Rathbones
Charity
Review
Autumn 2013

Rathbones’
Annual
Charity
Symposium
special edition

Also
‘The Wizard of Oz’ and cur...
Welcome

Welcome
to the autumn Charity Review 2013
On 12 September we held our annual Charity Symposium at
the Royal Opera...
In this issue

In this issue
	
4-11	 Rathbones’ Annual Charity Symposium	
		 A special review of this year’s event at the ...
Rathbones’ Annual Charity Symposium 2013

Rathbones’
Annual Charity
Symposium
2013

4 Rathbones Charity Review
Rathbones’ Annual Charity Symposium 2013

This year’s theme for the Charity
Symposium was persistence, and
sought to addre...
Rathbones’ Annual Charity Symposium 2013

The
art of
stock
selection
Panel
discussion

T

he Rathbone stock selection proc...
Rathbones’ Annual Charity Symposium 2013

Alex Dow
Investment Director
ICAP

Adrian Maxwell
Investment Director
Booker Gro...
Rathbones’ Annual Charity Symposium 2013

T

he long-term supply of energy has become an
increasingly prominent topic over...
Rathbones’ Annual Charity Symposium 2013

for nearly 20% of all US imports. While decreasing
reliance on these countries i...
Rathbones’ Annual Charity Symposium 2013

Since I joined the Commission in October last year
a new board has been put in p...
Rathbones’ Annual Charity Symposium 2013

I

n 2007, former Royal Green Jackets
officer, Bryn Parry, made a life-changing
...
‘The Wizard of Oz’ and current economic policy

‘The Wizard of Oz’
and current
economic policy
by Alex Dow
Investment Dire...
‘The Wizard of Oz’ and current economic policy

I doubt that many people watching the 1939
film ‘The Wizard of Oz’ would t...
‘The Wizard of Oz’ and current economic policy

Image: Library of Congress 1996, Geo. H. Van Norman

the gold with silver....
‘The Wizard of Oz’ and current economic policy

President William McKinley

Image: Courtney Art Studio 1896

Moving to the...
Grant funding, education and research

by Ruth Corkin
VAT Senior Manager
James Cowper

16 Rathbones Charity Review
Grant funding, education and research

In VAT terms, these three
categories are among
the most complex. Aside
from the fac...
Grant funding, education and research

Case studies
Obviously, from a charity’s point of view,
the second phrase is prefer...
Grant funding, education and research

Education
The provision of education (including
vocational training) is exempt from...
An interview with Francis Salway

An interview with

Francis Salway
Chairman of the London
Community Foundation

20 Rathbo...
An interview with Francis Salway

H

ow did you get involved with
community foundations?
I first became involved with
comm...
An interview with Francis Salway

you can have your own named fund, you can choose
the issues you want to support, you can...
Charitable incorporated organisations – A new way



Charitable
incorporated
organisations

A new way
by Kevin Custis
Dire...
Charitable incorporated organisations – A new way

A

lot of charities are either trusts
or associations with varying
degr...
Upcoming events

Apart from being subject to company
law (not often a positive) ‘full blown’
companies can borrow money mo...
Enduring values in changing times

Enduring
values in
changing
times
by Julian Rathbone
Investment Director
Rathbone Inves...
Enduring values in changing times

It rarely pays to rely on successes from
the past to secure the future, yet we should
n...
Enduring values in changing times

1742
Originally founded as timber
and shipping merchants
in Liverpool in 1742; by
World...
Enduring values in changing times

The impressive atrium of the Port of
Liverpool Building, where Rathbones’
Liverpool off...
The philanthropist voice worldwide

Unleashing
philanthropy
via ambassadors
and ‘Giving’ magazine
The philanthropist
voice...
The philanthropist voice worldwide

D

ame Stephanie Shirley has often said how
humbled she was to be asked by the then pr...
Contact us
If you would like further information or to arrange an initial meeting, please call
Francesca Monti on 020 7399...
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2013 Charity Review

