the terms of the loan or over a period between 1 January 2009 would be in the best interests of the grant are reasonable having regard and October 2009. Below £100,000 charity. Factors that the Commission to the status of charity as the they are likely to be registered in 2012. might take into account are the nature prospective recipient; and and severity of the offence, the length of ● The ability of the charity to repay the Exempt charities over £100,000 will be sentence and time elapsed, the degree sum proposed to be paid by way of required to register in due course, of risk to the charity’s assets, particularly the grant or loan. assuming that they have no other cash and investments, and the view of principal regulator. the other trustees. In the case of a mortgage to secure the discharge of any other proposed CIOs will have no registration threshold The Charities Act 2006 introduces an obligation the relevant matter is as they will need to register to become additional provision but this is only whether it is reasonable for the charity incorporated. available in specific circumstances. This trustees to take such action having is where a trustee has been removed regard to the charity’s purposes. from office by the Commission or by the Report produced by: Court for misconduct or Further, the regime is extended to mismanagement of a charity’s affairs, mortgages in relation to a loan, grant or Mark Lewis MA, Solicitor with Wright usually under Section 18 Charities Act obligation not only which is under Hassall LLP, Solicitors, Leamington Spa. 1993 as a result of an inquiry. The immediate consideration but also to Mark is a member of the UK200Charities trustee may now apply after five years include any future loan or grant, or Committee. He heads up the Wright for the disqualification to be waived. other obligation undertaken, after the Hassall Charities Unit and has experience The Commission will be obliged to grant mortgage is entered into. Such a future of a wide range of charities and not-for- the waiver unless any of the following transaction may not be entered into profit organisations. circumstances apply: unless proper advice in relation to the matters mentioned above has been Mark has considerable experience of ● the applicant is disqualified as a taken in respect of that transaction. charitable work including the formation company director; There is no change to the prescribed and incorporation of charities, advice on ● the applicant is an undischarged persons who can give the proper advice. charity law, mergers of charities, bankrupt; fundraising and sponsorship contracts. ● the applicant has defaulted on a Wright Hassall also deals with intellectual county court judgement; or Registration Thresholds property and employment law, and ● there are other special circumstances contentious probate and other litigation that are relevant. The Charities Act 1993 required that all issues.14
  • The Charities Act 2006 charitiesHe is often asked to speak to charities onthe Charities Act 2006 as well as toprovide trustee training. Mark was formany years an editor of ButterworthsCorporate Law Service and in addition wasa contributing editor to the ButterworthsCompany Law Guide. He is the ConsultingEditor of the Law Society’s Book on theCompanies Act 2006 and is a member ofthe Charity Law Association. He isChairman of the UK200Lawyers Group.Barlow Robbins LLP, a UK200GroupLawyer Member, based in Surrey withoffices in Guildford, Woking andGodalming, has developed significantexpertise in providing advice to charities,particularly independent schools, over thelast 20 or so years. Most of thepreparatory and senior independentschools in Surrey are amongst the BarlowRobbins clients with schools in London,across the south east and in the Midlandscoming to the firm for advice on a widerange of matters. Other charity clientsinclude Surrey based charities as well asnational charities.Partners in the firm serve as trusteesthemselves so there is an understandingthat charities of today need to organisethemselves in an efficient and effectiveway, mindful of the legal and regulatoryframework in which they exist. BarlowRobbins is able to bring a great deal ofpractical as well as legal advice to theircharity clients.The work done for charity clientsencompasses a number of different legaldisciplines including formation of charities,charity law and governance, property,employment law, fundraising andsponsorship contracts, mergers ofcharities, protection and exploitations ofthe charity’s name and logo and disputesinvolving charities. 15
  • Charity Accounting and Financial Reporting – charities for financial periods ending on or after 1 April 2009 Charity accounting and reporting for 6 years, including details of ● Income and Expenditure Account requirements applicable to England and substantial donors, in accordance (where appropriate); Wales are primarily dictated by The with HMRC requirements. ● Balance Sheet; Statement of Recommended Practice: ● Cash Flow Statement (where Accounting and Reporting by Charities Annual Statutory Accounts and appropriate); (“SORP 2005”); Charities (Accounts and Trustees’ Annual Report ● Notes to the Accounts; Reports) Regulations issued in 2008 and ● A Trustees’ Annual Report. the Charities Act 1993 together with the Requirement to Prepare and File changes contained in the Charities Act Accounts If the charity trustees, the constitution of 2006. This part of the report the charity or any other enactment All charities are required to prepare summarises the main accounting and requires that the accounts be prepared Annual Accounts and make them reporting requirements for charities, on an Accruals basis, then the accounts available to the public on request, along incorporating the most recent must follow the disclosure requirements with the Trustees’ Annual Report (where changes introduced by the Charities of the Accruals basis of preparation. one is required to be prepared). The Act 2006 and applies to both availability to the public of the accounts company and non-company charities Charity Commission guidance on the and the Trustees’ Annual Report for financial years ending on or after 1 preparation of Receipts and Payments underpins the principles of public April 2009. Accounts, in the form of its “Receipts accountability and transparency. and Payments Accounts Pack (CC16)”, is Trustees are permitted to make a It is intended to be of a general nature available on the Commission website. reasonable charge to comply with any only and no liability will be accepted by such requests (e.g. copying, postage). UK200Group or Whittingham Riddell Accruals Accounts LLP for any action taken or omitted to be The filing requirements are as follows: taken in reliance upon it. All charitable companies and non- ● For the financial year ending on or company charities with a gross income The areas covered in this section are as after 1 April 2009, all charities with a exceeding £250,000 in the financial year follows: gross income exceeding £25,000 must prepare annual accounts based must send a copy of their Annual upon the accruals concept with the ● Accounting Records following key components: Accounts and Trustees’ Annual ● Annual Statutory Accounts and Report to the Charity Commission Trustees’ Annual Report ● Statement of Financial Activity within 10 months of the year end. ● Annual Return (SOFA) ● All charities which are also ● External Scrutiny ● Income and Expenditure Account companies must also file their Annual ● Summary of Information to be sent (where appropriate); Accounts together with the to the Charity Commission ● Balance Sheet; Directors’ Report (Trustees’ Annual ● Protecting Whistleblowers ● Cash Flow Statement (where Report) with Companies House ● SORP 2005 appropriate); within 9 months of the year end. ● Notes to the Accounts; ● A Trustees’ Annual Report. Basis of preparation of Accounts Accounting Records There are two bases on which charity Such accounts for charities are normally All charities must comply with the accounts may be prepared: the Receipts required, in accountancy terms, to show following requirements in respect of the and Payments basis and the Accruals basis. a “true and fair view” and are required preparation and maintenance of to apply the methods and principles of accounting records: Receipts and Payments Accounts SORP 2005 (unless a more specialist SORP applies) and the Regulations when ● Prepare and maintain accounting Non-company charities with a gross preparing their accounts. records. These records (e.g. cash income of £250,000 or less during the books, invoices, receipts etc) must financial year, may prepare accounts on Charity Commission guidance on the be retained for at least six years (at the Receipts and Payments basis (i.e. cash preparation of Accruals Accounts, in the least three years in the case of basis) with the following key components: form of its “Accruals Accounts Pack charitable companies). (CC17)”, is available on the Commission ● Where Gift Aid payments are ● Statement of Financial Activity website. received records must be maintained (SOFA);16
  • Charity Accounting and Financial Reporting –for financial periods ending on or after 1 April 2009 charitiesGroup Accounts advisers * and those which have chosen to register ● Structure, governance and will have to fulfil the same accountingUnder the provisions of the Charities Act management * and reporting requirements as any other2006, charities with subsidiaries must ● Objectives and activities * registered charity.prepare group accounts to consolidate ● Achievements and performance *the accounts of the charity and any ● A financial review * Excepted charities under the thresholdsubsidiaries if the income of the group, ● Funds held as custodian trustees on and which have not registered must stillafter eliminating intra group behalf of others keep proper accounting records andtransactions and consolidation ● Public benefit statement. prepare annual accounts in the sameadjustments, exceeds £500,000. These way as a registered charity of the sameaccounts must be prepared on the Larger charities income or type (company or non-accruals basis and will ordinarily include: company). They must provide copies of Larger charities are required to provide their accounts to members of the public● Group Statement of Financial more extensive information under those on request, but should not send them to Activity (SOFA); topic headings marked with an *. In the Charity Commission unless● Group Income and Expenditure addition, larger charities are required to requested to do so. Account (where appropriate); provide information under the heading:● Group Balance Sheet and Charity Exempt charities only Balance Sheet; ● Plans for future periods● Group Cash flow statement and Exempt charities have to keep proper Charity only cash flow statement Group Accounts accounting records and prepare (where appropriate); accounts. Where they are required to● Notes to the accounts; The SORP requires that where group prepare accounts giving a true and fair● A Trustees’ Annual Report. accounts are prepared, even