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Helping you prosper
Charity sector outlook
“A look at the year ahead for charities”
2015/16
www.uhy-uk.com/charities
CONTENTS
Editor’s view of the year ahead, Subarna Banerjee			 2
In the spotlight: Phil Packer, MBE, British Inspiration Trust		 3
The risk of fraud in the charity sector, Allan Hickie			 4
Is your charity ready for auto-enrolment?, Roland Givans		 5
Treasurer guidelines, Margot Madin						7
Gift Aid basics, Mark Giddens							8
FRS 102 and the new Charity SORP, Subarna Banerjee			 9
Charities and VAT: What are you entitled to?, Simon Newark 	 10
OUR CHARITY AND
NOT-FOR-PROFIT SERVICES
•	 Accounting and bookkeeping
• 	 Auditing
• 	 Financial reporting
•	 Management services
•	 Strategic planning
• 	 Tax planning and compliance
1
2016 is likely to be a defining year in the
charity and not-for-profit (NFP) sector for a
number of reasons.
Firstly, the Charity Commission is likely
to be given new powers to disqualify
individuals from acting as trustees or
holding senior positions in charities via the
Charities (Protection and Social Investment)
Bill. Although the legislation has not yet
been passed, the Commission has already
published details of their likely approach.
This will include ensuring that individuals
affected would be given the right to
make representations to the Commission.
A formal appeals process will also be
implemented. The Commission has stated
that they will undertake a consultation on
this power should the Bill be passed. This
Bill will also amend the existing Charities Act
2011 which would permit charities to make
social investments.
Secondly, the Commission has increased the
number and frequency of investigations that
they are carrying out on charities and this is
set to continue. Triggers for investigations
include persistent late filing of accounts
and other documentation as well as
‘whistleblowing’ by staff or members of the
public about the activities of certain charities.
The Commission’s transparent approach
requires them to announce any investigations
that they undertake into certain charities.
As a result, reputation management will be
key to those charities which are subject to
investigation.
Another theme that is likely to increase
during 2016 is the impact of outcome
based measures. There is an increasing
amount of information in the public domain
with respect to the effectiveness of certain
charities. It is felt that donors (as well as the
Government) will more likely donate to those
charities which can demonstrate better than
average outcomes. Therefore, it is those
charities which recognise that outcomes
monitoring is becoming increasingly
important, which are likely to do better.
The forthcoming year also sees the
implementation of FRS 102 and the new
Charity Statement of Recommended Practice
(SORP) within financial statements. These
changes have been expected for a few years
and will result in significant differences to
the manner in which financial statements are
prepared. A summary of the key changes is
set out on page 9.
We wish you all the best for the coming
12 months and hope you can navigate the
evolving regulation and financial reporting
landscape. If we can be of any assistance,
please do not hesitate to contact us. We
pride ourselves on our high quality of service
and our personalised approach to each of
our charity clients, and would love to support
you in achieving your objectives.
Subarna Banerjee
Chair of our charity and NFP group
London partner
e: s.banerjee@uhy-uk.com
2016 is likely to be
a defining year in
the charity and
not-for-profit
sector.
2
EDITOR’S VIEW OF THE YEAR AHEAD
CHARITY AND NOT-FOR-PROFIT
How do you use your core values on a
day-to-day basis?
All our relationships are personal; be they
with charities, corporations or individuals.
It has taken time to build a team around
us and to secure gifted support rather than
paying for services or support. This has led
to more charities and supporters becoming
part of our BRIT family and I am delighted
that this approach is working.
What are the key risks for your charity
and the sector as a whole?
We are avoiding risk by employing one
full-time member of staff and ensuring that
all our operational needs are provided to us
for free. This ensures that we do not have
a high annual operating cost where we
would be in a pressured position to actively
fundraise just to survive. Sustainability of
any charity is vital and this is why we are
working closely with our charity partners
to ensure that the BRIT Centre is built to
attract national and regional users; be they
corporations, charities or the public. Every
area within our Centre would need to be
self-sustaining and our partnerships are
integral to this planning and strategy.
What has been the impact of regulation
on your charity?
Minimal. Any involvement with young
people is managed by their parent charity
and we have partnered, for example, with
the NSPCC and Action for Children to assist
us with safeguarding and governance. We
do not actively approach the public for
funding and as well as being a member of
the Fundraising Standards Board, their CEO
is also an adviser to provide us with guidance
and support.
What role do you see professional
advisers playing to you and the sector?
We are surrounded by a wealth of
professional advisers and they drive BRIT
forward together. We have asked for
advisers in every element of our operational
and strategic development so that we
have the very best professional support to
hand. We do not overburden them and
the relationships are flexible so that they
give what time they can without feeling
pressured in any way. This is one of the most
challenging areas as they are very personal
relationships and each adviser needs to be
afforded time so they feel engaged in and
integral to our work.