  1. 1. Rathbones Charity Review Autumn 2013 Rathbones’ Annual Charity Symposium special edition Also ‘The Wizard of Oz’ and current economic policy What was the hidden meaning of Frank Baum’s classic story? Grant funding, education and research Ruth Corkin unravels the complex VAT rules faced by charities Unleashing philanthropy Roberta d’Eustachio gives us her experiences with Dame Stephanie Shirley and promoting philanthropy
  2. 2. Welcome Welcome to the autumn Charity Review 2013 On 12 September we held our annual Charity Symposium at the Royal Opera House, Covent Garden. Over 350 charity trustees and advisers enjoyed an afternoon of talks and topical debate. I am especially grateful to all the speakers. M y colleague Julian Rathbone opened the afternoon with an excellent presentation on global energy demand – in particular demonstrating how fracking might affect our clients’ portfolios. He was followed by a lively panel discussion on the art of stock selection. William Shawcross, current chairman of the Charity Commission, spoke on collectivism and philanthropy in life today. The closing speech was delivered by Bryn Parry OBE, co-founder of Help for Heroes, who talked with passion on the fundraising challenges he has encountered and overcome, to raise over £120 million in just five years. We finished with drinks and canapés overlooking Covent Garden from the Amphitheatre Terrace of the Royal Opera House. The highlights and webcasts of the Charity Symposium can be viewed on our website at www.rathbones.com/charity-symposium-2013 In addition to Rathbones’ Annual Charity Symposium, this issue also features: • ‘The Wizard of Oz’ and current economic policy Alex Dow, investment director at Rathbones, illustrates how the classic children’s story is a metaphor for our current monetary policy. • Grant funding, education and research Ruth Corkin, VAT senior manager at James Cowper, explains the complexities of determining VAT with funding, education and research. • Unleashing philanthropy Roberta d’Eustachio, co-founder of Ambassadors for Philanthropy, details the inspiration that led to the creation of the organisation and their aim to inspire the world. I hope you enjoy this new-look issue of the Rathbones Charity Review. Ivo Clifton Head of Charities 2 Rathbones Charity Review
  3. 3. In this issue In this issue 4-11 Rathbones’ Annual Charity Symposium A special review of this year’s event at the Royal Opera House. 12-15 ‘The Wizard of Oz’ and current economic policy What was the hidden meaning of Frank Baum’s classic story? 23-25 Charitable Incorporated Organisations – A new way Kevin Custis looks at a new way to limit trustees’ liability. 26-29 Enduring values in changing times Julian Rathbone on the history of the company that bears his name. James joined Rathbones from Barings, where he spent four years building their UK charity business with a focus upon targeted return mandates. He has previously worked at Collins Stewart, CCLA and Coutts, all in charity-focused roles. He is a Chartered Fellow of the Chartered Securities Institute, Trustee of a Catholic Charity and a founder member of the Charity Trustees Investors Association. James also sits on the corporate governance committee at Rathbones. 20-22 An interview with Francis Salway Chairman of the London Community Foundation. Guest editor James Brennan 16-19 Grant funding, education and research Ruth Corkin unravels the complex VAT rules faced by charities. 30-31 Unleashing philanthropy via ambassadors and ‘Giving’ magazine Roberta d’Eustachio tells us about her experiences with Dame Stephanie Shirley and promoting philanthropy. James can be contacted at: james.brennan@rathbones.com Follow us on Twitter: @Rathbones1742 Rathbones Charity Review 3
  4. 4. Rathbones’ Annual Charity Symposium 2013 Rathbones’ Annual Charity Symposium 2013 4 Rathbones Charity Review
  5. 5. Rathbones’ Annual Charity Symposium 2013 This year’s theme for the Charity Symposium was persistence, and sought to address many of the key issues facing charities, including regulation, to showcase best practice among charities and to talk about some of the key investment issues of the day. To watch the webcasts visit www.rathbones.com/charity-symposium-2013-webcast Rathbones Charity Review 5
  6. 6. Rathbones’ Annual Charity Symposium 2013 The art of stock selection Panel discussion T he Rathbone stock selection process is a complex mix of artistic flair, scientific and forensic analysis. It requires an awareness of risk, an appreciation of market psychology and the identification of outstanding management teams. Three of Rathbones’ investment directors picked a stock and made a case to the audience for a vote. Gary Street Investment Director Ultra Electronics Ultra Electronics operates across four sectors: defence, cyber and security, transport and energy. It is a mid-cap stock with a market capitalisation of £1.3bn. This is a truly international business with a world-leading position in a number of niche markets. These sectors include mission-critical technologies, such as flight information systems used for baggage management, aircraft weight and balance systems, and detection systems that can find cracks in industrial pipelines. This can help companies avoid disasters such as the oil spillage in the Gulf of Mexico. Ultra creates solutions to its customers’ requirements that are often different to and better than its peers. In the five years to 2012, Ultra has grown revenues from £412.9m to £760.8m, and the dividend payout from 19.3p to 40p. A healthy balance sheet allows the group to continue to invest in research and development and provides firepower to make acquisitions, which the management team has made prudently and for cash. The same skilled management have adapted to the pressures of a reduced defence expenditure by re-prioritising their business. It is a class act. 6 Rathbones Charity Review
  7. 7. Rathbones’ Annual Charity Symposium 2013 Alex Dow Investment Director ICAP Adrian Maxwell Investment Director Booker Group On initial examination, ICAP does not look exceptionally attractive. The group helps professional investors carry out their investment business through the publication of price and volume data, facilitating the buying and selling of securities and then settling those trades. It makes money from the volume of buy and sell transactions and through commissions. It is facing pressure on a number of levels: new banking regulations on capital requirements are leading to less investment activity by banks and therefore lower volumes for ICAP; the environment for commissions is also poor. Booker has three main divisions: Booker Wholesale, a traditional cash and carry business; Booker Direct, a wholesale supplies business delivered direct to the customer; and the recently acquired Makro, also a traditional cash and carry business. The well-respected management team, led by Charles Wilson, has a simple vision – efficiency, keeping costs low; appeal, keeping existing customers and encouraging them to spend more; and growth, broadening the range of products and expanding the number of customers. However, ICAP is constantly moving into new markets and new opportunities are emerging. Innovation and investment in new technology are improving both the quality of the group’s service and helping to cut costs. The move from voice-executed to electronic trading is a good example, with electronic trading four times more profitable. The group’s financial position is also strong, with cash on the balance sheet. ICAP is considerably cheaper than the wider market, with a dividend yield of 5.4%. It is unloved, but undervalued. The company does look expensive on traditional metrics, but the potential revenue growth and margin expansion make the company better value. The group has an excellent management team. It is deriving economies of scale with good cost control, which will lead to strong earnings growth and returns for shareholders. Ultra Electronics won the public vote! Main image: Clive Hexton, far left, introduces the panel discussion. Top right: Gary Street Middle right: Alex Dow Bottom right: Adrian Maxwell Rathbones Charity Review 7