if view, they should follow SORP 2005 in voluntarily, the following information the preparation of those accounts,Trustees’ Annual Report should also be provided: unless a more specialised SORP applies. Exempt charities are not required toAll registered charities must prepare a ● The relationship between the charity prepare a Trustees’ Annual Report but itTrustees’ Annual Report, the basic and related parties, including its is good practice to do so. They are notcontents of which are mandatory. subsidiaries. required to file accounts or reports withSmaller charities, being those which are ● Under objectives and activities, an the Charity Commission but mustnot subject to statutory audit, are not explanation where significant provide copies of their accounts torequired to provide as much information activities are undertaken through members of the public on request.as the larger charities requiring audit. subsidiary undertakings. ● Under achievements and Annual ReturnThe detailed legal requirements for the performance, sufficient informationTrustees’ Annual Report are set out in must be provided to enable the An Annual Return must be completedThe Charities (Accounts and Reports) reader to understand the and submitted to the CharityRegulations 2008 which underpin the achievements of each of the charity Commission by Trustees of Registeredrecommendations made in the Charities and the subsidiaries. Charities with a gross income for theSORP. The requirements for small and ● Under financial review, details of the year exceeding £10,000. Small charitieslarger charities, using the suggested financial position of the charity and (income of £10,000 or below) only needheadings in the SORP, are as follows: its subsidiaries. to complete an Annual Information Update Form.All charities Excepted charities Annual Information UpdateBoth small and larger charities are From 31 January 2009 the part of therequired to provide information under Charities Act 2006 that requires The Annual Information Update requeststhe following headings: excepted charities with an annual basic information about the charity, income over £100,000 to be registered including trustee details and details of its● Reference and administrative details came into force. Those excepted area(s) of operation. of the charity, its trustees and charities which are required to register 17
  • Charity Accounting and Financial Reporting – charities for financial periods ending on or after 1 April 2009 Annual Return The audit and independent examination thresholds defining the level of external scrutiny required for accounting periods ending on or after 1 April 2009 for both The Annual Return comes in two parts company and non-company charities are summarised as follows: with an additional Summary Information Return (“SIR”) requirement for certain charities. The size of a charity dictates Income Level which elements of the annual return it Up to £25,000 >£25k to £250k >£250k to £500k >£500k must complete as follows: No external Independent Independent Examination Statutory ● Income between £10,001 and scrutiny Examination (by qualified examiner), Audit £500,000 (Ref 1) (Ref 2) unless gross assets exceed £3.26m in which case Charities are required to complete the Statutory Audit is required. (Ref 2) basic Part A - Charity Information of the Annual Return, (which is similar in content to the Annual Information Ref 1 - These thresholds apply unless the charity’s governing documents stipulate that Update for the small charities), and a an Independent Examination or an audit is required. statement of the trustees’ legal obligation to report serious incidents Ref 2 – These thresholds apply unless the charity’s governing documents stipulate that (RSI) to the Charity Commission. In an audit is required. completing the declaration at the end of the Return, the trustee signatory will be certifying that any such incident occurring in the period has been reported to the Charity Commission. ● Income between £500,001 and £1,000,000 Charities are required to complete Part A and the RSI, as above, and they must also complete Part B - Financial Information of the Annual Return which includes questions about the charities finances. ● Income exceeding £1,000,000 charities are required to complete Part A, Part B and the RSI as above, and must also complete Part C – Summary Information Return. Annual returns must be submitted to the Charity Commission within 10 months of the charity’s year end. External Scrutiny The Charities Act 2006 simplifies the rules regarding the requirement for external scrutiny and introduces the same thresholds for charities which are companies and non-company charities.18
  • Charity Accounting and Financial Reporting –for financial periods ending on or after 1 April 2009 charitiesSummary of Information to be sent to the Charity CommissionAs noted above, the information required to be sent to the Charity Commission depends upon the size of the charity, measuredin terms of income. The requirements for financial years ending on or after 1 April 2009 are summarised as follows: Income in the Annual Annual Return Reporting Serious Annual Return Annual Return Trustees’ financial period Information Part A – Charity Incidents Part B – Financial Part C – Summary Annual Report Update Information (RSI) Information Information and Accounts Return £10k or less > £10k -£25k > £25k - £500k > £500k - £1m >£1mProtecting WhistleblowersThe 2006 Act ensures that auditors andindependent examiners of charityaccounts will be protected from the riskof action for breach of confidence ordefamation when they pass on relevantinformation to the Charity Commissionin respect of abuses or significantbreaches or trust identified during theaudit/examination process.SORP 2005The aim of SORP 2005 is to establish andimprove the standard of reporting and Report produced by: transaction work and the provision ofaccounting by charities; greater financial due diligence.transparency of reporting being afundamental aim. The 2005 revision of Andrew Malpass FCA, Principal with Whittingham Riddell LLP. He is often called to speak at local andthe SORP builds on its previous versions national conferences on accounting, auditand moves the focus of charity reporting Andy heads up the charities group at and risk management issues faced bymuch more to explaining: Whittingham Riddell LLP and is a member charities and regularly writes for the● of the UK200Group Charities Committee. professional press. The aims and objectives of charities;● How they have sought to achieve He has experience of a broad range of charities and not-for-profit organisations Andy joined Whittingham Riddell LLP in their aims and objectives; and● and is a Principal in the Business Assurance January 2003 from Pricewaterhouse What they have actually achieved. team. He has extensive experience in audit Coopers where he spent over 13 years and the provision of internal audit services. working both in the UK and Australia.This approach allows the charity to focuson matching financial information with Andy provides advice on risk management,the activities and outcomes in their internal control, strategy and financialTrustees’ Annual Report. planning and is experienced in corporate 19
  • charities Charity Governance What is ‘governance’? The systems direction and upholds its values. Board and trustee integrity and processes concerned with The Board and individual trustees should ensuring the overall direction, The Board in control act according to high ethical standards, effectiveness, supervision and The Trustees as a Board should and ensure that conflicts of interest are accountability of an organisation. collectively be responsible and properly dealt with. accountable for ensuring and Governance involves not only ensuring monitoring that the organisation is The open Board that appropriate policies and procedures performing well, is solvent, and The Board should be open, responsive are in place in an organisation but also complies with all its obligations. and accountable to its users, that they are adhered to without fail and beneficiaries, members, partners and are evidenced. The high performance Board others with an interest in its work. The Board should have clear Governance will vary amongst responsibilities and functions, and Examples of good governance – organisations; what is appropriate for should compose and organise itself to a checklist one charity may not be necessary in discharge them effectively. another. This will depend, amongst This checklist is not designed to be an other factors, on the size of the charity Board review and renewal exhaustive list of the policies and and the nature of its operations. The Board should periodically review its procedures necessary for a culture of own and the organisation’s strong governance. Some policies and Good Governance - A Code for the effectiveness, and take any necessary procedures may not be relevant to some Voluntary and Community Sector sets steps to ensure that both continue to charities. This will depend on the size of out seven key principles of good work well. the charity and the nature of its governance for charities: operations. However, if you decide that Board delegation a particular policy or procedure is not Board leadership The Board should set out the functions necessary in your organisation you Every organisation should be led and of sub-committees, officers, the chief should record why you have reached controlled by an effective Board of executive, other staff and agents in clear that conclusion. Trustees which collectively ensures delegated authorities, and should delivery of its objects, sets its strategic monitor their performance. Policy / Procedure In place? Responsibility Timescale Y/N / N/A The Board undertakes a skills audit to identify any skills gap within the Board’s current membership and to identify the skills needed in new Board recruits. Prospective charity trustees sign a form before their election or appointment to confirm they are not disqualified from acting as a charity trustee. (Consider whether any other checks need to be carried out. This may be particularly relevant for charity trustees working with vulnerable beneficiaries where there are likely to be requirements under other legislation.) An induction pack is given to all new charity trustees which includes the constitution or governing document, up-to-date information about the activities of the charity and any statement of the values of the charity. The Induction pack sets out trustee duties, identifying role, responsibilities and liabilities, and the remit of any sub-committees.20
