Murray Graham
Chairman
Introduction
• Specialist charities and academies team
• Extensive charity client portfolio
• Charity Finance Award 2013
•...
Matthew Waters
Charities Team
Trustees’ responsibilities
What is a Trustee?
“the person(s) having the general control and
management of the administrati...
Trustees’ responsibilities
What are a Trustee’s duties?
- Duty of compliance
- Duty of prudence
- Duty of care
From the Ch...
Duty of compliance
Act according to the charity’s governing document
- Keep governing document under review
- Funds admini...
Duty of compliance
Comply with Charity law
- Annual report and financial statements in appropriate
format
- Also comply wi...
Duty of compliance
Act with integrity
- Personal conflicts of interest
- Mis-use of charity funds or assets
Duty of prudence
Protecting the charity’s assets
- Use only to further the purposes and interests of the
charity
Duty of prudence
Adequacy of financial procedures and controls
- Governance reviews
- Investment policy
- Reserves policy
...
Duty of care
Reasonable care and skill
- Higher ‘care’ threshold for qualified accountants and
other professionals
Seek pr...
Duty of care
Limited liability
- Trustee liability can be limited if demonstrated that due
care was exercised, were acting...
Scott Hansell
Consultant
Lovewell Blake Financial Planning
Limited
Charity Investment Mandates –
The Challenges
The challenges for charities
“Many organisations are having to dip into their reserves, cut
vital front line services and ...
The needs of charities
Charities often have specific goals and objectives for their
investments such as providing an incom...
The needs of charities
So there’s a need for investment solutions which:
• aim to mirror these goals and objectives
• are ...
Increasing certainty – the benefit of a
dynamic asset allocation approach
Return
Target Return Portfolio
Market Portfolio
...
Increasing certainty – the benefit of a
dynamic asset allocation approach
Our approach is to stay as close to the goals as...
The lost years – traditional
‘stock broker’ investing
Ti
Feb 2000
Feb 2012
The lost years – traditional
‘stock broker’ investing
What is needed?
• A more modern active approach – potential returns ...
The lost years – traditional
‘stock broker’ investing
How?
• A broad investment universe
• Unique access to specialist ins...
Charities’ investment policies
• A policy can be given in the first instance to any
professional advisory company in order...
Charities’ investment policies
• A formal investment policy may attract future
benefactors who could see value in your pri...
What should an investment
policy cover?
• The scope of your investment powers.
• The charity’s key objectives, now and in ...
What should an investment
policy cover?
• Any ethical preferences for investments.
• Who can make the investment decisions...
What should an investment
policy cover?
• How your investments will be monitored or judged?
Against benchmarks such as Ban...
Workplace Pension Reform –
Auto Enrolment
• What are our new pension duties?
• What do charities have to do?
• Can we stil...
Workplace Pension Reform –
Auto Enrolment
• What is the staging date?
• Which employees should we include?
• What is Auto ...
How can Lovewell Blake
Financial Planning help?
• Help you develop an investment policy
• Cash management service – identi...
Matthew Waters
Charities Team
Charitable incorporated
organisations
Unincorporated charity
- Registered with the Charity Commission
- Trustees enter int...
Charitable incorporated
organisations
Charitable Incorporated Organisaton (CIO)
- Registered with the Charity Commission o...
Statutory framework of CIOs
Legal framework (general regulations, insolvency and
dissolution regulations, etc) set out in ...
Statutory framework of CIOs
A CIO shall:
- Be a body corporate
- Have a constitution
- Have a principal office in England ...
Types of CIO – trustees and
members
Determining the CIO structure which best suits your
charity:
Foundation CIOs
- Closed ...
Types of CIO – trustees and
members
Association CIOs
- Wider membership
- Includes members who are not trustees
CIO Constitutions
The Charity Commission has produced model
constitutions for both Foundation and Association
CIOs.
- Must...
CIO Constitutions
- Must be in English if principal office is in England
- May be in English or Welsh if principal office ...
Suitability – The Pros
No dual registration and regulation
- Registered with the Charity Commission only
No minimum regist...