How do you develop your fundraising
strategy?
Waiting for the right time and by securing
the right resources needed for the campaign.
To accelerate the development of the BRIT
Centre, we are holding our first active
fundraising event. Through BRITATHON,
14 September, we will engage with the CEOs
of the FTSE 100, FTSE 250 and business
leaders to ask them to come together in
support of young people facing trauma and
adversity. Young people are at the heart
of our fundraising strategy and we are
empowering them to be engaged with our
social media and fundraising drive.
What would be your top three tips to
give to anyone setting up a charity?
There are tens of thousands of charities in
the UK and there may be the opportunity
to approach an existing charity and work
together. Many charities seem to struggle
when the early involvement of founding
trustees, donors and supporters dwindles
over time due to limited funding or changes
in the need or initial objectives. It will not be
the case for every charity, but it is more likely
to survive in the long-term through mergers
where the essence of the cause is maintained
and resources are pooled for the good of the
beneficiary(ies).
Phil Packer, MBE
British Inspiration Trust
www.britishinspirationtrust.org.uk
3
IN THE SPOTLIGHT: PHIL PACKER, MBE, BRITISH INSPIRATION TRUST
In this section, we interview Phil Packer, the
founder of the British Inspiration Trust (BRIT),
a charity which supports young people
facing trauma and adversity.
We know you as the founder of BRIT.
What is your background and how did
you end up starting BRIT?
I sustained catastrophic spinal cord injuries
whilst on operational duty and experienced
both physical and psychological trauma. To
focus on the future and to regain
self-confidence and self-worth, I set out to
complete a variety of physical challenges
for charitable causes. This inadvertently
led to appointments and roles as Patron or
Ambassador to numerous charities and I was
struck by the sheer scale of young people
struggling to cope with serious trauma in
their lives, particularly those with little or no
support. With collective agreement from
a wealth of charity experts and advisers
that there was a vital need to support these
young people, I founded BRIT.
What do you consider to be BRIT’s major
achievements?
My intent was to run BRIT with minimal
overheads and to avoid asking the public for
funding. We have been putting the building
blocks in place over the past four years as
well as conducting research in the best ways
to deliver our vision and mission. I am proud
that we have done this with gifted support
rather than fundraising and am delighted
that we have over 55 charity partners whose
CEOs are BRIT advisers.
Where do you see BRIT making a real
difference?
BRIT was established to help transform
the lives of young people across the UK,
between 16-25, who are facing trauma and
adversity. We will do this by building the
first ever dedicated Centre of Inspiration
in the UK. The Centre will be built for our
partner charities to refer their young people.
We will provide a unique lifeline within a
safe, inclusive and inspirational environment
enabling young people to start rebuilding
their lives by regaining their self-esteem,
self-confidence and self-worth.
BRIT will raise the estimated £15m to create
a unique eco-friendly Centre of Inspiration
that will become the future hub for respite,
support and activities in order to provide a
positive change to the lives of thousands of
vulnerable young people.
All our relationships
are personal...It has
taken time to build
a team around us
and to secure gifted
support rather than
paying for services or
support.
CHARITY AND NOT-FOR-PROFIT
The charity sector is, unfortunately, often a
target for fraudsters, perhaps because there
is a perception that the lack of day-to-day
involvement by trustees means there is less
control than in a commercial organisation,
where the directors are usually more
hands-on.
It is therefore vital that trustees remain
aware of the risk of fraud, apply scepticism
at all times and that adequate anti-fraud
policies are in place (even if they believe that
their charity’s financial controls are strong).
A determined fraudster can often find ways
around even relatively robust systems.
INTERNAL FRAUDSTERS
If you are a trustee or have a Board of
Trustees you work with, we recommend
the following questions are regularly asked
as they can be common indicators of an
increased fraud risk:
•	Does anyone in our organisation have any
personal motives for carrying out fraud,
such as conflict of interest or an excessive
lifestyle?
•	Is our charity under increasing financial
pressure due to cuts to income or
spiralling costs?
•	Is our organisation overly dominated by
one individual?
•	Does our charity have unusual or complex
transactions which are difficult to follow
or which are subject to a high degree of
management judgement?
•	Is there a lack of record/document
maintenance and a failure to follow
standard policies at all times?
•	Does anyone in our organisation
demonstrate an eagerness to work
unusual or excessive hours, or is anyone
reluctant to take annual leave?
•	Do we have robust controls for payroll
arrangements, including checks that any
amounts paid out are the right amounts
and paid to bona fide employees?
•	Is there appropriate segregation of duties
and responsibilities in our finance teams?
•	Do we provide regular and appropriate
management support to our finance
staff?