  • Charity Governance charities Policy / Procedure In place? Responsibility Timescale Y/N / N/A Procedures at Board meetings Meetings of the Board and any sub-committees are held regularly. Meetings of the Board and any sub-committees are well attended. Minutes are taken of all meetings of the Board and its sub-committees, including decisions taken, responsibility for implementation and agreed timescales. Charity trustees declare any conflict of interest and do not take part in any discussion or decision on the matter. An up-to-date register of each charity trustee’s interests is maintained. A code of conduct for managing conflicts of interest is in place. Expectations of charity trustee attendance at meetings and what happens if these are not met, are in place and are communicated to all trustees. Board development & Evaluation A programme for charity trustee training, board building and renewal is agreed and implemented. The progress and effectiveness of the charity is reviewed annually and priorities for improving performance are agreed. Appraisals of individual Board members are undertaken. The Board as a whole undertakes a self-evaluation exercise on an annual basis. Day to day management Financial delegation, budgets, and processes to monitor financial performance are agreed. The Board set and maintain standing orders, systems of financial control, internal control, performance reporting, and policies and procedures. The Board ensure that there is a system for the regular review of the effectiveness of its internal controls. (Larger and more complex organisations should have an audit committee, and should also consider the use of an internal audit service). (Organisations providing services to users should consider adoption of an appropriate quality assurance system, or of other forms of accreditation). The framework for the support and management of paid staff and volunteers is agreed. Procedures are in place to keep up-to-date with legal responsibilities, e.g. employment legislation. 21
  • charities Charity Governance Policy / Procedure In place? Responsibility Timescale Y/N / N/A A risk register is in place to record the potential risks faced by the charity and actions to mitigate and manage the risks. The risk register is reviewed regularly by the Board or an appropriate sub- committee. General All charity trustees have a copy of and are familiar with the charity’s constitution or governing document. The strategy and policies of the charity are agreed and regularly reviewed. Board and staff refer to the charity’s purposes when developing and agreeing strategic plans. Charity trustee misconduct procedures formulated and applied. The process for managing serious differences between charity trustees, and between charity trustees and staff is agreed and applied. The constitution or governing document has been reviewed to ensure the power to remove charity trustees is available where there is serious or persistent breach of the Act. Further reading Good Governance – a code for the voluntary and community sector http://www.ncvo-vol.org.uk/uploadedFiles/NCVO/What_we_do/Governance_and_Leadership/Good_Governance_Code%20_PDF.pdf The hallmarks of an effective charity; Charity Commission publication, CC60 http://www.charity-commission.gov.uk/publications/cc60.asp Guidance for Charity Trustees; OSCR http://www.oscr.org.uk/PublicationItem.aspx?id=5b7d7df4-8d70-4aa7-af64-2d65c21ae22d Report produced by: Jenny Simpson FCA, partner with Wylie concerning decisions taken by the Office of & Bisset LLP and is head of their specialist the Scottish Charity Regulator. charities team. Jenny is a member of the UK200Group Charities Committee. In July 2007 Jenny was one of the first in the UK to be awarded a Diploma in Jenny specialises in providing business Charity Accounting by the Institute of advice to charities and not-for-profit Chartered Accountants in England & organisations and has considerable Wales, a qualification awarded to experience of ensuring they comply with professionals demonstrating a high level of the charities SORP, as well as providing ad competence in charity accounting and hoc advice on an ongoing basis to her financial management. She is also a charity clients. She is a member of the regular speaker at local and national Scottish Charity Appeals Panel, an conferences on accounting issues faced by independent body which hears appeals charities and writes for the professional press.22
  • Charity Tax charitiesSurely charities don’t need to exemptions but they must establish their for the primary purpose of the charityworry about tax, do they? charitable credentials with HMRC by but is itself the primary purpose. This submitting details of their governing exemption also extends to tradingYes they do! The very first thing for documentation and charitable activity which is not itself part of thecharities to understand about tax is that objectives and activities. charity’s primary purpose but which isthey cannot simply ignore it. By this we ancillary to the “primary purpose”mean that charities do not have a What exemptions are available? trading. An example would be ablanket exemption from taxes: there are museum running a café to cater forof course generous tax reliefs for Provided the income is applied only for visitors to a museum or sale of necessarycharities but the only safe starting point charitable purposes, charities are text books to students of anis to recognise that charities are treated exempt from UK tax on most types of independent school run by a charity.for tax purposes in exactly the same way investment income (including income Something to watch out for here is thatas everyone else unless the precise terms from investments overseas) and on trading may be partly ancillary toof some specific exemption or relief are rental income from property. Where tax primary purpose trading and partly not.satisfied. has been deducted at source from For example, a shop associated with a exempt income charities are able to museum may sell both goods related toSo, for example, a charity which carries claim repayment of the tax; they are the primary educational purpose of theon a trade is subject to tax unless the not, however, any longer able to reclaim charity (books about the exhibits, fortrade fulfils one of several alternative payment of tax credits in respect of example) and pure fund-raising itemsconditions which we look at in more dividends. Charities are also exempt (such as mugs, pens and otherdetail below; a charity carrying on a from Capital Gains Tax provided the souvenirs). Subject to de minimis rules,business or having rental income may be proceeds of disposal are used for such mixed trading may lead to theliable to account for VAT on its turnover; charitable purposes only. partial loss of exemption.and a charity which employs people isgoing to be subject to the same PAYE It is in relation to non-investment “Beneficiary” tradingobligations as any other employer. A income (in particular, trading income)charity which has taxable income is that the main complications arise. There This is trading where the work is mainlyrequired to notify HMRC and to file a tax is no blanket exemption from tax for carried out by beneficiaries of the charityreturn in the same way as any other such income, though there are no less for example, a workshop for thetaxpayer and is liable to the same than five separate exemptions which disabled selling goods produced in thepenalties if it fails to meet its obligations. might apply: if none of those is available workshop is likely to qualify; the it may be advisable to consider trading exemption is still sometimes referred toWho gets the exemptions? through a subsidiary (non-charitable) as the “blind basket weavers” trading company. exemption. Another example would beOnly bodies recognised by HMRC as a catering school running a canteencharities qualify. If you are recognised as How do trading reliefs work? open to the public where the food isa charity by the Charities Commission or prepared and served by students as partthe Office of the Scottish Charity There are five possible exemptions from of their course.Regulator (“OSCR”), HMRC will usually Income Tax (or Corporation Tax if theaccept that you are a charity for tax charity is a company). In each case Minor tradingpurposes. Occasionally, because Scottish there is a common requirement that thelaw differs from UK tax law, things may profits must be used for charitable Where neither of the main exemptionsnot be quite so straightforward for a purposes only. The exemptions are applies in full, profits may be exempt ifScottish charity; but this will be rare. briefly described below: the gross turnover (NB not the profit from the trade) is less than 25% of theSome charities are not registered with “Primary purpose” trading charity’s annual income and is also lessthe Charities Commission or with OSCR. than £50,000. However, regardless ofThis may be because the charity is This is trading which is carried out in the the level of the charity’s income, a tradeexcepted or exempt from registration or course of carrying out a primary purpose with a turnover of less than £5,000 willif its income is below the income of the charity. Examples might include always be exempt. This can bethreshold. Such unregistered charities an independent school or a museum – combined with the main exemptions: soare still able to access tax reliefs and the trade is carried out not to raise funds if for example a trade is largely covered 23
  • charities Charity Tax by the “primary purpose” exemption perhaps including prominent display of also need to bear in mind the constraints but a small part is not, the non-exempt the sponsor’s logo or a description of the imposed by charity law, which are part may be covered by the minor sponsor’s business may well be regarded covered elsewhere in these notes. trading rules. as the provision by the charity of advertising services, which would How does Gift Aid work? Fund-raising events (subject to the exemptions above) be a taxable business. Other services which a Both companies and individuals can Profits from events which are charity might provide in return for make payments under the Gift Aid undertaken by a charity are exempt business sponsorship might include scheme, although the detailed rules from Income Tax or Corporation Tax if some form of product endorsement or differ. From the charity’s perspective the they meet the definition of “VAT- recommendation, or perhaps access to important point is that Gift Aid receipts exempt” events. For more detail of the charity’s mailing list: either of these from individuals (but not companies) are “VAT exempt” events, see below. One might well give rise to taxable income. treated as if they had had basic rate tax rather confusing point to remember is This area is particularly fraught and great deducted from them, which tax is that although the VAT relief can apply to care needs to be taken at the margins. repayable to the charity. Thus with basic bodies which are not charities, the rate tax at 20% a Gift Aid receipt from corresponding direct tax relief is Trading companies an individual of £100 will generate a tax restricted to charities. repayment of £25. Until 5 April 2011 Rather than itself trade, a charity may HMRC will pay a further £3 for every Lotteries establish a company in which it owns all £100 donated, making a total the shares as a vehicle through which all repayment of £28 per £100 donated. If a charity organises a lottery to raise trading is conducted, with a view to Most charities will be