Suitability – The Pros
Limited liability
- Separate legal entity to employ staff, enter into
contracts, etc.
Specifically ...
Suitability – The Cons
Delay in getting started
- Advised 40 working days to respond to registrations
- Could make unsuita...
Suitability – The Cons
No minimum registration threshold
- Required to register and file returns regardless of size
Only e...
Conversion to CIO
Unincorporated charities
No conversion process written into 2011 Charities Act.
Charity Commission guida...
Conversion to CIO
- Dissolve unincorporated charity in accordance
with governing document
- Apply for unincorporated chari...
CIOs – Points to consider
Start conversion process early
- Have registration in place ready for year end and
asset transfe...
CIOs – Points to consider
Administration
- Charity stationery will need to be updated for new
registration number and stat...
CIOs – Points to consider
- Notify relevant authorities eg HMRC
- Will require professional advice re: leases, employee
co...
Keeping up to date
- www.charitycommission.gov.uk
- www.cabinetoffice.gov.uk
- www.lovewell-blake.co.uk/media-centre/
Liz Hill
VAT Consultant
VAT Threats and Opportunities
Agenda
• Liability of grants, donations and contracts
• Fund raising and sponsorship
• Advertising
• Donated goods for sal...
Grants, donations and contracts
• Grants and donations – VAT free (outside the scope),
provided no benefit given to granto...
Grants, donations and contracts
• Contracts for services may be charged at 20%, if charity
provides service or goods
– Rev...
Grants, donations and contracts
• For example
– Contract between charity and council for project
reviewing number of elder...
Grants, donations and contracts
– Grant funding paid by council to charity to support
annual event
– Contract between two ...
Fund raising and sponsorship
• Fund raising income receipts – VAT free (exempt)
– Downside - no recovery of VAT on expendi...
Fund raising and sponsorship
• Example - Dinner dance with auction
• Ticket income – VAT free (exempt)
– Cannot reclaim an...
Fund raising and sponsorship
• Some costs to the charity should be VAT free (zero
rated) eg advertising and printing
– Che...
Advertising
Sale of advertising is subject to VAT at 20% except:
• When publication has < 50% of adverts placed by private...
Donated goods for sale
• Sales of goods donated to a charity (or taxable person
who has agreed to give profits to a charit...
Donated goods for sale
• Extra Statutory Concession 3.21 permits zero rating
where:
– Goods which are unfit to be made ava...
Supply of staff
Supply of staff = business activity plus VAT (20%) except:
• Joint contract of employment. VAT free (outsi...
Certified zero rated purchases
• Relevant goods supplied to a charity or paid for with
donated funds can be VAT free (zero...
Certified zero rated purchases
– Telecommunication equipment
– Ambulances
– Medical or surgical appliances for disabled pe...
RCP
• Relevant charitable purpose – otherwise than in the
course or furtherance of business
• Can result in VAT free (zero...
Matthew Waters
Charities Team
Upcoming changes – SORP 2015
- 10 years since the previous Statement of Recommended
Practice issued
- New SORP drafted to ...
Upcoming changes – SORP 2015
- Expected to be cleared by Financial Reporting
Council by the end of May 2014 and published ...
Upcoming changes – regulatory
The National Audit Office (NAO) reported on the
Charity Commission. The Commission accepted ...
Upcoming changes – regulatory
- Therefore more statutory enquiries, not just ‘high
risk’ charities
- Enquiries into charit...
Upcoming changes – regulatory
- Individual scrutiny of 770 sets of accounts prompted
referrals to professional accountancy...
Social Investment Tax Relief (SITR)
New tax relief scheme to encourage support of social
enterprises.
Investors
- Can dedu...
Social Investment Tax Relief (SITR)
- Can also defer capital gains tax if gain is invested in
social enterprise
- Tax then...
Social Investment Tax Relief (SITR)
Eligibility
- Entity must have a defined, regulated social purpose
- eg Charity, Commu...
Social Investment Tax Relief (SITR)
Entity will need to meet a number of conditions regarding
control by parents and contr...