•	Are we making sure conflicts of interest
are avoided and that registers of interest
are up-to-date?
4
•	Can we be sure that senior staff and
trustees are not gaining any private,
personal commercial or financial benefit as
a result of their position?
EXTERNAL FRAUDSTERS
The Charity Commission has recently
reminded charities to be vigilant and look
out for scams used by fraudsters to obtain
bank details, and this is not the first time
the Commission has proactively commented
about fraud.
Three donation scams that we have seen and
that you should be aware of include:
•	Contacting you/your charity with news
that you/they are due a large gift or
donation from an organisation promoted
as being a legitimate and registered charity
in the UK, which does not exist. The scam
is made to appear more credible through
the use of false documentation showing
parts of the Commission’s logo.
•	A fraudster informing you/your charity
that they will be donating a large sum of
money on the condition that you send half
of the donation onto another specified
charity, which is in fact the personal bank
account of the fraudster. For example,
the fraudster will offer you £50,000 on
the condition that you send £25,000
to another specified charity in another
country. When you agree, the payment
of £50,000 is made using a compromised
or stolen credit card. You keep £25,000
of the donation and send the remaining
£25,000 to the other specified charity’s
bank account. However, it is in fact the
fraudster’s personal account. The card
issuer identifies that the credit card was
compromised and recalls the full amount
of £50,000 from you.
•	A fraudster calls and advises you that there
is an issue with your bank account, and
asks you to call the number on the back
of your bank card. However, the fraudster
does not hang up, and when you call your
genuine bank number the fraudster is still
on the line (since it needs two people to
end the call), and will answer pretending
to be from your bank, obtaining your
personal details. It is important that if you
receive any calls like this you should always
make the return call on a different phone
to the one you receive the call on, and
never disclose any personal information
such as PINS, passwords or smart card
security codes over the phone.
IT IS IMPORTANT YOU HAVE SUFFICIENT
INTERNAL CONTROLS
Many smaller charities do not require a
statutory year end audit. However, since the
assurance provided by an audit is significantly
more than gained from an independent
examination, we see a number of our clients
requesting audits.
An alternative option is to arrange a robust
internal audit service, involving several visits
throughout the year. Such a service could
be as detailed as you need, and will vary
according to the size of your charity, but
internal audit checks during the course of
the year can be an excellent way of providing
assurance between year end audits.
Following the recent increase to the audit
exemption threshold for charities, we believe
there will be an increase in the number of
charities implementing an internal audit
function; since this is more flexible than the
year end external audit. It can be focused on
the specific areas which the trustees consider
to be risky; this can be seen as better value
for money.
If you have any concerns or questions in this
area please contact your usual UHY adviser.
Allan Hickie
Partner
Sittingbourne
e: a.hickie@uhy-uk.com
THE RISK OF FRAUD IN THE CHARITY SECTOR
CHARITY AND NOT-FOR-PROFIT
The law on workplace pensions has
changed. The Government has introduced
auto-enrolment to help more people save
for their future. This means that employers
will need to automatically enrol some
workers into a workplace pension plan and
give other workers the option to join.
Every employer with at least one member
of staff has a duty to put those who meet
certain criteria into a workplace pension
scheme and contribute towards it. This is
automatic enrolment. It may be automatic
for your staff but it is not automatic for you.
You need to take steps to make sure they
are enrolled.
WHEN IS MY STAGING DATE?
The employer duties have been introduced
in stages since October 2012. The date
your employer duties first apply is known as
your ‘staging date’. The Pensions Regulator
(TPR) will advise you of your staging date at
least 12 months in advance.
WHAT IS THE EFFECT ON PENSION
SCHEMES?
The legislation requires you to provide a
scheme that can automatically enrol your
employees into a workplace pension.
You must register that you have an
auto-enrolment scheme in place with TPR
at least five months after your staging date.
The good news is, if you have an existing
pension scheme, you may be able to use
this to meet your employer duties as long as
it meets certain criteria.
However, many schemes do not meet the
requirements, therefore, you may need
to consider a new scheme or use the
Government’s low cost scheme the National
Employment Savings Trust (NEST).
NEST is a pension scheme that is primarily
aimed at low to medium earners and small
employers that do not have access to a
company pension scheme.
5
IS YOUR CHARITY READY FOR
AUTO-ENROLMENT?
WHAT ARE MY EMPLOYER DUTIES?
Your employer duties will depend on the
types of worker you employ. You will need
to automatically enrol some workers into a
pension scheme and arrange membership
for others. You are also responsible for the
ongoing maintenance of the scheme and
have an obligation to keep certain records.
You must:
•	comply with your duties;
•	have a suitable scheme;
•	register your arrangement with TPR;
•	auto enrol eligible jobholders;
•	make contributions;
•	keep records; and
•	re-enrol opt outs periodically.