familiar with the funds, any profits are exempt from tax procuring that the company pays all its basic Gift Aid procedures for cash provided the lottery is promoted and profits to the parent charity under Gift donations and we shall not cover those conducted in accordance with the terms Aid. There are two main reasons for this. here. But there are some complexities… of a lottery operating licence. First, the charity may not wish to expose all its assets to the commercial risks of Gifts of money What about sponsorship income? trading; second, if there are non- charitable activities for which the charity Gift Aid relief can be claimed only on The tax treatment of sponsorship would not be entitled to relief, this does gifts of money (though there are special income may require careful not matter: taxable profits will be rules about gifts of shares, securities and examination. If the charity gives “washed out” by the Gift Aid payment. land). This includes cash, cheque, nothing substantial in return for a There is a special relaxation of the Gift credit / debit card and all other forms of donation from a business, the donation Aid rules for companies owned by a money transfer, and the gift can be in will retain its character as a gift, even if a charity whereby payments made within sterling or foreign currency (though to business donor seeks and obtains good nine months of the end of the make a Gift Aid payment the payer must PR from the gift and indeed may see it as company’s accounting year can be be liable to pay UK tax of at least the the main benefit of the gift. However, “related back” to the accounting year: amount which is treated as deducted where the charity provides some goods this will make it easier to ensure that the from the payment). or services in return for the sponsorship full amount of profit for the accounting this may be regarded as amounting to a year is paid up as Gift Aid rather than Retail Gift Aid trade, which will not usually fall within having to make an educated guess. any of the tax exemptions; and it can A particular Gift Aid issue can arise in sometimes be difficult to know where Because a charity is at risk of losing some respect of the sale of donated goods. If the line is drawn. Where an event or all of its tax reliefs if it makes any loans a donor gives goods worth say £10 for promoted by a charity is sponsored by a or investments which are “non- sale through the charity’s shop the business, the sponsorship will not qualifying”, it is important to ensure that proceeds of sale are of course tax-free amount to a receipt of a trade merely any investments which a charity makes and the charity receives £10. If the because there is a simple in a trading subsidiary are commercially donor sells the goods himself and acknowledgement of the sponsorship in justifiable: for example any loan should donates the cash proceeds to the the programme for the event. But a carry a reasonable rate of interest which charity, the donation can be gifted- more fulsome acknowledgement, should actually be paid. Charities will aided and becomes worth £12.80 to the24
  • Charity Tax charitiescharity. For this reason various “Retail This can be helpful at charity auctions, donated goods is usually zero-rated:Gift Aid” schemes have evolved whereby but only where the item sold is in fact other sales are taxable at the usualthe charity purports to act as commercially available. The problem rates; andundisclosed agent for the donor in with many charity auctions is that the ● Other regular trading (includingselling the goods and in receiving the lots offered are unique and are not “primary purpose” and “beneficiary”cash proceeds of sale which are then (as commercially available; as for example a trading) – this will almost alwayscash gifts) donated to the charity under football shirt signed by a star player or a amount to the carrying on of aGift Aid. These schemes can certainly handbag donated by a celebrity. It is business and VAT will be due at thework, but only if they are meticulously not then possible to identify separate rate which is applicable to theplanned and carefully implemented: elements of donation and payment for particular supplies in question.they are full of pitfalls for the unwary. the benefit and Gift Aid cannot apply to any part of the payment - even though VAT and fundraising eventsGifts with strings or a quid pro quo the amount of the successful bid will almost always have been inflated by an Where a charity (or a company ownedGifts “with strings” do not count: so Gift intention to benefit the charity. by a charity) runs an event which isAid would not apply to “gifts” which are organised and promoted as ain any circumstances repayable; or gifts Charities and VAT “fundraising event” the income ismade on behalf of other people. “Gifts” exempt from VAT. As a rule of thumb,which are in fact payment for goods or Charities are generally subject to the for the exemption to apply, you are notservices are not within Gift Aid; but the same VAT rules as other businesses: if allowed to hold more than 15 events ofprovision of benefits which are of small they make supplies which are in excess the same kind at the same location invalue relative to the gift are acceptable. of the VAT registration threshold they any one financial year. A single eventFor gifts up to £1,000 the value of the must register and account for VAT on can extend over two or more days andbenefit must be less than £25 and less any supplies made in the course of still be counted as a single event: but anthan 25% of the gift; for larger gifts it business. The question what supplies “event” which involves severalmust be less than £500 and less than 5% are treated as business supplies and successive performances (such as a play)of the gift. There are, however, special what rate of VAT is chargeable on any counts as separate events. Butexemptions (the so-called “National particular supply can be complex and fundraising events which gross less thanTrust” exemptions) of which the main we can only give a broad outline here. £1,000 a week don’t count towards theone operates to permit Gift Aid in total – so, for example, running a charityrespect of annual subscriptions affording Among the more common receipts are: quiz night every week raising £500 eachthe giver free or reduced-rate admission time would remain exempt.to view property the preservation of ● Donations and grants – normallywhich is within the charity’s charitable outside the scope of VAT: but if a The exemption applies to funds raised atpurposes. grant is conditional on the charity the event – things like admission supplying services (even if to charges, sponsorship, brochures andBuying the benefit “clients” rather than to the grant- commemorative items sold at the event; awarding body) VAT may be due; but does not apply to income arisingWhere a Gift Aid payment would ● Advertising – normally VAT is due but subsequent to the event (audio or videootherwise fall foul of the “benefit” rule, there are exceptions; recordings, for example).it is possible for the donor to make a ● Fees from “affinity” credit cards – inseparate payment for the benefit principle subject to VAT; but “Charity challenge” events present(“buying the benefit”) and only to claim depending on the exact their own difficulties and there are aGift Aid on the remainder of the arrangement it is often possible to number of ways of dealing with them.payment. This can be done only where treat some of the fee as a VAT-free The danger is that if a “registration fee” donation; is charged or a minimum level of● the benefit is available to be ● Other sponsorship – if the sponsor sponsorship must be raised as a purchased separately (i.e., is receives anything in return for the condition of taking part in the commercially available); and sponsorship – e.g. display of the event, VAT may be chargeable on● the donor is aware of the value of the sponsor’s logo – this is likely to be these amounts. This is thus an area in benefit at the time he makes the treated as a business supply and which great care must be taken to payment. subject to VAT; ensure that there is no needless loss ● Sales in charity shops – sale of of VAT. 25
  • charities Charity Tax VAT on purchases David sits on and previously chaired the UK200Group Tax Panel. He is the Finally, it should be noted that there are principal author of BKLs respected e-tax many areas in which special reduced or newsletter BrassTax® and writes for the zero rates of VAT apply to goods or professional press. A member of the services which are bought in by Chartered Institute of Taxation, he was charities. These reliefs sometimes apply awarded fellowship of the institute for his only to supplies made to a charity of a book, Taxation of Company specified kind but in some cases also Reorganisations. As a non-practising extend to companies owned by Barrister he was recently called to the Bar charities. The list may include, in Lincolns Inn. David is a popular according to the exact circumstances: speaker at seminars. ● Advertising ● Aids for the disabled ● Equipment for talking books and newspapers ● Construction work ● Installation of energy-saving materials and equipment ● Fuel and power ● Medical, veterinary, scientific and rescue equipment ● Medicinal products, drugs and chemicals. In summary, the application to charities of VAT is one of the most complex areas of VAT: most charities except the smallest and simplest are likely to find a review of their VAT position worthwhile. Report produced by: David Whiscombe FTII, Director of Tax Services with Berg Kaprow Lewis LLP. David spent 11 years as a Tax Inspector in the former Inland Revenue working in roles as diverse as district inspector and technical training tutor before switching to private practice in 1987. David has been with Berg Kaprow Lewis LLP - BKL since 1991 where he performs a pure consultancy role advising on all aspects of the taxation of individuals, privately owned businesses, charities and the third sector.26