Social Investment Tax Relief (SITR)
Qualifying investment
- In the form of newly issued shares in a CIC or a
qualifying lo...
Social Investment Tax Relief (SITR)
There is a restriction on the amount a social enterprise can
raise under SITR, determi...
Social Investment Tax Relief (SITR)
Where we are:
- Guidance issued to enterprises and investors
- www.gov.uk
- Investor c...
Social Investment Tax Relief (SITR)
- Seek professional advice (loan agreements,
eligibility, investor tax position, enter...
Questions?
Charities - Current Key Issues
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Charities - Current Key Issues

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In our charity seminar we accessed the current key issues affecting the sector including CIO's, VAT, investment policies, tax relief and more

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Charities - Current Key Issues

  1. 1. Murray Graham Chairman
  2. 2. Introduction • Specialist charities and academies team • Extensive charity client portfolio • Charity Finance Award 2013 • Charity Auditor Award 2013
  3. 3. Matthew Waters Charities Team
  4. 4. Trustees’ responsibilities What is a Trustee? “the person(s) having the general control and management of the administration of a charity.” s.177 Charities Act 2011
  5. 5. Trustees’ responsibilities What are a Trustee’s duties? - Duty of compliance - Duty of prudence - Duty of care From the Charity Commission guidance ‘The Essential Trustee’.
  6. 6. Duty of compliance Act according to the charity’s governing document - Keep governing document under review - Funds administered in accordance with investment policy - Election and term length of trustees - Area of operation
  7. 7. Duty of compliance Comply with Charity law - Annual report and financial statements in appropriate format - Also comply with other relevant legislation (ie. Employment law)
  8. 8. Duty of compliance Act with integrity - Personal conflicts of interest - Mis-use of charity funds or assets
  9. 9. Duty of prudence Protecting the charity’s assets - Use only to further the purposes and interests of the charity
  10. 10. Duty of prudence Adequacy of financial procedures and controls - Governance reviews - Investment policy - Reserves policy - Risk reviews - Trustee roles - Decision making
  11. 11. Duty of care Reasonable care and skill - Higher ‘care’ threshold for qualified accountants and other professionals Seek professional advice when appropriate - And act upon
  12. 12. Duty of care Limited liability - Trustee liability can be limited if demonstrated that due care was exercised, were acting within the charity’s objects and professional advice was acted upon Collective responsibility - All trustees collectively liable unless they make clear they disagreed with a particular decision and were overruled
  13. 13. Scott Hansell Consultant Lovewell Blake Financial Planning Limited
  14. 14. Charity Investment Mandates – The Challenges
  15. 15. The challenges for charities “Many organisations are having to dip into their reserves, cut vital front line services and some are concerned about whether they can survive the toughest of times”. John Low, CEO of Charities Aid Foundation
  16. 16. The needs of charities Charities often have specific goals and objectives for their investments such as providing an income or keeping pace with inflation. When donations fall, charities will rely on their investments increasingly to meet liabilities, and to carry out activities and core functions.
  17. 17. The needs of charities So there’s a need for investment solutions which: • aim to mirror these goals and objectives • are designed to try to avoid short-term losses and provide portfolio liquidity if required • can be tailored to meet your organisation’s requirements
  18. 18. Increasing certainty – the benefit of a dynamic asset allocation approach Return Target Return Portfolio Market Portfolio Time Charities may access their assets at specific points on the black line.
  19. 19. Increasing certainty – the benefit of a dynamic asset allocation approach Our approach is to stay as close to the goals as possible – this minimises the risk of having to dip into reserves at depressed values.
  20. 20. The lost years – traditional ‘stock broker’ investing Ti Feb 2000 Feb 2012
  21. 21. The lost years – traditional ‘stock broker’ investing What is needed? • A more modern active approach – potential returns in all prevailing market conditions
  22. 22. The lost years – traditional ‘stock broker’ investing How? • A broad investment universe • Unique access to specialist institutional investment techniques • Better management of volatility
  23. 23. Charities’ investment policies • A policy can be given in the first instance to any professional advisory company in order for them to tailor your needs and objectives effectively. • A formal written policy will provide you with a framework for identifying your key objectives, managing the charity’s resources effectively and will demonstrate good governance.