You must not:
•	refuse to comply;
•	miss your staging date;
•	miss making contributions;
•	incentivise workers to opt out; or
•	treat workers unfairly.
WHAT HAPPENS IF I DO NOTHING?
The employer duties are not optional.
TPR will be responsible for ensuring that
you comply with your employer duties.
Although TPR’s approach will be to educate
and encourage compliance, you will face
substantial fines or even imprisonment if you
do not comply.
Every employer
with at least
one member of
staff has a
duty to put
those who
meet certain
criteria into
a workplace
pension scheme
and contribute
towards it.
CHARITY AND NOT-FOR-PROFIT
6
WHAT RECORDS DO I NEED TO KEEP?
You will need to keep records of how
you have met and continue to meet your
employer duties. This includes information
about your workers and their pension
scheme, which must be provided to TPR
when requested.
WHO MUST I ENROL?
Whether this is an easy or difficult task
depends on your type of charity. If you use
the services of casual workers, very young
or very old workers, you will need to spend
additional time analysing your workforce. If
you only employ salaried staff, you will have
an easier task.
You will need to assess your workforce to
determine whether they are treated as a
‘worker’. There are three different categories
of worker, determined by their age and how
much they earn:
Eligible jobholders:
Must be automatically enrolled.
Non-eligible jobholders:
Have the right to opt in.
Entitled workers:
Have the right to join a pension scheme.
The categorisation of workers can be difficult
in some circumstances and assistance may
be required. We can help you define the
relevant category for each member of your
workforce.
WHAT CONTRIBUTION MUST I MAKE?
You will need to make contributions to the
pension scheme for eligible jobholders,
contributing at least 3% of their ‘qualifying
pensionable earnings’. However, to help
employers adjust, compulsory contributions
will be phased in, starting at 1% before
eventually rising to 3%. There will also be a
total minimum contribution, which will need
to be paid by employees if you do not meet
the total minimum contributions. If you only
pay the employer’s minimum contribution,
employees’ contributions will start at 1%
of their salary, before eventually rising to
4%. An additional 1% in the form of tax
relief will mean that there is a minimum 8%
contribution rate.
As you can see, pensions auto-enrolment is
not a straightforward business. If you have
not already done so, we suggest that you act
soon and seek professional advice.
Roland Givans
Partner
Sheffield
e: r.givans@uhy-uk.com
A charity which
uses the services
of casual
workers will
need to spend
additional time
analysing its
workforce.
CHARITY AND NOT-FOR-PROFIT
published in 2013 by the NCVO, “Good
Governance: a practical guide for trustees,
chairs and CEOs”. You should also read
some of the Charity Commission guidance
documents, accessible on the website, and
all available to download as PDFs. There
are a significant number of guides, such as
“Internal financial controls for charities”
(CC8) and “Charities and reserves” (CC19).
Understanding finances – Are the
management accounts produced frequently
enough, and in a timely fashion? Are they
easy to read by someone who is not from
a financial background, and do they give a
clear picture of the state of the finances and
reserves? Do all of the trustees understand
them? Would they welcome some training?
Do not be afraid to ask these questions,
even though you are new to the charity. It
is important that all trustees understand the
financial position of the charity, and do not
depend solely on you to make decisions.
It is not about the surplus - Too much
emphasis can be placed on the SOFA –
is there a surplus or a deficit – without
understanding cash flow, or reserves, and
the all too frequent over-dependence on
restricted income to cover unrestricted
expenditure. If staff are recruited for a
specific project, they cannot be funded
afterwards from unrestricted and
unpredictable future income. Make
sure that cash flow forecasting is part of
the management accounting function.
Understand the budget.
Auditors and accountants – Take a look
at what the auditor or accountant does for
the charity, including testing the financial
controls, and what else they can offer.
Act upon any points raised in the annual
auditor’s letter to management. Do not
be afraid to take advice from them – an
informal chat may be all it needs.
Most importantly, keep in touch with
fellow trustees, read meeting papers well
in advance of the meetings, and be ready
to challenge proposals to ensure that the
figures stack up, and that the charity’s
finances are not stretched beyond repair.
If you would like to discuss any of this
further, please contact your usual UHY
adviser.
Margot Madin
Partner
Nottingham
e: m.madin@uhy-uk.com
In this section our partner Margot Madin,
also Honorary Treasurer of Home-Start UK
and the Nottinghamshire Wildlife Trust, will
provide insight from an insider’s perspective.
Whether you are a newly-appointed
Honorary Treasurer of a charity, or have
acted for some time, and no matter the size
of the charity, it is important to be aware of
your duties and responsibilities as a trustee
and more specifically as the person other
trustees will look to for guidance on financial
matters.