  8. 8. Rathbones’ Annual Charity Symposium 2013 T he long-term supply of energy has become an increasingly prominent topic over the past few months: blackouts and brownouts have dominated headlines, while debate continues on alternative energy sources and fracking. Yet predictions remain difficult to make: often predictions have been wildly wrong on energy consumption and pricing and some healthy scepticism needs to prevail. Julian Rathbone Investment Director Global energy: a seismic shift? Demand for energy is set to rise by around 50% by 2035, with developing economies accounting for around 90% of this growth. Demand from developed markets is likely to be relatively static with slower economic growth and better energy efficiency. Individually, oil and nuclear demand is likely to be flat, while coal and gas continues to grow. Renewables will also see some demand growth. The main problem for renewables is cost. Cheap energy makes for a more competitive and stronger economy and therefore with low economic growth rates, costs will continue to be a factor. Gas has the lowest cost. Nuclear has high start up costs, but renewables are still relatively expensive, particularly solar. Fossil fuels are likely to continue to dominate but the major economies are energy importers and this makes them reliant on less stable countries. For example, the Middle East accounts 8 Rathbones Charity Review
  9. 9. Rathbones’ Annual Charity Symposium 2013 for nearly 20% of all US imports. While decreasing reliance on these countries is an attractive goal, this needs to be tempered by the threat of greater instability if revenues from oil fall. Shale is the next big story in energy. The total recoverable shale gas equates to around 17 years of supply. There are deposits in the US, Argentina, Europe, China, Russia, North Africa and Australia. This is not insignificant and has contributed to a rise of 25% in US energy production over the last decade. Fracking is a controversial process by which gas is extracted from shale rock. It has been transformative in the US, with the country now producing around 80% of what it consumes and some estimating it will achieve energy independence within 15 years. But fracking has been more politically divisive in the UK. There have been environmental concerns on CO2 emissions, chemicals leaking into the water table and seismic activity. Rising US energy production has advantages: it brings energy security with less reliance on unstable countries, an improving trade deficit, jobs growth, lower inflation and higher disposable income for consumers. On the negative side civil unrest may increase, plus there are environmental issues to consider. Low gas prices in the US – around half that in the UK, and a quarter of that in Japan – put the country at a significant competitive advantage. The question is really over the least worst option for energy supply: shale energy has several advantages and is likely to have a significant impact on the balance of global energy and on the global economy, but the effects are greater in the US than elsewhere. US shale is likely to have a greater impact on the UK for a number of reasons; including the fact that the UK is more densely populated and there are greater environmental concerns. Energy supply needs to be increased and, for the time being at least, fossil fuels will remain dominant. T here has been increasing scrutiny on charities over issues such as executive pay, charity campaigning and politics, plus the failings of individual charities. The debate has not always reflected well on the sector, yet charity remains a key element of British life. William Shawcross Chairman of the Charity Commission Collectivism, philanthropy and life today In assessing the charity sector, it is important to remember that nearly half of all charities are tiny, with budgets of less than £10,000 a year. These rely on the philanthropy of individuals rather than organisations which is a situation unique to the UK, but public trust for the charitable sector is not unconditional. People are increasingly demanding accountability and probity in charity, particularly during leaner times. The Commission’s key role is to protect and promote public interest in charities. It regulates the sector so that charities are as honest and transparent as possible. The Commission has been criticised in recent months by the Public Accounts Committee for not using its legal power often enough and we recognise that the Commission can and must do more to take action against charities that fail to comply with the regulations. Rathbones Charity Review 9
  10. 10. Rathbones’ Annual Charity Symposium 2013 Since I joined the Commission in October last year a new board has been put in place, with talented members such as Peter Clark, former deputy assistant commissioner in the Metropolitan Police, joining it. The new board intends to ensure that charities comply with both the letter and the spirit of the law, but also push for changes in the law where appropriate. For example, we have recently asked the government for a general power of disqualification that allows us to stop unfit people flitting from charity to charity. We plan to target charities that repeatedly default in filing their annual accounts as this is often a sign that a charity is going astray. The Commission is also stepping up its counter-terrorism work. The misuse of charities for terrorist purposes represents a despicable inversion of everything that charity stands for: we have put out clear guidance on extremist and controversial speakers. No-one preaching murder should have the protection of freedom of speech, or charitable law. However, it is worth remembering that while many charities make mistakes, they are rarely venal mistakes. The Commission wants to give the well-intentioned majority the tools they need to keep their charities on the straight and narrow. That said, the regulator can only do so much. Charities have a responsibility to explain their decisions to the public. For example, charity pay has become a controversial issue: charities need to have the courage of their convictions and explain their decisions publicly. We are currently developing a charity-led initiative for trustees on senior staff salaries and will provide guidance and information to the public as well as charities. Charities also need to use their freedom to campaign responsibly. Trustees need to promote a charity’s objectives without harming its reputation. The heritage of philanthropy and voluntary action in this country is unique and it has produced great philanthropists such as Paul Hamlyn and William Rathbone. We want to ensure that charities remain a golden thread in British society. 10 Rathbones Charity Review And the winner is....! All those who attended the Symposium were invited to complete a short questionnaire on current issues affecting the charity sector. Each response was entered into a draw to win a £1,000 donation to the winner’s charity of choice. Rathbones is pleased to announce the winner of the £1,000 donation to a charity of choice is Julian Boardman-Weston. Julian has chosen the Jubilee Sailing Trust. Well done and thank you to all those who entered.
  11. 11. Rathbones’ Annual Charity Symposium 2013 I n 2007, former Royal Green Jackets officer, Bryn Parry, made a life-changing visit to Selly Oak Hospital encountering young men with multiple amputations and other traumatic wounds. On the back of that visit, he co-founded Help for Heroes, which has to date raised £175m for wounded and injured soldiers. Rathbones was the charity’s first corporate sponsor. The charity’s activities have shifted over its life. It now focuses more on the road to recovery. For wounded soldiers there is dealing with the immediate injury, followed by medical rehabilitation, but after that there is the rest of the soldier’s life. These are young men and women, perhaps as young as 20 when they are injured, often with poor education and from areas of Bryn Parry Co-founder of Help for Heroes The charity started with the intention of raising £10,000 to build a new swimming pool at Selly Oak. Since then the charity has been driven by the persistence of its volunteers and supported by a country that instinctively wants to help its armed forces, but has occasionally been deterred by the politics of war. The swimming pool was built and for some time the charity continued as a money in, money out organisation, supported by volunteers. Since then it has grown and now has paid staff but tries to sustain the same ethos, offering the best