  • Charities and Risk Management charitiesIntroduction Types of Risk ● Human resources e.g. Loss of key members of staff,The management of risk forms a key part of All charities face a level of risk both in difficulty in recruitment, poor staffthe day to day operation of a charity and is terms of their day to day operation and vetting procedures, low staff morale,also fundamental to the wider strategic in the wider sense of their existence. lack of formal terms and conditions,considerations of the Board of Trustees. The SORP requirement focuses on major poor training.The formal consideration of and reporting risks and there are many examples of riskof risk by charities, is not only consistent classification which charities can adopt ● Environmentalwith good governance and good practice in helping them to identify the major e.g. Planning applications,but, is also a legal requirement for those risks to which they are exposed. The contamination.charities which require an audit. categorisation of risk and the specific risks attributed to each of them, as set ● TechnologyThe risks which a charities face will vary out below, is just one example which e.g. Need to invest in newaccording to their size, nature and the will assist trustees in putting some technology, failure of keycomplexity of their activities and structure around their assessment: software/hardware, poor systemsoperations, whilst the finances of a charity selection, lack of it, disaster recoverywill also have a significant bearing on risk in ● Mission/objectives planning, over reliance on supplier.the wider sense. The larger and more e.g. Aims/objectives do not accorddiverse the operations of a charity, the with constitution, activities and ● Financialmore difficult the identification, recording future developments restricted by e.g. Weak/ineffective financialand management of risk becomes. This objects, inappropriate/lack of procedures and controls, inadequateguidance considers: strategy and forward planning. budgeting and reporting, lack of capital expenditure planning.● Legal Reporting Requirements ● Law and regulation (compliance)● Types of Risk e.g. Failure to operate within objects, ● Taxation● Identifying and Managing Risk objects not considered charitable, e.g. breach of trading limits for● Identify controls, actions and adverse Charity Commission visit, Corporation Tax and or VAT, poor responsibilities penalties imposed, breach of gift aid procedures, lack of VAT● Periodic monitoring and assessment statutory requirements (Health and planning.● Recording Risk Assessment Safety Legislation, Charities Act, Companies Act etc.). ● Funds and fundraisingLegal Reporting Requirements Lack of reserves policy, funding ● Governance and management deficit, falling income levels, failureThe SORP requires that the Trustees’ e.g. Inappropriate organisational to comply with donor requirements,Annual Report contains a statement structure, difficulty recruiting poor control over fundraising, lack ofconfirming that: trustees, poor relationship between investment policy.“the major risks to which the charity is trustees and management, conflictexposed, as identified by the trustees, of interest, inadequate reporting to ● Fraudhave been reviewed and that systems trustees. Lack of consideration of fraud risk,have been established to manage those poor staff education and training,risks”. Furthermore, the Charities ● External factors inappropriate response to fraud,(Accounts and Report) Regulations place e.g. Political change, social and poor internal controls, lack ofa legal requirement on charities whose demographic changes, public segregation of duties.accounts are required by law to be perception, adverse publicity, Acts ofaudited for the Trustees’ Annual Report God.to contain such a statement. Identifying and Managing Risk ● Operational factorsSmaller charities which fall below the e.g. Poor service quality, competition The ultimate responsibility for theaudit threshold, whilst not required to and pricing, supplier/customer management and control of the charitymake a risk management statement in dependency, contract risk, security rests with the trustees and consequentlytheir Trustees’ Annual Report, are of assets, lack of operational they must play a key role in the riskencouraged to do so as a matter of best planning and control, lack of written management process. Whilst manypractice. policies and procedures. aspects of the risk management process 27
  • charities Charities and Risk Management may be appropriately delegated to have a detailed knowledge of the day to which consider this, the following management (as size and resource day operations of the charity. The wider scoring matrix being one such model, allows), the trustees must be sufficiently the input the more comprehensive the which attempts to give an overall score involved to ensure that they may assessment is likely to be. Achieving for each risk identified: confidently make the required structured input can be difficult and may statement on risk management in the best be achieved by holding a series of In this example each risk is graded from Trustees’ Annual Report. There are workshops to gather information and 1 to 3 in respect of likelihood and again many models/example processes which ideas. If the charity has subsidiaries or in respect of impact as follows: trustees’ may adopt in fulfilling this branches, risk identification must extend obligation. They are all very similar in to them. Likelihood that they set out a number of stages to ● (3) Likely be considered and trustees must select Examples of the general types of risks to More than even chance of the model which is most suited to the which a charity may be exposed are happening particular circumstances of their charity. listed above, and these can be used as a ● (2) Possible The stages which trustees’ must work starting point/checklist. However, it is Even chance of happening through should effectively address the important that the process of risk ● (1) Remote specific requirements of the statement identification is specific to the charity and Extremely unlikely which they are required to make not simply viewed as a generic exercise. annually, as follows: Impact Assess the impact of identified risks ● (3) Critical Establish a risk policy Will make a material difference The requirement for trustees to report ● (2) Major Risk is inherent in all activities and may on risk management is focussed on Will make a difference arise as a consequence of a positive “major” risk. Accordingly it is important ● (1) Manageable decision to do something or from that once risks have been identified they Impact deemed to be manageable inaction. Charities will have differing are put into perspective in respect of risk profiles according to their size, their relative importance by considering The scores for each risk are then applied nature and the complexity of their the severity of impact and the likelihood to the following matrix to give an overall activities, and operations will have of occurrence. There are various models risk score: different capacities to absorb or tolerate risk. Not only will a charity need to understand its tolerance to risk but will also need to understand its overall risk Likelihood profile, the balance between higher and Remote Possible Likely lower risk activities. (1) (2) (3) H = High Risk Critical (3) M (3) H (6) H (9) M = Medium Risk These considerations will form the basis of the trustees decision making in L = Low Risk Impact Major (2) L (2) M (4) H (6) respect of the level of risk they are willing to accept and a starting point from which Manageable (1) L (1) L (2) M (3) to undertake the initial risk assessment and determine the policy in respect of risk. The overall risk score being achieved by multiplying the score for likelihood with the score The trustees will need to communicate for impact. A score of 1 being at the lowest end of the risk profile and a score of 9 being the boundaries and limits set by their high risk. For example, if the impact of a risk was judged to be critical a score of 3 would policy to ensure that there is a clear be applied and if the likelihood of occurrence was assessed as likely then this would also understanding through the organisation be scored three and the overall risk score of 9 (High Risk) being achieved by multiplying of acceptable and unacceptable risks. the 2 numbers together. Indentify the major risks In this example the major (high) risks have been identified as being those with a score of 6 or above; scores of 3 and 4 being adjudged as medium risk and below 3 as low risk. The identification of risks is best achieved by involving the trustees and members of management and staff who28
  • Charities and Risk Management charitiesIdentify controls, actions and Periodic monitoring andresponsibilities assessmentWhere major risks are identified the The identification and assessment of risktrustees will need to assess what controls and associated controls must not beand procedures, if any, are in place to relegated to a one-off event. Themanage those risks to an acceptable management of risk is on-going and anylevel by reducing the likelihood and/or process employed must ensure that newimpact. This review should include an risks are identified and addressed as theyassessment of the adequacy of those arise and that established risks arecontrols and procedures which are reassessed on a regular basis. As aalready in place. minimum, the risk assessment should be revisited on a formal basis at least onceOnce the existence and adequacy of a year, but the processes employedexisting controls and procedures has should allow for ongoing assessmentbeen assessed the trustees will then be and reporting of risk. Many charitiesable to build up a plan of additional have risk and risk management as aactions/controls which need to be put in standing agenda item for all trustee andplace. In doing so it is important that management meetings.the person responsible for each newaction/control is identified, to ensure Recording Risk Assessmentthat there is clarity of ownership, andthat a timetable for implementation is In order for risk management to bealso drawn up. effective and allow trustees to formally evidence their assessment of risk, it isThe implementation of new controls essential that the assessment isand procedures to manage risk needs to appropriately recorded. Many charitiesbe considered in the context of cost do so by adopting a form of riskbenefit. Clearly, there would be little register/matrix. There is no prescribedpoint in implementing a highly complex format which charities must adoptand expensive series of controls if the and the form and content will varyimpact on risk reduction was minimal. depending upon the size of a charity.Conversely, the process may help The table opposite is an extracttrustees identify existing control and taken from the pro-forma charities riskprocedures which provide little value matrix which can be downloadedand add unwanted cost. from the UK200Group website: www.uk200group.co.ukThe identification of major risks and thecontrols which exist to manage them,along with the preparation of an actionplan for the implementation ofadditional controls and procedureswhere required, will enable trustees tomake a positive statement in respect ofrisk management in the Trustees’ AnnualReport. 29
  • charities Charities and Risk Management Report produced by: Andrew Malpass FCA, Principal with Whittingham Riddell LLP. Andy heads up the charities group at Whittingham Riddell LLP and is a member of the UK200Group Charities Committee. He has experience of a broad range of charities and not-for-profit organisations and is a Principal in the Business Assurance team. He has extensive experience in audit and the provision of internal audit services. Andy provides advice on risk management, internal control, strategy and financial planning and is experienced in corporate transaction work and the provision of financial due diligence. He is often called to speak at local and national conferences on accounting, audit and risk management issues faced by charities and regularly writes for the professional press. Andy joined Whittingham Riddell LLP in January 2003 from Pricewaterhouse Coopers where he spent over 13 years working both in the UK and Australia.30
