1. Association of Church
Accountants and Treasurers
TOPICAL ISSUES IN PCC FINANCE
Lincoln Diocesan Treasurers’ Conference
15th October 2011

2. OBJECTIVES
To provide a topical update on:
• Legal and financial overview for PCCs
• The role of the Treasurer
• Principles of accounts
• Annual Report
• Independent examination
• Gift Aid
• VAT
• Employment
• The future of cheques?

3. LEGAL OVERVIEW
• A PCC has charitable status - the members
are trustees
• A District Church Council is not a separate
charity
• Trustees can be liable for church debts
(must act responsibly)
• 4 key tests for trustees -
Honesty
Acting reasonably
Prudency
Business-like

4. LEGAL OVERVIEW (cont)
• Trustees are responsible for
- keeping proper accounting records
- preparing annual accounts
- arranging examination
• MUST aggregate the accounts for
funds/activities under the PCC’s
CONTROL
• Trustees CANNOT delegate RESPONSIBILITY
• Therefore, a Treasurer should not feel
isolated!

5. REGISTRATION WITH CHARITY
COMMISSION (ENGLAND & WALES)
• PCCs with receipts above £100,000 pa
required to register with the Charity
Commission (CC)
• Dispensation may be granted where
threshold exceeded by an exceptional
item – e.g. a legacy or building grant
• Registration does not affect trustees’
responsibilities and accounting
requirements
• PCC must submit an Annual Return to the
CC
• PCC must quote the charity number on
letterheads etc
• If not registered, PCC is an EXCEPTED charity

6. PRINCIPLES OF ACCOUNTS
Financial years ending AFTER 31 March 2009:
• Annual receipts exceed £250,000 -
ACCRUALS ACCOUNTS
• Annual receipts less than £250,000 -
can be RECEIPTS AND
PAYMENTS ACCOUNTS
(accruals are optional)
• Previous threshold - £100,000

7. FUNDS
Fundamental concept for charity accounts
• Endowment funds
Usually capital funds where only the income
can be spent (can be examples of
expendable endowment)
• Restricted funds
Purpose specified by the donor or
the charity at the time of receipt
• Unrestricted funds
Available for general charitable
purposes
• Designated funds
Set aside for specific purpose(s) –
remain unrestricted

8. ENDOWMENT FUNDS
• The Charities Act 2006 simplified the process
whereby charities could expend
endowment funds
• Where a fund has a capital value less than
£10,000 per annum and annual income less
than £1,000, the PCC can pass a resolution
to expend the capital
• Where a fund has a value in excess of £10,000
or annual income above £1,000, the PCC
must seek Charity Commission consent in
order to expend the capital

9. RESTRICTED FUNDS
• Do not necessarily need separate bank
accounts for each fund
• need proper controls
• avoid too many bank accounts!!
• Where a church is seeking funding for a
project, suggested clause for inclusion:
“any surplus monies will be applied
for the general purposes of the
church”

10. ANNUAL REPORT
• Key document
• Demonstrates public benefit – for an
individual church and within the charity
sector

11. ANNUAL REPORT
• Purpose • Celebrate
• Inform
• Point Forward
• Public Relations
• Format • Easy to read
• Words, Charts, Pictures
• Group reports in appendix
• Content • A positive view of church life
• Provide a clear vision

12. ANNUAL REPORT
MAIN SECTIONS
• Objectives and activities
• Achievements and performance
• Financial review (inc Reserves policy)
• Funds held as custodian trustee
• Structure, governance and management
• Reference and administration

13. ANNUAL REPORT - PLANNING
CHURCH

14. ANNUAL REPORT - PLANNING
Home
groups
Worship
Local
CHURCH schools
Children’s
group
Community
Youth hall
group

15. ANNUAL REPORT - PLANNING
Mid-
week School
Home A
groups School
Worship B
Sunday Local
am CHURCH schools
Visits to
Church
Children’s
group
Community
Youth hall
group

16. INDEPENDENT EXAMINATION
Independent Examination
• Gross income below £500,000 except when gross
assets exceed £3.26 million and income
exceeds £250,000
Audit
• Gross income above £500,000; or
• Gross assets above £3.26 million and gross
income above £250,000