possible value for its donors. Bryn believes the charity has a single, simple cause – ‘the blokes’, the men and women of our armed forces and their families. He says that this helps keep the charity focused – if it is looking after ‘the blokes’ it is doing the right thing. Its activities have been multifaceted, doing as many as 200-300 events per week. high unemployment. How do they pick themselves up when their legs have been blown off? Help for Heroes’ Phoenix programme helps soldiers learn new skills and launch them forward. The charity has created a number of recovery centres, including Tedworth House, and centres in Plymouth, Catterick and Colchester. These help wounded soldiers identify what they should be doing in life and get their energy back, matching them to the right partners, the right employment specialists and training them to the right level. The charity strives to provide 360-degree support: medical, mind, body, spirit and family. The charity is conscious of not becoming just another corporate organisation. In this it remembers its core values, that it is doing it for individuals. The Duke of Cambridge visited the Tedworth centre and said that these soldiers are not on the road to recovery, but on journeys of recovery. These journeys would be cut short unforgivably if – as a nation – the UK unfixed its attention. Rathbones Charity Review 11
  12. 12. ‘The Wizard of Oz’ and current economic policy ‘The Wizard of Oz’ and current economic policy by Alex Dow Investment Director Rathbone Investment Management 12 Rathbones Charity Review
  13. 13. ‘The Wizard of Oz’ and current economic policy I doubt that many people watching the 1939 film ‘The Wizard of Oz’ would think of it as a political and economic allegory. I doubt also that many would recognise in the film the basic tenets of the current monetary policy being employed by the Federal Reserve (Fed) and other central banks. Whilst many might find these themes tenuous, they are there for all to see. T he original children’s book was written by Frank Baum after the 1896 presidential election in the United States and discusses the politics of the late 19th century. Just as now, this was a period of severe economic difficulty. A key component of the economic problems was deflation and from 1880 to 1896 the price level fell 23%1. A period of unexpected and severe deflation like this is especially bad for borrowers, who see the real value of their debts rise. In its simplest form, the more that the price level falls, the more each borrower becomes indebted. The more indebted people are, the more they save and the less they spend or invest. The economy enters into a vicious cycle of lower economic output, lower prices and higher real debt levels. The typical response by policymakers in these circumstances is to seek to boost inflation, which is in turn generally achieved through debasing the currency (making the pound or dollar worth less in real terms). In the late 19th century this banner was taken up by the Free Silver Movement. At the time the US was on the gold standard and the US dollar was backed by and convertible into gold. This meant that, at least in theory, paper money could be turned into a dull yellow metal on demand. The amount of gold into which it could be converted was fixed and determined by the United States’ government. The aim of the Free Silver Movement was to reduce the value of the dollar by replacing the gold standard with a bimetallic standard which replaced part of Rathbones Charity Review 13 Macroeconimcs (2nd edition) by N. Gregory Mankiw 1
  14. 14. ‘The Wizard of Oz’ and current economic policy Image: Library of Congress 1996, Geo. H. Van Norman the gold with silver. By including a cheaper metal in the standard, the value of the dollar would decrease and thus lead to inflation, which in turn would support those who had high levels of debt. William Jennings Bryan, Democratic presidential candidate 1896 and 1900. You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold. The man behind the iron curtain In the book and film the gold standard is represented by the yellow brick road which leads to Oz. Oz represents Washington and the green glasses, through which the citizens viewed the world, stands for the dollar or greenback. The wizard represents the Republic politician William McKinley who campaigned in the 1896 election to maintain the gold standard, whilst the lion represents the Democratic nominee William Jennings Bryan. In a famous speech by Bryan, a supporter of the Free Silver Movement, he proclaimed, ‘‘You shall not press down upon the brow of labour this crown of thorns, you shall not crucify mankind upon a cross of gold.’’ The major departure the film makes from the book comes in the form of the slippers, which Dorothy uses to solve her problems and return home to Kansas. Whilst in the film they were ruby, apparently to make the best use of the new Technicolor process, in the book they were silver. William Jennings Bryan Although McKinley won the election and the gold standard remained unchanged, inflation did return. The reason for this was the discovery of vast new reserves of gold in Alaska, Australia and South Africa. In addition, new technology enabled gold to be extracted from ore. The ensuing rise in the quantity of gold had the same effect as debasing the currency, boosting the money supply and increasing inflation. From 1896 to 1910 the price level rose by 35%2, helping those who had debts. 14 Rathbones Charity Review Macroeconomics (2nd edition) by N. Gregory Mankiw 2
  15. 15. ‘The Wizard of Oz’ and current economic policy President William McKinley Image: Courtney Art Studio 1896 Moving to the present day, since the financial crisis the Fed has been deeply concerned about deflation. This is because the US economy has never been more indebted and therefore the potential impact of declining prices has never been more serious. In order to avoid deflation the Fed has undertaken some extraordinary policies. Firstly, it has cut interest rates almost to zero and secondly, it has entered into a massive programme of quantitative easing. The object of both of these policies is to boost the quantity of money in the financial system and ensure inflation is at least positive. Just as the Free Silver Movement wished to debase the currency in order to protect debtors in the late 19th century, Ben Bernanke, the Fed Chairman, has arguably debased the dollar in order to protect debtors in the 21st century. My fellow citizens, recent events have imposed upon the patriotic people of this country a responsibility and a duty greater than that of any since the Civil War. Then it was a struggle to preserve the government of the United States. Now it is a struggle to preserve the financial honour of the government. President William McKinley defeated William Jennings Bryan in two consecutive elections. At the time of writing, markets are poised for a change in policy. There is a strong chance that current levels of quantitative easing in the US will be reduced from $85 billion per month, possibly as early as the September Fed meeting, and most investors expect it to stop completely by mid-2014. It appears that policymakers believe the threat of deflation is waning and the dollar has been sufficiently debased – only time will tell whether this will get us back to Kansas. Alex Dow is an investment director in Rathbones’ charity team and can be contacted at alexander.dow@rathbones.com Rathbones Charity Review 15
  16. 16. Grant funding, education and research by Ruth Corkin VAT Senior Manager James Cowper 16 Rathbones Charity Review