  • Cross Border Charities charitiesThis article is intended to give an overview ● Uses secretarial support provided by England and Wales charity from theirof the circumstances when charities volunteers operating from their own register upon receipt of its finaloperating in England, Wales and Scotland homes in Scotland. accounts.may be subject to regulation by both theCharity Commission and the Office of the The detailed guidance published by Monitoring regimeScottish Charity Regulator (OSCR) and to OSCR contains a useful checklist whichhighlight the areas in which the rules north indicates whether a charity is required to OSCR’s latest publication on Crossand south of the border may differ. For register with them. Border Regulation makes it clear that thedetailed information full reference should Charity Commission will act as ‘leadalways be made to relevant guidance How to Register regulator’ for cross border charities ‘withissued by the regulators. the aim of minimising the burden of Organisations that meet the criteria and regulation on such charities’.The Requirement to Register are required to register with OSCR should contact the regulator and ask for All charities registered with OSCR areUnder the provisions of the Charities an application pack. required to submit an Annual Returnand Trustee Investment (Scotland) Act and a set of their Accounts to OSCR2005 (CTI(S)A 2005) all bodies wishing Once completed, the application is within nine months of the end of theirto represent themselves as a charity in submitted to OSCR along with a copy of accounting period. The Annual ReturnScotland need to register with the Office the organisation’s constitution, a copy of contains basic information about theof the Scottish Charity Regulator the most recent available accounts and a charity and helps OSCR to ensure that(OSCR). declaration signed by all Trustees. the information in the public domain remains current.Section 14 of the Act allows an OSCR will consider the charity’sexception to this for certain bodies constitution and activities against the In addition, charities with incomerecognised as charities elsewhere and charity test under the Scottish Act which exceeding £25,000 are required tonot established under Scottish Law if: is slightly different to that under English submit a Supplementary Monitoring Law. Specific guidance is available to Return giving further details about their● They are not managed or controlled help charities ensure that the wording finances and activities. wholly or mainly in Scotland; and used in their constitutions is acceptable● They do not have a significant to both regulators. For cross border charities the presence in Scotland. Supplementary Return is replaced by an If a charity is registered in England and Information Return which is designed toAn organisation is likely to have to Wales but operates solely in Scotland it provide OSCR with some baseline dataregister with OSCR if it: is not possible to simply ‘transfer’ the on the activities undertaken by the registration to OSCR. Where a charity’s charity in Scotland.● Owns or leases premises in Scotland; governing document specifies that it is● Pays rates in Scotland; and to be administered under the law of Accounts● Claims relief for non-domestic rates England and Wales then it falls within from a local authority in Scotland; the Charity Commission’s jurisdiction, OSCR does not require separate Scottish● Holds open meetings in Scotland; or regardless of whether the charity’s accounts from cross border charities and● Charges for events held in Scotland. trustees and/or assets are outside will accept ‘consolidated’ UK accounts England and Wales. Once that provided that narrative is included in theAn organisation is less likely to register jurisdiction has been established it Trustee’s Report about activitieswith OSCR just because it: cannot be changed and there is no undertaken in Scotland. mechanism to simply transfer Charity● Advertises in the Scottish press (or Commission jurisdiction to another Cross border charities are not exempt any other media); regulator. Therefore, if such a charity from the accounting requirements in● Awards grants by correspondence wishes to be registered only with OSCR Scotland which are set out in the Charity only; then it needs to formally dissolve and Accounts (Scotland) Regulations 2006● Conducts street collections in transfer its assets to a new charity but in reality there is little practical Scotland; established under Scottish law and difference between the reporting● Holds occasional members registered with OSCR. The Charity requirements north and south of the conferences in Scotland; or Commission will then remove the border. 31
  • charities Cross Border Charities The two jurisdictions do however vary Section 67 of the CTI(S)A 2005 applies short-term. The Office of the Third when it comes to the requirement for to all services provided to the charity Sector announced in early 2009 that it external scrutiny of accounts; following including services provided as a charity was looking at the various options the relaxation of the thresholds for trustee and under a contract of available for implementing the external scrutiny in England and Wales employment. In England and Wales, certification scheme and as such this is with effect from 1 April 2009, the rules section 73A does not apply to not currently in force. in Scotland are more stringent. A remuneration for services as a charity comparison of the requirements in the trustee, services under a contract of As in England and Wales, the two jurisdictions is included at the end employment or remuneration a person Regulations in Scotland relating to of this section. is entitled to receive under a provision public benevolent collections are to be contained in the trusts of a charity. The extended to include not only cash Cross border charities should also be Scottish legislation limits entitlement to donations, but also promises of money aware that the filing deadline for remuneration by virtue of a specific such as direct debits and standing accounts with OSCR is one month provision in the constitution of the orders. Meanwhile, the current shorter than that of the Charity charity to provisions that were in force legislation for public charitable Commission. on 15 November 2004. Neither collections contained in the Civic statutory regime prohibits remuneration Government (Scotland) Act 1982 and References to Charitable Status to which charity trustees are entitled by the Public Charitable Collections virtue of an order of the court or by (Scotland) Regulations 1984 and 1988 The requirements covering the statute. remains in force. information charities must ensure is stated on certain documents contained In addition the Charity Commission has Sources of further information and in the Charities References in the statutory power to authorise guidance Documents (Scotland) Regulations 2007 payments to charity trustees in certain (as amended) are similar to those circumstances; OSCR has no equivalent Cross Border Charity Regulation applicable in England and Wales. power. Guidance on statutory requirements and However, it should be noted that whilst reporting to the Office of the Scottish charities with a gross income of less that Cross border charities that are Charity Regulator – available via £10,000 are exempt from complying remunerating trustees in accordance www.oscr.org.uk with the provisions in England and with the law of England and Wales will Wales, there is no such exemption in need to carefully consider the Seeking charitable status in Scotland Scotland. requirements of the 2005 Act in Guidance for England and Wales Scotland in order to determine whether charities on registration with the Office if Consents and Notifications such remuneration is permissible under the Scottish Charity Regulator – the terms of the 2005 Act. available via www.oscr.org.uk The provisions contained in sections 11, 16 and 17 of the CTI(S)A 2005 covering Fundraising - Licenses for Operational Guidance 32 the circumstances when charities must public benevolent collections English and Welsh Charities registering seek OSCR’s advance consent before a with the Office of the Scottish Charity particular action or notify OSCR within a Issuing licenses for public benevolent Regulator (OSCR) – available via specified timescale after an action, collections (collections in public places) www.charity-commission.gov.uk apply equally to cross border charities continues to be the responsibility of registered with OSCR. local authorities in Scotland. There is no proposal for OSCR to license individual Full details can be found in OSCR’s operators. publication ‘Consents & Notifications’. In England and Wales, the Charities Act Trustee Remuneration 2006 provides for a licensing regime for all public collections of money and gifts. The rules regarding remuneration of All such public collections would require Trustees are slightly different in the two a Public Collection Certificate that is jurisdictions. The key difference issued by the Charity Commission. between the provisions in Scotland and There is an exemption from the licensing England is their scope. regime for collections that are local and32
  • Cross Border Charities charitiesRegulatory requirements for preparation and external scrutiny of Report produced by:accounts for cross border charities Jenny Simpson FCA, partner with Wylie & Bisset LLP and is head of their specialist charities team. Jenny is a member of the UK200Group Charities Committee. Jenny specialises in providing business advice to charities and not-for-profit organisations and has considerable experience of ensuring they comply with the charities SORP, as well as providing ad hoc advice on an ongoing basis to her charity clients. She is a member of the Scottish Charity Appeals Panel, an independent body which hears appeals concerning decisions taken by the Office of the Scottish Charity Regulator. In July 2007 Jenny was one of the first in the UK to be awarded a Diploma in Charity Accounting by the Institute of Chartered Accountants in England & Wales, a qualification awarded to professionals demonstrating a high level of competence in charity accounting and financial management. She is also a regular speaker at local and national conferences on accounting issues faced by charities and writes for the professional press. 33