  24. 24. Charities’ investment policies • A formal investment policy may attract future benefactors who could see value in your principles. Any investment policy will link to your reserves policy and help demonstrate sustainability. • Your investment policy should be consistent with your charity’s fundamental principles. It should reflect your charity’s values, accountability, risk controls and ethics.
  25. 25. What should an investment policy cover? • The scope of your investment powers. • The charity’s key objectives, now and in the future. • The charity’s attitude to investment risk. • The current amount available for investment, timing of objectives and liquidity needs.
  26. 26. What should an investment policy cover? • Any ethical preferences for investments. • Who can make the investment decisions? I.e. a trustee body or a nominated separate investment committee or advisor
  27. 27. What should an investment policy cover? • How your investments will be monitored or judged? Against benchmarks such as Bank of England base rate + 5% or Inflation + 2% per annum. • Reporting requirements or review meetings.
  28. 28. Workplace Pension Reform – Auto Enrolment • What are our new pension duties? • What do charities have to do? • Can we still use our existing pension scheme?
  29. 29. Workplace Pension Reform – Auto Enrolment • What is the staging date? • Which employees should we include? • What is Auto enrolment?
  30. 30. How can Lovewell Blake Financial Planning help? • Help you develop an investment policy • Cash management service – identify charity accounts/FSCS protection • Long term investment advice to suit your charity’s individual goals and investment policy • Ongoing reviews – on course to meet goals?
  31. 31. Matthew Waters Charities Team
  32. 32. Charitable incorporated organisations Unincorporated charity - Registered with the Charity Commission - Trustees enter into contracts personally on behalf of the Charity Charitable company - Registered with Companies House and the Charity Commission - Separate legal entity which enters into contracts
  33. 33. Charitable incorporated organisations Charitable Incorporated Organisaton (CIO) - Registered with the Charity Commission only - Separate legal entity which enters into contracts
  34. 34. Statutory framework of CIOs Legal framework (general regulations, insolvency and dissolution regulations, etc) set out in the 2011 Charities Act.
  35. 35. Statutory framework of CIOs A CIO shall: - Be a body corporate - Have a constitution - Have a principal office in England or Wales - Have one or more members
  36. 36. Types of CIO – trustees and members Determining the CIO structure which best suits your charity: Foundation CIOs - Closed membership - Same voting members as trustees
  37. 37. Types of CIO – trustees and members Association CIOs - Wider membership - Includes members who are not trustees
  38. 38. CIO Constitutions The Charity Commission has produced model constitutions for both Foundation and Association CIOs. - Must be in a form specified by Charity Commission regulations - Must explain any deviations from model constitutions (advised to provide marked-up version showing variances if significant number)
  39. 39. CIO Constitutions - Must be in English if principal office is in England - May be in English or Welsh if principal office is in Wales The model constitutions are subject to Crown Copyright and use of them is licensed under the terms of the Open Government Licence. Therefore, must acknowledge the source.
  40. 40. Suitability – The Pros No dual registration and regulation - Registered with the Charity Commission only No minimum registration threshold - Can register if income less then £5,000
  41. 41. Suitability – The Pros Limited liability - Separate legal entity to employ staff, enter into contracts, etc. Specifically designed for charities - Income under £250k can produce receipts and payments accounts - Not possible for Charitable Companies
  42. 42. Suitability – The Cons Delay in getting started - Advised 40 working days to respond to registrations - Could make unsuitable for reactionary appeals requiring quick funding Completely new structure - Untried and untested, unfamiliar to funders and lenders - Deficiencies in some areas ie. where are charges over assets lodged?
