Thrive seminar francis clark

Thrive Third Sector Seminar
St Austell 3 October 2017

Programme
Duncan Leslie
Hot topics for charities – governance, investment and
reserves
Lucinda Coleman
Operating in resource constrained circumstances
Julie Towers
Mitigating VAT problems
pkf-francisclark.co.uk

Duncan Leslie Oct 2017
Hot topics for charities
Governance, investment and reserves

PKF Francis Clark
• Governance – The Charity Governance
Code
• Trustees’ Report – Key topics
• Code of Fundraising Practice

Governance – The Charity Governance Code
• Issued July 2017
• Developed with input from over 200 charities
• Principles based
• Recognises that governance is fundamental to success
• Charity supporters gain comfort from strong (appropriate) leadership
• Deliberately aspirational
• Tool for continuous improvement

The Charity Governance Code – 7 principles
Principle CC10 Hallmarks
Foundation
Organisational purpose Clear about its purposes and direction
Leadership
Integrity
Decision-making, risk and control Financially sound and prudent
Board effectiveness A strong board
Diversity
Openness and accountability Accountable and transparent
Fit for purpose
Learning and improving

Trustees Report – principal risks
• Key document for stakeholders
• Tick box or interesting read?
• Principal risks and uncertainties
• Identify and score risks
• Agree acceptable level of risk
• Consider risk mitigation strategies
• Regular review

Trustees Report – reserves policy
1) Types of funds - unrestricted, designated, restricted, endowment, free reserves
2) Levels
• Key risks and how they impact financial stability
• Funding cycles
• Link to expenditure
• Core costs – avoidable and unavoidable
• Future needs – for known or anticipated projects
3) Distil the above into a target level or range
4) Budget and monitor
5) Communicate

Code of Fundraising Practice
• Scrutiny and criticism
• Unfair and ill-informed?
• Code of Fundraising Practice
• Six new requirements
• Protect donors and increase transparency
• In house and 3P
• Short introduction period

Lucinda Coleman Oct 2017
Operating in resource constrained circumstances

• 10 Trustees
• Charity in existence 20 years
• Providing training for disadvantaged people
Case Study

• Deficit for 2 years
• Eroding reserves
• Liquidation of trading subsidiary
• Onerous contract
• Reduced funding
Case Study

• Options
• Secure additional funding
• Merger with similar charity
• Formal insolvency
Case Study

Consequences of Insolvency
• Unincorporated charities
• No separate legal entity
• Liabilities of the charity are personal liabilities of
trustees

Consequences of Insolvency
• Incorporated charities
• Companies limited by guarantee
• Charitable Incorporated Organisations
• Companies Act 2006
• Limited liability (but…)
• Insolvency Act procedures

• Charity in Administration
• Insolvency Practitioner appointed
• Administrator has absolute authority
• Duty to investigate;
• Disqualification
• Compensation
Case Study

• Board of Trustees
• Breath of skills and experience
• Size appropriate to the charity
• Must work as team
• Capacity to invest time
Practical Tips

• Management Accounts
• Role of finance team & trustees
• Income and expenditure/Balance Sheet
• Reconciliations
• Comprehend and react
Practical Tips

Recognising Insolvency
• Insolvency Act definition;
• unable to pay debts as they fall due
• assets exceeded by liabilities

Duty to do everything in
their power to minimise the
loss to creditors
Trustees’ Responsibility

• Cash flow forecasts
• Identify and manage shortfalls
• Challenge underlying assumptions
• Continually monitor and update
Practical Tips

• Reserves policy
• Built into cash flow forecasts
• Specific to charity’s needs
• ‘What if’ analysis
Practical Tips

• Customer Deposits
• Not used for working capital
• Paid into separate bank account
Practical Tips

• Board meetings
• As often as necessary
• Agenda and reports circulated in good time
• Comprehensive minutes – why decisions made were in the
interest of creditors
Practical Tips

• Resignation of Trustees
• Does not prevent action by Insolvency Practitioner
• May be appropriate in certain circumstances
Practical Tips

• Successful transfer of charitable activities
• Continuity of courses
• Transfer of some employees
Back to the case study

• Charity Commission investigation
• Insolvency Practitioner investigation
Back to the case study

• Unusual for action to be taken against trustees
• Must demonstrate steps taken to minimise loss to
creditors
• Seek early advice from a Licensed Insolvency
Practitioner
Conclusion

Mitigating VAT problems
Julie Towers Oct 2017

Agenda
• Grants v services
• Advertising and printed matter
• Trading subsidiaries

pkf-francisclark.co.ukpkf-francisclark.co.uk
Grant
No supply
for VAT
purposes
Freely given
Service
Contract for
a service
Deliverables
and
obligations
Grant v Service

.
Grants v services
• Grants v contract for services – questions to ask
• Does the donor receive anything in return?
• Or does a third party receive anything in return?
• Are any conditions attached to the funding?
• If the answers to the above are ‘yes’ it is very likely
that there is a contract for services
• If the services are taxable the charity will be able to
recover VAT on associated expenditure

.
Grants v services
• Recommendation – Consider VAT at the outset,
review contracts and ensure that VAT is covered. If
you are not sure whether there is a contract for
services ensure that VAT can be charged

.
Zero-rating
• Zero-rating for advertisements on 3rd party’s medium
• Excludes
• Costs relating to charity’s own website
• Expenditure incurred by trading subsidiary
• Certificate must be provided to supplier

.
Zero-rating
Special rules for charities
• Zero-rating for goods used for collecting monetary
donations
• Zero-rating for certain letters appealing for donations

.
Printed matter
• In August 2015 HMRC clarified their view of direct
marketing services using printed matter
• Effect has been to restrict zero-rating of certain delivered
printed matter
• Not all suppliers aware of the changed view

.
Printed matter
• Mixture of standard and zero-rated items – apply normal
VAT treatment; or
• Package test – if more zero than standard rated items,
whole package is zero-rated. Must be intended to be
used together
• Package test can only be used if all items are printed on
card or paper

Separate entity for VAT
registration purposes
Consider forming VAT group
In certain situations better not
to have a VAT group
Trading subsidiaries

Trading subsidiaries
Income
• Zero-rating donated goods
• Zero-rating export of goods
• Fund raising exemption
• Reliefs for expenditure only apply to charities

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