  • charities Instructing Investment Managers When instructing discretionary charitable activities. A large number of Financial (or risk) capacity is the extent investment managers it is useful to have charities decide to invest their surplus to which a charity’s financial position a working knowledge of the main points funds in order to generate additional could withstand a setback to its surplus which need to be considered - income, increase their capital base to assets portfolio without any major particularly legal issues, surplus assets, underpin future spending or establish a disruption to its long-term objectives. asset mix, investment policy statements, contingency reserve. ongoing monitoring, ethical policy and Risk tolerance is the level of risk trustees investment manager selection. To determine what assets are surplus to are willing to accept in carrying out their immediate requirements, trustees must fiduciary responsibilities and is Legal carefully review their current and essentially a psychological attribute planned activities in terms of both something which can be difficult to The Trustee Act 2000 is the principal income and expenditure. Larger establish in terms of a group of trustees legislation governing charity investment charities should put together budgets with different levels of expertise. and includes a requirement that trustees and forecasts covering several years. must also comply with the guidance It also helps to understand the main provided by the Charity Commission. An important part of this process is characteristics of the different asset The Commission’s CC14: ‘Investment of reviewing the availability of other classes typically used in the investment Charitable Funds: basic principles’ is resources, the need to pay fixed sums at policy mix. essential reading for anyone involved in fixed points in the future, the nature of this area. any actual or potential liabilities, the Fixed interest stocks (if purchased minimum income requirement and how around par or their ultimate redemption Without going into the detail of the a charity’s requirements might be value) provide capital security, a reliable Trustee Act, there are three key elements affected by major tax or economic income, liquidity and diversification to highlight in the context of this article. changes. although in real terms capital and The first is that trustees were given a income will be eroded by inflation. general power of investment which Asset mix Sovereign debt (for example UK Gilts or constitutes much wider investment US Treasury bonds) provide the greatest powers than had previously been A key tenet of modern portfolio theory is security of capital. Corporate bonds available. The second is that they were that combining assets with different share some of the characteristics of given a general power to appoint agents characteristics and different reactions to sovereign debt but not the same degree nominees, custodians and investment different market conditions makes it of capital security and they can become managers. The third is to enshrine in possible to limit risk without reducing illiquid in times of financial stress. To statute that the common law duty of the long-term return potential. compensate for this, their yields tend to care also applies to trustees i.e. they be higher and this is often referred to as must exercise such skill and care as is Once investment managers have been the ‘spread’ over sovereign debt. reasonable in the circumstances. appointed, trustees need to work closely Among other things, this means trustees with them to determine an appropriate Equities provide the opportunity for are personally liable for any act or investment policy - in other words the capital and income growth and over default by an agent if it can be shown asset mix which offers the prospect of the time should maintain - and hopefully that they failed to comply with the duty highest rate of return within an accept- increase - the real spending power of of care when entering into, reviewing able level of risk. This latter can best be the original capital. However, equity and assessing compliance with the defined as a combination of time horizon, investment involves risk not just in terms arrangements made with appointed financial capacity and risk tolerance. of ultimate capital security but also day- agents. There is also a body of case law to-day values. As the UK market which may need to be considered in The time horizon will influence the becomes increasingly concentrated, some circumstances. choice of asset type and potentially the several major sectors (notably oils and investment return. It is important to pharmaceuticals) are represented by a Surplus assets factor into the equation that while very limited number of stocks which higher risk assets like equities are means stock specific risk is more of an Apart from charities with permanent expected to generate higher returns, issue. Having evaluated the currency endowments, others may have assets they are inherently more volatile and risks, trustees may therefore want to that are not required for immediate therefore require a longer investment consider increasing the geographic time horizon. scope of their equity exposure.34
  • charities Instructing Investment ManagersAlternative assets including commercial coin and trustees need to understand Selecting an investmentproperty, private equity and hedge the level of risk taken on to achieve a managerfunds are frequently used to provide given return. Although measures ofadditional diversification although not volatility and tracking error can be There is no shortage of firms seeking toall investment managers have the helpful, common sense observation is manage charitable portfolios andnecessary specialist expertise. often the best guide. choosing between them is not easy. Over and above establishing theirInvestment policy statements Ethical policy charity expertise, track record and charges, other questions which shouldThe Trustee Act 2000 requires trustees to To paraphrase Charity Commission be asked include whether thedraw up an investment policy statement guidance, while some trust deeds investment strategy is centralised orwhich needs to be agreed and counter- dictate ethical or socially responsible tailored to a charity’s specific needs,signed by the investment manager. The investment (SRI) restrictions, in reality how it will be implemented, whetherstatement, which must be regularly these are frequently imposed by trustees the assets are ‘pooled’ with those ofreviewed, should encompass the key themselves. The guiding principle is that other charities, what are the security ofissues considered when investing surplus the purposes of a charity are normally asset arrangements, how stable is theassets - specifically the objective, time best served by seeking the maximum investment team and finally - assuminghorizon, any constraints (including return consistent with commercial everything else fits - can the trusteesethical considerations), initial asset prudence. Harries (Bishop of Oxford) v develop a working relationship with theallocation, financial capacity, risk the Church Commissioners established person they will be dealing with?tolerance, reporting channels, frequency three key circumstances where ethicalof communication and a benchmark policies can legitimately be adopted. Summaryagainst which portfolio performance can These are if an investment wouldbe measured. A guide to the Trustee Act conflict with the aims of a charity or Ultimately, everything boils down to2000 and preparing an investment might hamper a charity’s work by trustees giving the investment managerpolicy can be found at www.quilter.co.uk alienating beneficiaries/supporters or be all the information needed to develop deemed unlikely to affect the overall an investment strategy which accuratelyOngoing monitoring investment return. The requirement to reflects a charity’s overall financial hold suitable assets and be suitably position and sensitivity to change inEffective monitoring is as important as diversified does not change and nor are either its income or the capital value ofagreeing the investment policy because trustees able to take moral positions at its assets. Alongside this, it is essential toit allows trustees to spot when the expense of a charity. ensure that the manager has asomething is not going according to process/approach which meets theplan and enables them to comply with Unsurprisingly, there is considerable trustees’ requirements in terms oftheir duty of care. debate about the impact ethical policies investment strategy, service, have on investment returns and it is performance and cost.Reporting is usually quarterly and there usually possible to select discrete periodswould normally be an annual meeting in order to prove the case being put Report produced by:with the investment manager although forward. However, as a general rule thethis depends on the charity’s size and greater the number of restrictions the Nick Murphy BA (Hons), Associate of thecomplexity. The investment return more diversification is reduced and the CFA Society of the UK, Executive Directorshould be calculated according to global more likely it becomes that this will at Quilter.investment performance standards impact on performance. In the final(GIPS) to ensure consistency and analysis, trustees often have to Nick has 22 years’ investment experience.comparability between managers. distinguish between companies by At Quilter, he is a member of the CharityPerformance figures relative to a evaluating the proportion of their Group and co-investment manager of Grossrepresentative passive benchmark operations which are dedicated to a Funds. He chairs the international stockshould be produced for both discrete proscribed activity. selection and the hedge fund selectionand cumulative periods. An active units and is a member of the assetmanager should generally out-perform Effective ethical screening requires allocation committee. He speaks atover an investment cycle if the cost of significant resources and using outside seminars on investment matters and he isactive management is to be justified. specialists often makes good sense. a member of the Charity Law Association.Risk and return are two sides of the same 35