  17. 17. Grant funding, education and research In VAT terms, these three categories are among the most complex. Aside from the fact that the UK has had its national wrist slapped by the European Commission for including research in its list of activities for the public good, which can be exempt from VAT, the rules as to what constitutes ‘education’ are complex. T he confusion that has arisen due to the decisions in three UK Lower Tier Tax Tribunal cases (mentioned in the Rathbones summer Charity Review) in relation to grant funding and non-business supplies, as well as HM Revenue and Customs’ (HMRC) reluctance to admit that its guidance is now a little outdated, means it has never been more difficult to determine the VAT treatment of supplies made in the not-for-profit sector. It has never been more difficult to determine the VAT treatment of supplies made in the not-for-profit sector. Grant funding What all charities and not-for-profit bodies should remember is that the responsibility rests with them to determine the VAT treatment and not the funder or the recipient. Therefore, contracts or agreements that mention VAT are usually either to protect the funder (e.g. wording such as “All monies paid to the contractor will be deemed to be inclusive of VAT”) or to enable the provider of any services to recoup a VAT charge if it is determined at a later stage that VAT is due. For example, “The Local Authority will pay to the contractor, upon production of a valid VAT invoice, an amount equivalent to the VAT due on the supply to it.” Rathbones Charity Review 17
  18. 18. Grant funding, education and research Case studies Obviously, from a charity’s point of view, the second phrase is preferable as it allows for recovery of any VAT at a later stage should HMRC deem it due. However, not all funders would be in a position to recover the VAT charged, and so the first phrase is more likely to be used. If a charity has such a phrase in its agreements then any VAT that becomes due on the supplies under the agreement would have to come out of profit or working capital. When do HMRC deem that VAT is due? The easy answer to this is: if the supplies are in the nature of services provided to the funder and those services would be taxable if provided by another taxpayer or to another taxpayer. Trying to determine whether a business supply has been made depends upon the characteristics of the supply, such as frequency, amount paid, profit motive, etc. The absence of any profit does not preclude the activity from being a business supply. It appears that HMRC considers its guidance to still be current despite enquiries for a need to update. The cases mentioned in the guidance are now rather long in the tooth and the funding streams have changed significantly. This makes the decisions by charities and their advisers difficult, making it likely that HMRC’s Charities Unit is to be inundated with requests for clarification. The tribunal decision of the South African Tourist Board v the Commissioners of HMRC. The South African Tourist Board (SATB) provided information and marketing to the people of the UK. It was set up as a statutory body in South Africa (although not a UK statutory body). The tribunal decided that the provision of the services in return for funding from the South African government was a business supply that would be taxable if the services had been provided by a normal taxpayer who was not a statutory body. In other words, had the SATB not been a statutory body, the services it provided would have been taxable business services, putting it in the same position as a commercial taxpayer making similar supplies. The decision for the case of Hope in the Community Limited v the Commissioners of HMRC, had an even closer impact. The appellant, Hope in the Community Limited (Hope), had treated the income from a purported grant as outside the scope of VAT. However, there were services being provided, and a contract existed that stated it was a ‘service level agreement’ (SLA). HMRC checked Hope’s records and decided there were distinct services being provided to the funder under the terms of the SLA and these services were taxable or subject to VAT. Hope appealed as it considered that the funding was not for any particular services and the funder derived no benefit from providing the funding. The tribunal decided the paperwork trail showed the contrary and VAT was consequently due. The final case of Groundwork Cheshire Limited v the Commissioners of HMRC is unusual. The appellant, Groundwork Cheshire Limited (GCL), was arguing that its income from a block grant was actually consideration for its supplies and was, therefore, taxable. As its supplies to the end user were taxable, the money received to make those supplies was also taxable. GCL provided services to small businesses and the funding was provided in order that the charge for this was small or even non-existent. The tribunal agreed that the funding was third party consideration for the making of those supplies and not a grant. 18 Rathbones Charity Review
  19. 19. Grant funding, education and research Education The provision of education (including vocational training) is exempt from VAT when it is provided by a teacher acting in his or her own right; by an ‘English as a foreign language body’ as a result of funding ultimately from the Skills Funding Agency, or under the provisions of section two of the Employment and Training Act 1973 or by an eligible body. An eligible body is usually a: • school • university • further education college • public body or • body that is precluded from distributing its profits and reinvests any profits made from education back into educational activities. HMRC regard education as meaning a class, course or lesson of instruction or study in any subject, regardless of when and where it takes place. The term ‘education’ is not defined in law. HMRC regard education as meaning a class, course or lesson of instruction or study in any subject, regardless of when and where it takes place. It includes lectures, distance learning, educational seminars, conferences and symposia, together with sporting and recreational courses. Vocational training is defined as training, re-training or the provision of work experience for any trade, profession or employment, or any voluntary work in connection with education, health, safety or welfare, or carrying out of activities of a charitable nature. In addition, supplies closely associated with education are also exempt from VAT, provided that: • the supplies are made by or to the person supplying the main supply of education • the goods or services are for the direct use of a pupil or student receiving the education • the supplies made to the person supplying the education are provided by another eligible body. Supplies that are closely related include accommodation, catering, transport, school and field trips (provided that there is no intention to make a profit on these). Examination services are exempt in their own right. Research The supply of research between eligible bodies was exempt from VAT until 1 August 2013. HMRC have agreed that any contract for research entered into prior to 1 August (regardless whether the research had started prior to that date) can remain exempt until the contract is completed. The exception to this is when there is a major variation to the contract after 1 August 2013 (such as duration, amount of funding, etc). This removes the necessity for eligible bodies to charge VAT for research that is ongoing at 1 August 2013. This change has been forced on the UK by the EU Commission, who decided that the UK had interpreted the definition of education too widely for the purposes of exemption. Government funded research or research for the public good will remain outside the scope of VAT. Ruth Corkin is VAT senior manager at James Cowper and specialises in charities and education. She can be contacted at rcorkin@jamescowper.co.uk or on 01865 861166. Rathbones Charity Review 19
  20. 20. An interview with Francis Salway An interview with Francis Salway Chairman of the London Community Foundation 20 Rathbones Charity Review