17. INDEPENDENT EXAMINATION
The Examiner
“ an independent person who is reasonably
believed by the charity trustees to have the
requisite ability and practical experience to
carry out a competent examination of the
accounts”
Charities Act 1993 (section 43(3)(a))

18. INDEPENDENT EXAMINATION
The Examiner (continued)
• Not connected to the Trustees
• Should be formally appointed by the trustees
• Need not be a qualified accountant, but
possess relevant knowledge
• Where gross income exceeds £250,000 must be
member of a listed body (see 1993 Act).
Some professional bodies (e.g. ICAEW AND
ACCA) prohibit members who do not hold a
practising certificate
• Can be paid a reasonable fee

19. GIFT AID
Scheme from 01 April 2000
• Separate schemes for covenants and Gift Aid
replaced by ONE Gift Aid procedure
• An individual makes a declaration to -
“treat ALL the donations I make from this
date, and any I have made over the last four
years, as gift aid donations until I notify you
otherwise.”

20. GIFT AID (cont)
General principles
• Applies only to those who pay tax
• Either Income Tax or Capital Gains Tax
• Must pay sufficient tax in the relevant year to
cover the tax reclaimed
• Interim claims can be made during year
• From April 2010 time limit of 4 years to
make a claim (previously 6 yrs). 2 year
limit for transitional assistance.
• Donations must be freely given money gifts
(cash, cheques, bank transfers etc)

21. GIFT AID (cont)
General principles (continued)
• Higher rate taxpayers can claim back their
marginal rate (minimum 20%) thereby able
to increase their donation
• Make the most of occasional services
(weddings, baptisms, funerals) and
visitors
• Keep envelopes (and pens) available
• Try to give time at beginning of service to
complete details

22. GIFT AID (cont)
Current topics
• Tax rate reduced from 22% to 20% from 6
April 2008
• 3 year transitional scheme to pay the
difference. Claim at the rate of 20% tax
rate – HMRC to add the difference (to 22%).
Transitional relief ended 5 April 2011
• Donations £10 and under can be aggregated
up to a total of £500

23. GIFT AID (cont)
Current topics continued (2011 Budget)
• From April 2013, charities able to claim gift aid
on cash donations up to a total of £5,000 per
annum WITHOUT any evidence that the
donors are taxpayers
• Intelligent electronic forms to be introduced
for claims (check arithmetic etc)
• On-line facility for claims from 2012/13
• Develop an on-line database for Gift Aid
declarations

24. BUDGET – 23 MARCH 2011
KEY FEATURES FOR CHURCHES
• Gift Aid (see earlier slide)
• Inheritance tax – from 6 April 2012 rate of
40% to be reduced to 36% where a
minimum of 10% of the estate has been left
to charity
• Approved mileage allowance on first 10,000
miles per annum increased from 40p to
45p per mile from 6 April 2011.

25. VALUE ADDED TAX
• In general VAT cannot be reclaimed
• Improvements or alterations to a listed
Church - ZERO rate for VAT
• New build work for ALL churches is ZERO rated
• Listed Places of Worship Grant Scheme
(see later slide)

26. VALUE ADDED TAX
(cont)
• Construction work for disabled access /
facilities can be ZERO rated for ALL
charities
• ALL charities - 5% VAT on gas and
electricity, and insulation materials
• ALL charities– all advertising should be
ZERO rated

27. VAT – LISTED PLACES OF
WORSHIP GRANT SCHEME
• ONLY applies to LISTED churches
• VAT paid to the contractor – refunded
by grant
• Net 5% VAT rate – 01.04.01 to 31.03.04
• ZERO VAT – from 01.04.04 to 31.03.11 (i.e.
FULL VAT refund)
• Scheme extended until 31.03.15 – see next
slide

28. VAT – LISTED PLACES OF
WORSHIP GRANT SCHEME
With effect from 01.04.11
• There will be a quarterly fixed budget.
• Payments will be made once per quarter and
the rate payable will depend on the value of
eligible claims in that quarter, with each
claim attracting a pro-rata payment.
• First payment under new scheme will be in
September 2011.
• Supporting invoices cannot be more than
one year old.
• Estimated £24 m claimed in 2010/11
• Indication of £12 m available for 2011/12