Job description - All Treasurers should have
a job description which has been approved
by the Managing Committee, Council or
Board of Trustees. Make sure that you
understand your role before you start,
and that the other trustees, Chairman and
employees named on the job description also
understand your role. Be aware that if you
come from a financial background, more
will be expected of you by other trustees,
and they may rely on you to guide them on
many, if not all, financial matters.
Induction – You should have been given
an induction pack including a short
biography of each of your fellow trustees,
an organogram/chart of the employees/
staff structure, a guide to the governance
procedures of the charity, a manual of the
charity’s financial policies and procedures,
a copy of the latest risk register, the latest
annual accounts, budget and management
accounts, and full background details of
the charity itself. You need to know what
manuals and policies the charity has, and
take time to review them to understand the
ethos and general management environment
it operates in.
Meet people – As part of the induction,
you should have been introduced to the
Chief Executive and key officers/employees,
if you have not already met them. Take time
to get to know them, find out how closely
you need to work with them, and how they
prefer to keep in contact – remember that
emails can get ignored in a busy working
environment. Make it clear that you can
always be contacted if anyone has any
concerns about financial or governance
matters. Find out who signs the cheques (if
not you), who authorises expenditure, what
level of expense needs to be approved by
trustees, how investments are handled and
who produces the annual budget.
Guides to being a trustee – Dorothy
Dalton has produced an excellent guide,
Even if you have
acted as a
Treasurer for
a while, here
are a few tips
from an insider’s
perspective.
TREASURER GUIDELINES
7
KEEPING YOU INFORMED
Download this easy to
print one page Treasurer
guidelines document here.
CHARITY AND NOT-FOR-PROFIT
8
and you need to be able to show how the
claim has been calculated.
Charitable trusts have four years from the
end of the tax year in which a donation
was received to submit the associated Gift
Aid claim; charitable companies, CIOs and
community amateur sports clubs have four
years from the end of the financial period in
which it was received.
CAN DONORS RECEIVE ANYTHING IN
RETURN?
The basic rule for Gift Aid to apply is that
a donor should not receive a benefit in
exchange for their donation. However,
certain modest ‘benefits’, such as the
receipt of charity literature and a basic
acknowledgment in that literature, are
ignored. Those with a value that falls within
set limits are also discounted and there is an
option of splitting a receipt such that one
part is treated as consideration for a benefit
with the balance treated as a donation.
Last but not least, there is an exemption for
charges to view charity property, provided
that certain conditions are met.
Charities should tread carefully if any
benefits are provided and take professional
advice if in doubt.
HMRC INSPECTIONS
Gift Aid claims are generally processed
without query. HMRC police the system via
inspection visits and audits of claims and
the supporting paperwork. Charities are
risk-assessed by reference to the amounts
claimed, their claims history and any other
information in HMRC’s possession. It should
be borne in mind that, if the Revenue find
mistakes, they may seek penalties in addition
to disallowing the amount claimed. They
may also look to extrapolate the ‘error rate’
across previous claims.
THE GIFT AID SMALL DONATION SCHEME
Introduced in 2013, the GASDS enables
charities to claim a Gift Aid like top-up on
donations of up to £20 per donor per tax
year. There is an upper limit for claims and
various conditions have to be met.
MORE COMPLEX ISSUES
Gift Aid can extend to membership
subscriptions, sponsored events, charity
auctions, the sale of donated gifts and
donations to overseas charities. In each case
there are clear conditions that have to be
met for income to attract relief.
HOW CAN WE HELP?
Gift Aid is an important element of funding
for many charities – not only are the sums
recovered from HMRC substantial (in excess
of £1bn per year in total) but the availability
of further tax relief is believed to be an
important factor in encouraging higher
earners to donate more. Nevertheless,
it is estimated that significant sums go
unclaimed either because the necessary
paperwork is not in place or because the
charities concerned wish to avoid any
possible issues with HMRC.
Gift Aid is great if it is operated properly.
If you are not sure if your paperwork is
adequate, ask us to review it (even a
last-ditch review prior to an HMRC audit
can help to avoid some serious problems).
If you are not sure that you are quite within
the rules – or you want to know whether
you can extend Gift Aid to a particular
source of income, please contact your usual
UHY adviser.
Mark Giddens
Partner
London
e: m.giddens@uhy-uk.com
Of the various tax reliefs associated with
charitable giving, Gift Aid is the best known
and, for the majority of charities, the most
useful.
HOW DOES IT WORK?