  21. 21. An interview with Francis Salway H ow did you get involved with community foundations? I first became involved with community foundations eight years ago through business. As a property company, Land Securities is involved in very large development schemes and occasionally these can seem disconnected from the people that live around them. We wanted to get involved with the local communities at the grass roots level: I had not heard of community foundations before, but they seemed a great way of doing this. Land Securities has a large site around Ebbsfleet station (on the Eurostar line) which will eventually be developed as 10-12,000 homes for some 20-30,000 people. That’s massive in the context of the neighbouring towns of Dartford and Gravesend, so we wanted to involve the communities. That interaction worked very well, so the company then got involved with the local community foundation in Southwark, where we had another large development project in an area which was characterised by the disparity between new developments fronting the River Thames and some older estates with high levels of deprivation. Again, that worked well and I was so impressed with community foundations that my wife, Sarah, and I set up an endowment, initially in Kent and more recently in London as well. I’m an ardent believer in community foundations and that’s largely how my wife and I now manage our charitable giving. What is special about community foundations? I think a lot of individuals and companies have a real identity with a place: often donors have been successful in their careers, but know there is another side to the town or city in which they live or work. Community foundations enable you to support more vulnerable people where you live and, for me, to give back locally is both logical and rewarding. Where community foundations also stand out is their grass roots expertise, which enables them to support small community groups that really understand the issues at the level of a particular estate or area. And there’s real tailoring for donors: at a certain level of giving Having managed an award-winning property fund for Standard Life, Francis Salway joined Land Securities, the FTSE 100 property company, in 2000 and became chief executive in 2004. He stood down in 2012 and now chairs the London Community Foundation (LCF) as well as a housing association in Tunbridge Wells, where he lives. He is also a non-executive director of Next and a visiting professor at the London School of Economics. Rathbones Charity Review 21
  22. 22. An interview with Francis Salway you can have your own named fund, you can choose the issues you want to support, you can be involved in a selection of the projects that your money supports and you can meet the people delivering those projects. Why is matched funding important? The government will give 50% matching to new endowment giving at community foundations across the UK until March 2015. With current marginal tax rates, when you add the tax saving into 50% matching you’ve effectively got very close to a two-for-one offer for higher rate tax payers. A lot of charitable giving is far removed from the coalface, but this is a chance to get really involved. This is as important as the giving to the beneficiaries because everybody is linked in, which is unusual. For individual That’s quite an unusual offer – it’s a once-in-a-lifetime donors, I think the ability to get involved as a family – opportunity to do something for the long-term. In with your husband or wife or, if London, nearly £4 million has you leave a legacy, through your been put aside for matching I believe wholeheartedly children – is also very appealing. and it needs to be used. But it’s not just London: there are over in the work of community Why are community 50 community foundations, foundations and the foundations successful? covering virtually every area of opportunity to be part of There was a feature in the the UK. Evening Standard about the the movement in London is Dispossessed Fund. It featured How do you generate money one I simply couldn’t miss. somebody who had suffered to give an immediate boost to a I hope that more and more domestic abuse and decided project, yet hold some back for to help other people in similar the longer term? Londoners will join us as circumstances. She then began The way my wife and I have we strive to build a stronger to get involved with young done it is simply giving from and fairer future for our people on an estate. She helped income, as we take a very them to get more training, built long- term perspective. But communities. their confidence to apply for donors can also give a certain apprenticeships and then into full-time employment. amount by way of endowment and ask the community foundation to use the Gift Aid earned for immediate Helping such projects is exactly the sort of thing that giving. Or they can create a fund that is endowed and community foundations do incredibly well because top that up annually. Both make an immediate impact, wealthy individuals or companies often wouldn’t know backed up by long-term support. where to start to access an individual or group like this – nor how to distinguish between the groups which are What are the levels required to create your own, effective and those which are not. bespoke fund? It varies between community foundations. In London, In my experience, small charities often have an for immediate giving the level is £25,000 and for incredibly entrepreneurial feel because, just like those endowments it’s £50,000 to have your own fund, who start small businesses, the people that run these named and under your direction. small charities are driven by a passion. They’re lean, fast-moving and effective. They may have a different For further information on the London Community primary objective, but the same wonderful attributes Foundation please visit www.londoncf.org.uk around making things happen are so evident. 22 Rathbones Charity Review
  23. 23. Charitable incorporated organisations – A new way Charitable incorporated organisations A new way by Kevin Custis Director Rathbone Trust Company New for 2013 in England and Wales (but since April 2011 for Scotland) is an extra option open to charitable trustees who do not already have the protection of the corporate veil (a limit to their own personal liability in common words) by the charity being a company as well as a registered charity. Rathbones Charity Review 23
  24. 24. Charitable incorporated organisations – A new way A lot of charities are either trusts or associations with varying degrees of formality ranging from long governing instruments to very short constitutions. What they tend to have in common is the notion that, should the charity become insolvent, the trustees might have to contribute out of their own private resources. That is clearly undesirable in terms of attracting and retaining trustees and promoting rather than punishing good deeds in general. The only previous option was to form a limited company, but that The only previous option was to form a limited company, but that was attended with all the extra costs and work of satisfying Companies House and its legal requirements as well as those of the Charity Commission and charity law. was attended with all the extra costs and work of satisfying Companies House and its legal requirements, as well as those of the Charity Commission and charity law. 24 Rathbones Charity Review To bridge the gap (or stand neatly within it if you prefer) is a new Charity Commissionsponsored entity known as the ‘charitable incorporated organisation’ (CIO). CIOs have the key advantage of limiting the trustees’ personal liability without having to be registered and subject to Companies House. If the Scottish experience is anything to go by they should be popular. CIOs have the key advantage of limiting the trustees’ personal liability without having to be registered and subject to Companies House. In many ways this should commend CIO’s to most unincorporated trustees as an obvious course of action, but are there any factors to persuade trustees of unincorporated charities to either stay as they are or set up a limited company?