  43. 43. Suitability – The Cons No minimum registration threshold - Required to register and file returns regardless of size Only exists at the Charity Commission - If registration is lost the Charity will fold
  44. 44. Conversion to CIO Unincorporated charities No conversion process written into 2011 Charities Act. Charity Commission guidance sets out process as: - Register new CIO with Charity Commission - Transfer all assets and undertakings into CIO and settle all liabilities
  45. 45. Conversion to CIO - Dissolve unincorporated charity in accordance with governing document - Apply for unincorporated charity to be removed from register Charitable Companies 2011 Charities Act contained provisions for conversion but legal framework still in process of being finalised. Regulations expected later in 2014.
  46. 46. CIOs – Points to consider Start conversion process early - Have registration in place ready for year end and asset transfers
  47. 47. CIOs – Points to consider Administration - Charity stationery will need to be updated for new registration number and statement that organisation is a CIO etc. - New bank account(s) will need to be set up in CIO’s name
  48. 48. CIOs – Points to consider - Notify relevant authorities eg HMRC - Will require professional advice re: leases, employee contracts, pension schemes, land registry, legacies left to unincorporated charity (notify local solicitors?) Housekeeping - Take opportunity to review charity’s objects, composition of board, membership procedures, etc.
  49. 49. Keeping up to date - www.charitycommission.gov.uk - www.cabinetoffice.gov.uk - www.lovewell-blake.co.uk/media-centre/
  50. 50. Liz Hill VAT Consultant VAT Threats and Opportunities
  51. 51. Agenda • Liability of grants, donations and contracts • Fund raising and sponsorship • Advertising • Donated goods for sale • Supply of staff • Certified zero rating of purchases • Relevant charitable purpose
  52. 52. Grants, donations and contracts • Grants and donations – VAT free (outside the scope), provided no benefit given to grantor/donor • If goods, services or benefits provided, may have to charge VAT at 20%
  53. 53. Grants, donations and contracts • Contracts for services may be charged at 20%, if charity provides service or goods – Review contract schedule – Assess both parties’ understanding
  54. 54. Grants, donations and contracts • For example – Contract between charity and council for project reviewing number of elderly persons using local bus services – Contract between charity and council to provide advisory services to young homeless people
  55. 55. Grants, donations and contracts – Grant funding paid by council to charity to support annual event – Contract between two charities where one supplying technical administration and management services to other
  56. 56. Fund raising and sponsorship • Fund raising income receipts – VAT free (exempt) – Downside - no recovery of VAT on expenditure
  57. 57. Fund raising and sponsorship • Example - Dinner dance with auction • Ticket income – VAT free (exempt) – Cannot reclaim any VAT incurred on, say, hire of tables and chairs • Auctioned goods sold VAT free (zero rated) – Can reclaim VAT incurred on eg display stands
  58. 58. Fund raising and sponsorship • Some costs to the charity should be VAT free (zero rated) eg advertising and printing – Check with the printer • Sponsorship charges may be VAT free (outside the scope) as donations if nothing significant provided in return – For example, name in programme
  59. 59. Advertising Sale of advertising is subject to VAT at 20% except: • When publication has < 50% of adverts placed by private persons. VAT free (outside the scope) • Supply to another charity of space for public advertisement. VAT free (zero rated) or • Sale of advertising space in programme for fund raising event. VAT free (exempt)
  60. 60. Donated goods for sale • Sales of goods donated to a charity (or taxable person who has agreed to give profits to a charity) are VAT free (zero rated) • For example – Clothing store donates fleeces to charity which sells them at a jumble sale • Goods available to public before donation
  61. 61. Donated goods for sale • Extra Statutory Concession 3.21 permits zero rating where: – Goods which are unfit to be made available to the public eg clothing for rags or electrical equipment • Rule about goods being made available to public is side- stepped
  62. 62. Supply of staff Supply of staff = business activity plus VAT (20%) except: • Joint contract of employment. VAT free (outside the scope) By concession, seconded staff. VAT free (outside the scope) provided that: • Employee must be engaged in non business activities and • Payment cannot exceed ‘normal remuneration’