  • charities Fundraising for Charities Fundraising is at the heart of many Codes. Full details of the FRSB are UK and abroad), balls, fairs, coffee charities, enabling them to generate the available at: www.frsb.org.uk mornings and much more and can funds to help their beneficiaries. The be a way to attract new supporters fundraising environment is a vibrant and Getting started and raise awareness. Charities need dynamic field, frequently exploring new to be aware that such activities can potential income sources and adapting Before embarking on any fundraising be considered trading and you need to changing legislation. Legislation is in activity it is important to develop a to make sure you have appropriate the process of changing throughout the fundraising strategy, for example taking procedures in place. UK, as the implementation of new into account your organisation’s strengths charity law continues in England and and weaknesses, aims, expertise (and ● Face-to-face fundraising: whether Wales, Scotland and Northern Ireland. any gaps) and potential income sources on the street or door-to-door, face- that you could explore. It is important to to-face fundraisers look to sign-up While these Acts impact upon aspects of remember that fundraising costs, in donors to give regular support. Such fundraising, fundraising itself is not terms of time, money, expertise and committed giving can provide long- centrally regulated. The Charity other resources. Investing in fundraising term support for charities and enable Commission in England and Wales, effectively can help to build a them to budget for future work. The OSCR in Scotland and the Charity sustainable future for your organisation. PFRA may also be able to provide Commission for Northern Ireland do not advice: www.pfra.org.uk regulate fundraising itself although they There are a number of fundraising avenues can impact upon fundraising. Fund- that you could consider. Some of the ● Committed giving in the work raisers themselves do not have to be main areas are summarised below. More place: schemes such as Payroll Giving registered but they can demonstrate their information on all these areas, is enable donors to donate directly commitment to the sector by joining the available from Institute of Fundraising from their salary before tax has been sector’s professional membership body, at: www.institute-of-fundraising.org.uk paid, so it costs them less money to the Institute of Fundraising. make a donation. Again, this type of Fundraising from individuals: ongoing support can help charities In terms of fundraising regulation, the to plan, while providing an easy sector is self-regulated. The Institute of ● Direct mail: a traditional but still route for donors to support their Fundraising’s Codes of Fundraising Practice popular fundraising technique, direct favourite organisations. set the standards for self-regulation and mail enables fundraising organisa- cover a range of fundraising techniques tions to tell potential supporters about ● Public collections: largely undertaken as well as over-arching Codes such as the good work they do and how they by volunteers, these collections can that for accountability and transparency. can be supported. It is important to provide unrestricted income as well These Codes are written by the sector, make sure you abide by appropriate as helping to raise awareness of the for the sector and are updated in regulations including those of the organisation in the public community. accordance with changing charity law Advertising Standards Authority and Licences are needed for collections in and to accommodate new fundraising data protection standards. public places and for those on private practices. All of the Codes are available property, permission is needed from on the Institute of Fundraising website at: ● Telephone fundraising: again, this the owner. Licensing procedures are set www.institute-of-fundraising.org.uk/codes can give fundraising organisations a to change with the implementation real opportunity to connect to of new charity law so make sure you The Fundraising Standards Board (FRSB) potential supporters and engage check the latest developments before acts as the public-facing arm of self- them in their work. It is important to proceeding. Care also needs to be regulation. Officially launched in 2007, run any lists past the relevant taken to ensure collections are secure, members display the FRSB ‘tick’ on all suppression files, such as the so that the money and collectors are their fundraising documents and ensure Telephone Preference Service. safeguarded. More information at: a proper complaints procedure is in www.institute-of-fundraising.org.uk/publiccollections place. If members of the pubic do not ● Event fundraising: fundraising events receive an adequate response from the can take a range of forms, whether ● House-to-house collections: collect- charity about their complaint, these can organised by volunteers or the ions may be for goods or money. You be forwarded to the FRSB to adjudicate fundraising organisation itself. They need to make sure you have the correct the complaint against the Institute’s can include challenges (both in the licences in place. The licensing36
  • Fundraising for Charities charities procedure for these collections is set will not pose an unreasonable important to give donors information to change under new charity law reputational risk to your organisation about how their money is used. The and will see the end to national and that the nature of the ImpACT Coalition promotes exemption orders. Make sure that relationship is clearly laid out. In accountability and transparency and can you are familiar with the regulations addition to the Institute’s Code, see: provide further information about how before undertaking a collection. www.institute-offundraising.org.uk/solicitationstatement to help donors to get a better understanding of charities:● Raffles and lotteries: new regulations ● Trusts/grants: there are around www.impactcoalition.org.uk for raffles (which are termed 9,000 grant-making trusts in the UK ‘lotteries’ in law) came into force in and these are a natural source of In particular, it is important to remember 2007. Some fundraising raffles will funds for many organisations. that money has to be used in the way be exempt from registration and some However, it is important to make the intended by donors: if money is given for procedures whilst others will need to right application to the right grant. a specific project or campaign, the register with the local authority or There are a variety of online search money has to be used for this campaign Gambling Commission and follow more engines to look for the most unless permission is gained from the donor stringent processes. More information at: appropriate funding and make sure to use the money in another way. In www.institute-of-fundraising.org.uk/raffles you abide by the trust’s criteria to some cases, applications may be made maximise your potential success. to the Charity Commission in England● Major donors: a particularly strong and Wales to use the money for a relationship needs to be built to Tax-effective giving different purpose. Information available benefit from good major donor http://www.charity-commission.gov.uk/supportingcharities/ support. It is important to think about Fundraising organisations can maximize how you can keep the donor the value of their donations by making Engaging volunteers involved in your organisation and find sure supporters donate tax-effectively. projects that will most motivate them. The Institute of Fundraising provides a Two thirds of all volunteers in the UK are wealth of information about tax- involved in raising and handling money.● Legacies: potentially the most valuable effective giving for all charities and They present a vast resource for the gift that donors can leave to a fund- delivers the Government-funded Tax- sector and bring in valuable funds. It raising organisation, legacies can Effective Giving Initiative to help small can be difficult to provide volunteers completely change the fundraising charities increase their income through with the guidance they need, so outcome for a year. While the fruits tax-effective fundraising techniques. directing them to the Institute’s of your labour may take longer to www.tax-effectivegiving.org.uk includes How2Fundraise website can save you materialise, a little investment has a plethora of information on the various time and make sure your volunteers have the potential to go a long way. charitable reliefs and a number of plenty of ideas and follow best practice: Remember a Charity is a coalition practical downloads. There are a www.how2fundraise.org that promotes legacy giving and number of tax-effective techniques but more information is also available in by far the most prevalent is Gift Aid. the Institute’s Code and on the tax- This enables charities to claim back tax effective giving website: that has been paid on the donation to www.tax-effectivegiving.org.uk and make it worth more. www.rememberacharity.org.uk Accountability and transparencyFundraising from organisations: No matter what type of fundraising you● Working with business: there are a pursue, it is imperative that you are number of ways that fundraising open and honest in all you do. The organisations can benefit from majority of fundraising organisations working with businesses, whether it is rely on public support which in turn is through donations of money, gifts-in- dependent upon public trust and kind, volunteer time or as com- confidence in those organisations. You can mercial participator. It is important to help to maintain and build upon current make sure working with a company levels of support and as part of this, it is 37
  • charities Fundraising for Charities Key sources of information: Report produced by: Institute of Fundraising: Caroline Howe, Policy and Codes www.institute-of-fundraising.org.uk Manager, Institute of Fundraising 020 7840 1000 (main office) 0131 557 2100 (Scotland office) Caroline has worked in the Policy and Campaigns Team at the Institute of Tax-Effective Giving: Fundraising for three years. Her work www.tax-effectivegiving.org.uk includes advising Institute members and www.giftaidhelp.org the public more widely on a diverse range 0845 458 4586 of fundraising techniques and issues as well as campaigning to ensure an effective How2Fundraise: fundraising environment. The nature of www.how2fundraise.org her role means that she has experience of working with a range of fundraisers, Fundraising Standards Board: whether they have never fundraised before www.frsb.org.uk and want to do something in their local 0845 402 5442 community or if they are experienced fundraisers facing complex ethical or Charity Commission: technical quandaries. She also works www.charitycommission.gov.uk closely with the Institute’s Standards 0845 300 0218 Committee and Policy Advisory Board. OSCR (Office of the Scottish Charity Regulator: www.oscr.org.uk 01382 220 446 HMRC Charities: www.hmrc.gov.uk/charities 08453 02 02 03 Remember A Charity: www.rememberacharity.org.uk 020 7840 1030 Payroll Giving Centre: www.payrollgivingcentre.org.uk 0845 602 6786 ShareGift: www.sharegift.org.uk 020 7828 115138
  • 26 South Saint Mary’s GateGrimsbyDN31 1LWTel: 01472 350601Fax: 01472 241748Email: grimsby@forrester-boyd.co.ukWeb: www.forrester-boyd.co.ukAuthorised and regulated by the Financial Services Authority.independent quality assured professionals3 Wesley HallQueens RoadAldershotHampshire GU11 3NPTel 01252 401050Fax 01252 350733admin@uk200group.co.ukwww.uk200group.co.ukThis handbook has been prepared for general interest andit is important to obtain professional advice on specificissues. We believe the information contained in it to becorrect. While all possible care is taken in the preparation ofthis handbook, no responsibility for loss occasioned by anyperson acting or refraining from acting as a result of thematerial contained herein can be accepted by theUK200Group, or its member firms or the authors.UK200Group is an association of separate andindependently owned and managed accountancy andlawyer firms. UK200Group does not provide client servicesand it does not accept responsibility or liability for the actsor omissions of its members. Likewise, the members ofUK200Group are separate and independent legal entities,and as such each has no responsibility or liability for theacts or omissions of other members.