  25. 25. Upcoming events Apart from being subject to company law (not often a positive) ‘full blown’ companies can borrow money more easily with limited liability remaining. The argument not to change is as much about the process of changing anything to do with a charity’s constitution. For example: Upcoming events Rathbones has been nominated for the Charity Times Investment Management Award 2013. This is the third consecutive year that we have been nominated. The ceremony takes place on 16 October at the Lancaster London Hotel. 1. Plenty of long forms to complete and have signed. 2. A rigorous look at the constitution that may be quite ancient for some (that might be a good thing though if the constitution is no longer fit for purpose). 3. The requirement to get consent where there are lots of members of a society or friends association at a forum such as an extraordinary meeting. For more information on the event, please see www.charitytimes.com/awards Kevin Custis is a director of Rathbone Trust Company and can be contacted at kevin.custis@rathbones.com Rathbones’ charity trustee training Following on from the success of the trustee training we ran in the spring of 2013, we will be running a number of trustee training events across the UK in spring 2014. 4. Changing banking and contractual arrangements, where long-existing arrangements such as regular gifts by standing orders, may not wish to be disturbed (asking a donor to change a standing order might encourage them not to bother and to stop it!). What can ‘full blown’ companies do that CIO’s cannot? Apart from being subject to company law (not often a positive) they can borrow money more easily with limited liability remaining. This might be vital to some charities as well as a thing some charity Trustees may want to have hard wired to avoid. Charity Times award ceremony 2013 To register for more information, please contact Francesca Monti at francesca.monti@rathbones.com or on 020 7399 0119. Charity Finance Group Midlands Conference 2013 We are delighted to announce our sponsorship of the first CFG Midlands Conference, held at the Hyatt Regency Hotel in Birmingham on 6 November 2013. Rathbones will be exhibiting at the conference, and running a lunchtime workshop on The search for income in a low yield environment. The conference aims to raise awareness of changes in legal and regulatory framework to those working in the charity sector and is set to be an informative and enjoyable day. Further information can be found at www.cfg.org.uk/events/event-information/2013/ november/evt30929.aspx Rathbones Charity Review 25
  26. 26. Enduring values in changing times Enduring values in changing times by Julian Rathbone Investment Director Rathbone Investment Management 26 Rathbones Charity Review
  27. 27. Enduring values in changing times It rarely pays to rely on successes from the past to secure the future, yet we should not forget where we have come from. In this respect, the history of Rathbones helps to shape our current ethos: we aim to learn from the past and, where possible, focus on those areas where we have had the most positive impact. Banks and investment management companies like to highlight their august histories, emphasising longevity, solidity and lasting values. ‘Rathbones, established 1742’ is just such an example, implying that a company that has been around for 271 years must be doing something right. Yet many companies established at a similar time have run into trouble because of problems far removed from the values of their founders. Barclays traces its origins back to 1690, though the name only became associated with the business in 1736 when James Barclay became a partner. In recent years, however, its Quaker founding principles (honesty, integrity and plain-dealing) have often seemed notable by their absence. The downfall of Barings (founded in 1762) in 1994 was far more dramatic, but again resulted from a departure from the standards upon which its reputation had been built. So, what value does corporate history have and should clients of Rathbones care that the firm has a rich heritage? We believe that our history is immensely valuable, but only if we remain committed to the guiding principles of our predecessors. Likewise, these values are not something that senior staff ‘grow into’, like a cloak of respectability that is put on after promotion, but are at the heart of every employee’s daily work. We are very aware of the trust placed in us by our clients and strive to conduct our business and ourselves accordingly. The Story of Rathbones by David Lascelles details the history of our firm and explains how the firm grew from the wood sawyer and timber merchant business established in Liverpool in the 1720s to be the FTSE 250-listed wealth management business it is today. It is a fascinating book. Although 271 years of history cannot be summed up in one sentence, the history of the firm broadly divides between the series of merchant partnerships run by William Rathbone II to William Rathbone VI between the 1720s and 1902, and the wealth management business that has developed over the last 110 years. It is interesting that the values that underpinned each of these two very different eras in our history are still evident in the way we operate today. Although it would be disingenuous to claim that we know exactly what the Rathbones of the 18th and 19th centuries stood for (or that they were always above board in their dealings), we do know a great deal about their lives and their approach to business. William Rathbone III is the first member of the family about whom we have a clear picture. History shows him to be a diligent businessman, who developed the business founded by his father and demanded honesty, integrity and financial sobriety from the firm’s ship captains. Julian Rathbone is an investment director at Rathbones and can be contacted at julian.rathbone@rathbones.com Rathbones Charity Review 27
  28. 28. Enduring values in changing times 1742 Originally founded as timber and shipping merchants in Liverpool in 1742; by World War I Rathbones was managing investments for wealthy private investors. But it was William III’s Quaker beliefs that marked him out – contemporaries described his sober, devout and humble character. His wider social beliefs were informed by his religion and, in 1788, he and his son were two of the founders of the Liverpool branch of the Society for the Abolition of the African Slave Trade. This was radical for a Liverpool merchant as many of his peers profited directly from the slave trade or from trade in goods produced by slave plantations: indeed, he was booed off the floor of the Liverpool Stock Exchange by pro-slavery traders. Perhaps this translates into Rathbones’ belief in the modern era that business must be ethically sound. His son and grandson, Williams IV and V, also campaigned on issues ranging from slavery, opposition to the ongoing war with France, electoral reform, social deprivation and the East India Company. William VI (1819-1902) founded the district nursing system (with backing from Florence Nightingale), inspired by the care his wife received before her early death. He was also a founder of University College Liverpool in 1881, (which became the University of Liverpool in 1903) and served as an MP for the city for nearly 30 years. In spite of this public service, he also played a major role in the family business, which he ran with his brother Samuel. During this time, Rathbones established highly-profitable businesses in China and the United States, yet was prepared to risk them over concerns about the opium trade and the US southern states’ support for slavery. 1788 Liverpool branch of the Society for the Abolition of the African Slave Trade is founded – William Rathbone III is a founding member. 1988 Comprehensive Financial Services merges with Rathbone Bros Co and becomes Rathbone Brothers Plc. 1992 Admitted to the London Stock Exchange – full listing. 1996 Acquisition of Neilson Cobbold. 2004 Formation of specialist ethical investment unit Rathbone Greenbank Investments. 2006 Acquisition of Dexia’s UK private banking business. 2008 Acquisition of Citywall Financial Management in Exeter. 2009 Acquisition of a number of private client portfolios from Lloyds Banking Group and the entry into an exclusive client referral and distribution agreement. 28 Rathbones Charity Review This period demonstrates Rathbones’ social awareness, commitment to good causes, and belief that morality is more important than profit. I believe these traits are still in the DNA of Rathbones: our employees raise substantial amounts of money for charity and we certainly believe that business must be done on an ethical basis. Rathbone Greenbank Investments, our ethical investment management business, is the clearest evidence for this, but good ethics are at the heart of all of our activities. In the 20th century, Rathbones evolved from being a partnership run by the family into the business of today. Necessarily this involved changes, but the company continued to adhere to principles that served it well. Following the Second World War, under Vere Cotton and Larry Rathbone, the company was rebuilt by focusing on client service and building new relationships only through personal recommendations. Their good work continued under Sebastian Rathbone, who steered the firm through the dramatic changes in the financial services industry in the 1980s. Rathbones is a forward-looking company and, in practice, we are more interested in the years that lie ahead rather than the past. However, we believe that the values upon which the firm was established are just as relevant today and will help us to look after our clients well into the future. While unsure whether I am the most appropriate (and unbiased) person to write this article, I hope it has brought out some of these values, while adding a little historical colour to the Rathbones of today.