  63. 63. Certified zero rated purchases • Relevant goods supplied to a charity or paid for with donated funds can be VAT free (zero rated) • Relevant goods • Charity must issue certificate to supplier • Can also cover imported goods • Incorrect issue can lead to a fine • Medical equipment
  64. 64. Certified zero rated purchases – Telecommunication equipment – Ambulances – Medical or surgical appliances for disabled persons – Motor vehicles adapted for wheelchairs, handicapped persons or terminally sick – Resuscitation models
  65. 65. RCP • Relevant charitable purpose – otherwise than in the course or furtherance of business • Can result in VAT free (zero rating) building services • For example - building of new village hall, charity office or facility, sports hall • Longridge Case (going to appeal) • Change of use
  66. 66. Matthew Waters Charities Team
  67. 67. Upcoming changes – SORP 2015 - 10 years since the previous Statement of Recommended Practice issued - New SORP drafted to accommodate upcoming changes in financial reporting - Consultation period over
  68. 68. Upcoming changes – SORP 2015 - Expected to be cleared by Financial Reporting Council by the end of May 2014 and published by end of June 2014 - Keep updated: http://www.lovewell-blake.co.uk/media-centre
  69. 69. Upcoming changes – regulatory The National Audit Office (NAO) reported on the Charity Commission. The Commission accepted and endorsed their recommendations: - Accepted that it was too cautious in tackling problems - To put more emphasis on compliance, regardless of income -
  70. 70. Upcoming changes – regulatory - Therefore more statutory enquiries, not just ‘high risk’ charities - Enquiries into charities failing to submit accounts on time - Conducted a review of 70 random sets of accounts - 74% prepared to acceptable standard - 26% signposted for guidance
  71. 71. Upcoming changes – regulatory - Individual scrutiny of 770 sets of accounts prompted referrals to professional accountancy bodies to highlight serious concerns about standard of work - Established new dedicated monitoring team
  72. 72. Social Investment Tax Relief (SITR) New tax relief scheme to encourage support of social enterprises. Investors - Can deduct 30% of qualifying investment from income tax liability - Applies from 6 April 2014 (awaiting Royal Assent – July 2014) - Minimum period of investment of three years - Maximum annual investment of £1m
  73. 73. Social Investment Tax Relief (SITR) - Can also defer capital gains tax if gain is invested in social enterprise - Tax then payable when investment redeemed or sold - No CGT on any gain on disposal of social investment - Income tax payable on any income from social investment - Not available if reliefs such as Enterprise Investment Relief were obtained
  74. 74. Social Investment Tax Relief (SITR) Eligibility - Entity must have a defined, regulated social purpose - eg Charity, Community Interest Company - Fewer than 500 employees - Gross assets no more than £15m The entity seeking investment must register with HM Revenue & Customs to be issued an SITR Compliance Certificate. Cannot apply until Royal Assent gained.
  75. 75. Social Investment Tax Relief (SITR) Entity will need to meet a number of conditions regarding control by parents and control of subsidiaries. If entity seeking eligibility is part of a group, will need to refer to detailed guidance and seek professional advice re potential restructuring.
  76. 76. Social Investment Tax Relief (SITR) Qualifying investment - In the form of newly issued shares in a CIC or a qualifying loan to either entity - Must be paid up in full, in cash, at time of investment
  77. 77. Social Investment Tax Relief (SITR) There is a restriction on the amount a social enterprise can raise under SITR, determined by a calculation (€200k adjusted depending on CGT and SITR rates). At present, in the most basic scenario, the enterprise can raise €344,827. Within 28 months, all but an ‘insignificant amount’ of monies raised using SITR must have been employed for the purposes of the chosen ‘trade’ (charitable activity). Failure to meet this condition will result in tax relief being lost.
  78. 78. Social Investment Tax Relief (SITR) Where we are: - Guidance issued to enterprises and investors - www.gov.uk - Investor can begin planning for 2014/15 tax year - Enterprise can determine if meets criteria but cannot register at present
  79. 79. Social Investment Tax Relief (SITR) - Seek professional advice (loan agreements, eligibility, investor tax position, enterprise group restructuring, etc) - Awaiting 2014 Finance Bill receiving Royal Assent (expected July 2014)
  80. 80. Questions?

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