It is open to any individual UK taxpayer to
apply Gift Aid to a donation to a UK charity
or a registered community amateur sports
club. The payment is treated as made after
the deduction of basic rate tax (currently
20%) and the charity is able to recover this
from HMRC. If the individual is a higher
or additional rate taxpayer they can claim
further relief. If we take as an example a
donation of £80, with a Gift Aid declaration
the charity can claim £20 from HMRC
(bringing the amount of the donation up
to £100); if the donor is a 40% taxpayer
they can claim relief such that their tax bill is
reduced by £20 (bringing the net cost of the
donation down to £60).
Gift Aid is subject to certain conditions which
include:
•	For the tax year in question, the individual
must pay or bear UK income tax
and/or Capital Gains Tax at least equal to
the tax deemed to be deducted from their
donations.
•	The donation must be a sum of money
which belongs to the donor.
•	Outright payments to a charity in return
for services, rights or goods are not
eligible.
•	A valid Gift Aid declaration must be made.
THE PAPERWORK
The Gift Aid system is audited by HMRC and
it is essential that the appropriate paperwork
is completed and appropriate records kept.
There are a number of basic requirements for
a written Gift Aid declaration – the simplest
way of ensuring that these are met is to
use the wording from HMRC’s model form.
In the case of an oral declaration the same
information needs to be obtained and the
charity must either keep a recording of the
conversation or (far safer) send the donor
written confirmation.
HMRC encourage the online submission
of claims for Gift Aid relief. Whether you
apply online or on paper, however, the
basic requirements are the same – you need
to obtain and retain properly worded and
completed declarations for each donation
GIFT AID BASICS
Of the various tax
reliefs associated
with charitable giving,
Gift Aid is the best
known and, for the
majority of charities,
the most useful.
CHARITY AND NOT-FOR-PROFIT
INCOME RECOGNITION
Under the new accounting framework,
income is recognised if your charity has
entitlement to the income, the likelihood
of receipt is probable and the amount can
be reliably measured. This represents a
change as, under the previous framework,
the likelihood of receipt had to be ‘virtually
certain’. As a result, it is possible that
you will now be able to account for some
elements of income in an earlier period.
FINANCIAL INSTRUMENTS
Financial instruments will need to be
categorised between basic (such as cash,
debtors, creditors and straightforward
investments) and non-basic (such as swaps,
options and forward contracts). The
accounting treatment for ‘basic’ financial
instruments does not change significantly,
however, ‘non-basic’ financial instruments
will need to be measured at fair value at
each balance sheet date. This will affect
the net assets of your charity and may make
reported results more volatile. If you use
financial instruments to hedge financial
risks you may be able to adopt ‘hedge
accounting’. This would reduce the volatility
of the results reported in the SOFA.
MIXED MOTIVE INVESTMENTS
Mixed motive investments relate to an
investment which is expected to generate
an economic return as well as promoting
an object of a charity. Notwithstanding the
charitable element, gains and losses must
be disclosed as investment returns rather
than charitable income and costs. Such
investments must also be disclosed on the
face of the balance sheet or separately
within the investments section of the notes
to the financial statements.
MULTI-EMPLOYER BENEFIT SCHEMES
Similar to the current accounting framework,
employers who are part of such schemes
must account for their share of assets and
liabilities of the scheme. If this information
is not available, an employer must account
for such schemes as a defined contribution
scheme. However under the new
framework, if an employer has agreed to
fund a deficit relating to past service, it must
also include the net present value of this
liability in its balance sheet.
RELATED PARTIES AND REMUNERATION
The definition of related parties has been
expanded to include key management
personnel. As a result, the total
remuneration and expense reimbursement
for those staff managing a charity must
be disclosed. More detail is also required
in respect of redundancy and termination
payments.
HOLIDAY PAY ACCRUAL
Under the new accounting framework, a
holiday pay accrual must be included in the
financial statements if it is material. This
represents a change to current accounting
standards in that such an accrual was
optional. The accrual is accounted for by
reference to the amount of untaken holiday
at the year end, multiplied by the rate of pay
for that individual.
These are just the key changes you should
be aware of. There are many more minor
changes which may affect you in certain
situations. If you would like to discuss your
own circumstances, please get in touch with
your usual UHY adviser.
Subarna Banerjee
Partner
London
e: s.banerjee@uhy-uk.com
The implementation date for FRS 102 and
the new Charity Statement of Recommended
Practice (SORP) is approaching rapidly. It is
effective for accounting periods commencing
on or after 1 January 2015. As a result, the
year ended 31 December 2015 will be the
first time that charities with a December
year end will need to prepare their financial
statements under the new accounting
framework. We outline below the key
changes that you will need to consider:
TRUSTEES’ ANNUAL REPORT
There are a number of areas where
disclosures will change in the Trustees’
Annual Report:
•	You will need to explain your social
investment policies, if they are applicable.
•	You will need to explain in detail the risks
and uncertainties you are facing and how
those risks are being managed.