  29. 29. Enduring values in changing times The impressive atrium of the Port of Liverpool Building, where Rathbones’ Liverpool office is based. The floor mosaic is the inspiration for Rathbones’ heritage icon. Rathbones Charity Review 29
  30. 30. The philanthropist voice worldwide Unleashing philanthropy via ambassadors and ‘Giving’ magazine The philanthropist voice worldwide by Roberta d’Eustachio Co-founder Ambassadors for Philanthropy Dame Stephanie Shirley speaking at the 2010 Rathbones’ Annual Charity Symposium at The Royal Society. 30 Rathbones Charity Review
  31. 31. The philanthropist voice worldwide D ame Stephanie Shirley has often said how humbled she was to be asked by the then prime minister, Gordon Brown, to take this honorary ambassadorial post. Apparently, she was selected because the powers that be thought she represented a modern model of philanthropy, moving away from being a ‘cheque-writing giver’ to one with strategic ambitions and goals. The best way to start is to tell you about my experience serving as chief of staff to Dame Stephanie Shirley, the government’s founding ambassador for philanthropy from 2009-2010 and how that appointment inspired us to found the Ambassadors for Philanthropy charity. The charity’s aims are to inspire countries worldwide to appoint their own ‘ambassadors’ as well as to give philanthropists a voice. Dame Stephanie had certainly learnt to speak publicly about her giving, empowering others to emerge from anonymity and share their philanthropic experiences and motives. She had first-hand knowledge of the goodness and generosity of the British people welcoming her as a Jewish child refugee. She had always been thankful for being welcomed, and never forgot the generosity shown. It is likely that the original idea for such a position was a bit thin. There was no rigorous brief from the Cabinet Office of the third sector, providing Dame Stephanie with what was expected of her. It was just the opposite. At that time Britain was not really known for talking out loud about their giving. She felt that if we were to do anything lasting at all we would give philanthropists a voice and encourage them to talk about their giving, so that others might understand and begin to talk about why they do what they do when they give. One of the seeds sown has been our site www.ambassadorsforphilanthropy.com, which includes videos of philanthropists discussing giving – the nuts and bolts, the motives and emotions, the problems and delights. For those who say the reserved British don’t talk about money, or what they do with it, this site proved that they are open to sharing their unique stories of putting money to good use. From the website we began to get enquires from around the world asking how those from other countries could appoint their own Ambassador(s) for Philanthropy and in doing so inspire a culture of giving. This then led to an avalanche of invitations to speak and travel, creating networks in every region of the globe. We are accelerating our mission via influence by launching Giving magazine in early 2014 – the philanthropist voice worldwide. Our digital global publication is targeted to reach more than five million philanthropists worldwide via the causes they support. Giving magazine will offer philanthropist stories, profiles, interviews and video embeds and will allow charities themselves to insert and customise stories of their own donors in every issue. In conclusion, let me say, across the world we know that philanthropy is a promising force for good, channelling resources from the successful and wealthy to invest in charities and social enterprises. We invite you all to join us to unleash philanthropy in Britain and worldwide. For more information go to: www.ambassadorsforphilanthropy.com www.givingmagazine.com Rathbones Charity Review 31
  32. 32. Contact us If you would like further information or to arrange an initial meeting, please call Francesca Monti on 020 7399 0119 or email francesca.monti@rathbones.com Head office 1 Curzon Street, London W1J 5FB Tel. 020 7399 0000 christopher.a.dean@rathbones.com www.rathbones.com We also have offices at the following locations: Aberdeen Tel. 01224 218 180 www.rathbones.com/office/aberdeen For ethical investment services: Birmingham Tel. 0121 233 2626 www.rathbones.com/office/birmingham Bristol Cambridge Rathbone Greenbank Investments Tel. 0117 929 1919 www.rathbones.com/office/bristol Tel. 01223 229 229 www.rathbones.com/office/cambridge Tel. 0117 930 3000 www.rathbonegreenbank.com Chichester Tel. 01243 775 373 www.rathbones.com/office/chichester Edinburgh Tel. 0131 550 1350 www.rathbones.com/office/edinburgh For offshore investment management services: Exeter Tel. 01392 201 000 www.rathbones.com/office/exeter Kendal Tel. 01539 561 457 www.rathbones.com/office/kendal Rathbone Investment Management International* Liverpool Tel. 0151 236 6666 www.rathbones.com/office/liverpool Lymington Tel. 01590 647 657 www.rathbones.com/office/lymington Newcastle Tel. 0191 255 1440 www.rathbones.com/office/newcastle Tel. 01534 740 500 www.rathboneimi.com Winchester Tel. 01962 857 000 www.rathbones.com/office/winchester Important information The value of investments and the income from them may go down as well as up and you may not get back your original investment. Past performance should not be seen as an indication of future performance. Changes in rates of exchange between currencies may cause the value of investments to decrease or increase. Information valid at date of presentation. Tax regimes, bases and reliefs may change in the future. Rathbone Brothers Plc. is independently owned, is the sole shareholder in each of its subsidiary businesses and is listed on the London Stock Exchange. Issued and approved by Rathbone Investment Management Limited which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered office: Port of Liverpool Building, Pier Head, Liverpool, L3 1NW. Registered in England No. 01448919. Rathbone Greenbank Investments is a trading name of Rathbone Investment Management Limited. *Rathbone Investment Management International is the Registered Business Name of Rathbone Investment Management International Limited which is regulated by the Jersey Financial Services Commission. Registered office: 26 Esplanade, St. Helier, Jersey JE1 2RB. Company Registration No. 50503. Rathbone Investment Management International Limited is not authorised or regulated by the Financial Conduct Authority in the UK. Rathbone Investment Management International Limited is not subject to the provisions of the UK Financial Services and Markets Act 2000 and the Financial Services Act 2012; and, investors entering into investment agreements with Rathbone Investment Management International Limited will not have the protections afforded by those Acts or the rules and regulations made under them, including the UK Financial Services Compensation Scheme. This document is not intended as an offer or solicitation for the purpose or sale of any financial instrument by Rathbone Investment Management International Limited. The information and opinions expressed herein are considered valid at publication, but are subject to change without notice and their accuracy and completeness cannot be guaranteed. No part of this document may be reproduced in any manner without prior permission. © 2013 Rathbone Brothers Plc. All rights reserved. This publication is printed on material sourced from responsibly managed forests and from 10% recovered fibre, diverting waste from landfill. It is certified in accordance with the FSC® (Forest Stewardship Council®) and manufactured under strict environmental management systems, the international ISO 14001 standard, EMAS (Eco-Management Audit Scheme) and the IPPC (Integrated Pollution Prevention and Control) regulation. All rights reserved. and are registered trademarks of Rathbone Brothers Plc.

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