29. VAT – REPAIRS GRANT SCHEME
(cont)
• Principally relates to the FABRIC of the building
(walls, roof, floor, doors, windows)
• Includes services RELATING to repair works (e.g.
plumbing, electrical)
•For work after 22.03.06 and until 31.12.10 the
scheme included:
pipe organ clocks
fitted pews investigative works
bell frames, bells & professional fees
ropes
Claims for these must have been by 31.12.10

30. VAT – REPAIRS GRANT
SCHEME (cont)
Excludes –
• floor covering
• non-fixed pews
• external work (paving, boundary walls etc)
• categories on previous slide PRIOR to
22.03.06 AND after 31.12.10

31. EMPLOYMENT ISSUES
• Is the person an employee or self-employed?
• Control over the work?
• Ability to delegate?
• Mutuality of obligation?
• Guidance on employment status – see
www.hmrc.gov.uk
• Must consider need for –
Contract of Employment
Job Description

32. EMPLOYMENT (cont)
When person is confirmed as an employee:
• Who is the employer? May not be straight-
forward, e.g. ecumenical partnership
• Churches with employees must register with
Inland Revenue
• Payroll bureau may be appropriate
• Minimum wage - £6.08 per hour
(from 1 Oct 2011) – aged 21 and over
• Recommended “living wage” (Church Action on
Poverty) - £7.60 per hour (outside London)

33. EMPLOYMENT (cont)
PAYE/NI for Local Religious Centres (LRCs)
• Only applicable to churches not already
registered for PAYE. If registered,
queries must be directed to its tax office
• Lower earnings limit for NI and PAYE - £110 per
week in 2010/11 (annual review)
• Usually no tax charge for expenses
• However, travel to and from the LRC is not an
allowable expense if paid with a fee

34. EMPLOYMENT (cont)
EXAMPLE
Funding a Youth Worker for 3 years
Salary £18,000 pa x 3 = £54,000
What about extra costs?

35. EMPLOYMENT (cont)
EXAMPLE (continued)
• Recruitment costs (e.g. Church Press)
• Employers National Insurance
(from 06.04.11 = 13.8% of earnings
above £136 per week)
On £18,000 pa = £1,508 per annum

36. EMPLOYMENT (cont)
EXAMPLE (continued)
Employers pension contributions
• NOT compulsory at present. Scheduled to
change with the National Employment
Savings Trust (NEST). Phased
implementation from 2012 – minimum
employer’s contribution likely to be 3% of
Gross Pay (employee’s 4%)
• Traditional defined benefit schemes are
very expensive
• Church may elect to pay, say, 5% of
Gross Pay:- £900 p.a. in Year 1 in
this example

37. EMPLOYMENT (cont)
EXPENSES IN YEAR 1 £
Travelling 400
Training 360
Equipment 600
Stationery, telephone etc 720
2,080
Assume 3% pa increases in Years 2 and 3
Avoid “round sum” allowances

38. EMPLOYMENT (cont)
Allow for potential statutory redundancy pay
e.g. Employee under 41 years of age – 1.0
week’s pay for each year of service
Employee over 41 years of age – 1.5
week’s pay
In this example –
over 41 years of age = £1,800
(4.5 wks x £400*)
* Current maximum Statutory
Redundancy Pay per week

39. EMPLOYMENT (cont)
Year 1 Year 2 Year 3 TOTAL
£ £ £ £
Gross 18,000 18,540 19,096 55,636
NI 1,508 1,553 1,600 4,661
Recruitment 1,000 0 0 1,000
Pension 900 927 955 2,782
Expenses 2,080 2,142 2,206 6,428
Potential
redundancy pay 0 0 0 1,800
TOTAL 23,488 23,162 25,657 72,307

40. THE FUTURE OF CHEQUES?
• The Payments Council has indicated it will make
a decision in 2016 to end the present system
of cheque clearing in 2018 if there is an
acceptable alternative system in place.
• On 15 June 2011 Mark Hoban (Financial
Secretary to the Treasury) said that he did
not believe that there is a credible and
coherent case for abolishing cheques.
• More discussions to follow ………………

41. REVIEW
Reviewed
• Legal and financial overview for PCCs
• The role of the Treasurer
• Principles of accounts
• Annual Report
• Independent examination
• Gift Aid
• VAT
• Employment
• The future of cheques