•	The arrangements for setting pay and
remuneration of key personnel, including
benchmarks and parameters, must be
disclosed.
•	Trustees will need to compare the amount
of reserves held with your charity’s reserves
policy and explain how your charity will
bring the level of reserves into line with
that policy.
PRIMARY STATEMENTS
The Statement of Financial Activities (SOFA)
•	Narrative descriptions are simplified, such
as ‘Net incoming resources’ being replaced
by ‘Net income’.
•	Governance costs are included within
support costs.
•	Net gains and losses on investments must
be included before net income.
Balance sheet
•	Heritage assets must be disclosed
separately from other assets where
practical. There is no longer a requirement
that heritage assets must relate to your
charity’s objects.
•	Mixed motive investments must be
disclosed either on the face of the balance
sheet or identified as a separate class of
investment in the notes.
•	There are a range of disclosures that will
affect the balance sheet in relation to
financial instruments.
9
FRS 102 AND THE NEW CHARITY SORP
There are a number
of areas where
disclosures will change
in the Trustees’ Annual
Report.
CHARITY AND NOT-FOR-PROFIT
10
As a charity you may, or may not, be aware
of all of the entitlements available to you.
For some, the VAT entitlements can be
straightforward. For others, the various
entitlements may not be so obvious, such
as claiming refunds of VAT on expenditure
or even being able to remove the 20% VAT
charge from supplier costs in the first place.
Despite the range of reliefs from taxation
available to the charity and not-for-profit
sector, it remains a significant source of
revenue for the Government and HMRC’s
approach should be regarded in that context.
In this section we look at the broad VAT
picture for charity and not-for-profit bodies.
The primary difficulties arising for the
charitable sector stem from the requirement
to apply the principles of a ‘business tax’
to its activities, many of which may not be
carried out with any commercial motives
at all. As VAT is a European tax, the UK’s
extensive network of charities and not-for-
profit organisations is somewhat unique
among our European neighbours.
Where a charity is engaged in ‘non-business
activities’ it is outside the scope of VAT. This
has two consequences in that whilst any
non-business activities (carried out in return
for grants for example) may be free of VAT,
the charity is generally unable to reclaim VAT
incurred on associated costs. Conversely,
where a charity starts to provide services
or sell merchandise to third parties or even
its members, HMRC regards this as making
supplies in return for consideration which
VAT law deems to be an economic activity
and carried on in the course of business.
The organisation then has to consider two
quite separate aspects; first, is the income
subject to VAT at either the 20%, 5% or 0%
VAT rates, or exempt from VAT entirely and,
secondly, can it reclaim input VAT incurred
on associated expenditure. There are also
international considerations to take into
account.
When thinking about the VAT treatment of
your business activities, you should bear in
mind that in most cases the VAT treatment
will be pretty clear.
There will be many occasions when it is not
so clear though, either between 20% VAT
and 0% VAT for example (either of which
will allow input VAT recovery), or even
exemption from VAT which will not. When
the choice is between VAT or exemption, an
important factor to consider is the effect on
input VAT recovery.
When considering whether or not the
organisation can reclaim VAT incurred
on expenditure, it is easy to see by the
prevalence of non-business and exempt
business activities that much input VAT will
be non-recoverable. This represents a huge
cost to the sector as a whole but there are
some specific reliefs where the VAT cost
can be removed entirely, such as advertising
costs, for example, or certain types of
property development.
VAT is of course a tax governed by law which
means that many disputes with HMRC will
end up in the Courts. The Courts have not
been consistent in their decisions with some
judges asking objectively whether something
has been supplied in return for payment
and is hence a business activity, with others
applying a motive test to the activity allowing
those that simply recoup costs to remain as
non-business.
CHARITIES AND VAT: WHAT ARE YOU ENTITLED TO?
HMRC are more consistent in their
approach whenever they can argue for
standard-rating over zero-rating to raise
VAT or for exemption or non-business to
block significant input VAT refunds.
We will continue to look in more detail at
the VAT landscape for the charity and
not-for-profit sector, so please keep an
eye on our charity blog (see back page
for details) and get in touch with your
usual UHY adviser if you have any specific
questions.
Simon Newark
Partner
London
e: s.newark@uhy-uk.com
CHARITY AND NOT-FOR-PROFIT
Helping you prosper
Nationally we are one of the leading advisers to the charity and not-for-profit sector. With 26 offices across the
UK, we are uniquely placed to give you the best advice because we understand both local needs and the national
picture. For further information or to arrange a meeting to discuss your specific requirements, please contact one
of our charity specialists named inside or read more about us on our website at www.uhy-uk.com/charities.
Scotland
Aberdeen Campbell Dallas
Phone 01224 623 111
Email aberdeen@campbelldallas.co.uk
Glasgow Campbell Dallas
Phone 0141 886 6644
Email glasgow@campbelldallas.co.uk
Perth Campbell Dallas
Phone 01738 441 888
Email perth@campbelldallas.co.uk
Stirling Campbell Dallas
Phone 01786 460 030
Email stirling@campbelldallas.co.uk
Wales
Abergavenny UHY Hacker Young
Phone 01873 852 124
Email abergavenny@uhy-uk.com
Newport UHY Hacker Young
Phone 01633 213 318
Email newport@uhy-uk.com
Wrexham UHY Hacker Young
Phone 01978 351 501
Email wrexham@uhy-uk.com
UHY Hacker Young Group offices:
England
London UHY Hacker Young
Phone 020 7216 4600
Email london@uhy-uk.com
Ashford UHY Hacker Young
Phone 01233 722 970
Email ashford@uhy-uk.com
Birmingham UHY Hacker Young
Phone 0121 233 4799
Email birmingham@uhy-uk.com
Brighton & Hove UHY Hacker Young
Phone 01273 726 445
Bristol UHY Hacker Young
Phone 01454 629 636
Email bristol@uhy-uk.com
Broadstairs UHY Hacker Young
Phone 01843 609 276
Email broadstairs@uhy-uk.com
Cambridge UHY Hacker Young
Phone 01223 352 823
Email cambridge@uhy-uk.com
Chester UHY Hacker Young
Phone 01244 320 532
Email chester@uhy-uk.com
Jarrow UHY Torgersens
Phone 01914 280 001
Email info@uhy-torgersens.com
Letchworth UHY Hacker Young
Phone 01462 687 333
Email letchworth@uhy-uk.com
Manchester UHY Hacker Young
Phone 0161 236 6936
Email manchester@uhy-uk.com
Newcastle UHY Torgersens
Phone 0191 2308 100
Nottingham UHY Hacker Young
Phone 0115 959 0900
Email nottingham@uhy-uk.com
Royston UHY Hacker Young
Phone 01763 247 321
Email royston@uhy-uk.com
Sheffield UHY Hacker Young
Phone 0114 262 9280
Email sheffield@uhy-uk.com
Sittingbourne UHY Hacker Young
Phone 01795 475 363
Email sittingbourne@uhy-uk.com
Sunderland UHY Torgersens
Phone 0191 567 8611
Email info@uhy-torgersens.com
Winchester UHY Hacker Young
Phone 01273 726 445
Email winchester@uhy-uk.com
York UHY Calvert Smith
Phone 01904 557 570
Email info@uhy-calvertsmith.com
UHY Hacker Young Associates is a UK company which
is the organising body of the UHY Hacker Young
Group, a group of independent UK accounting and
consultancy firms. Any services described herein are
provided by the member firms and not by UHY Hacker
Young Associates Limited. Each of the member firms
is a separate and independent firm, a list of which is
available on our website. Neither UHY Hacker Young
Associates Limited nor any of its member firms has
any liability for services provided by other members.
A member of UHY International, a network of
independent accounting and consulting firms.
This publication is intended for general guidance only.
No responsibility is accepted for loss occasioned to any	
person acting or refraining from actions as a result of 	
any material in this publication.
© UHY Hacker Young 2015
www.uhy-uk.com
VISIT OUR CHARITY SECTOR BLOG
The dynamic, competitive and
highly regulated environment you
operate in presents a number of
unique challenges. As part of our
commitment to keep you informed and
up-to-date with all of the latest
developments and ideas in the sector,
our charity sector blog covers the latest
issues and explains how these issues
could affect you.
www.uhy-uk.com/charity-sector-blog
CHARITY AND NOT-FOR-PROFIT

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Austin: Chive Charities: Changing the Giving Paradigm and Finding Growth in 2020Austin: Chive Charities: Changing the Giving Paradigm and Finding Growth in 2020
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Charity-sector-outlook-2015

  • 1. Helping you prosper Charity sector outlook “A look at the year ahead for charities” 2015/16 www.uhy-uk.com/charities
  • 2. CONTENTS Editor’s view of the year ahead, Subarna Banerjee 2 In the spotlight: Phil Packer, MBE, British Inspiration Trust 3 The risk of fraud in the charity sector, Allan Hickie 4 Is your charity ready for auto-enrolment?, Roland Givans 5 Treasurer guidelines, Margot Madin 7 Gift Aid basics, Mark Giddens 8 FRS 102 and the new Charity SORP, Subarna Banerjee 9 Charities and VAT: What are you entitled to?, Simon Newark 10 OUR CHARITY AND NOT-FOR-PROFIT SERVICES • Accounting and bookkeeping • Auditing • Financial reporting • Management services • Strategic planning • Tax planning and compliance 1
  • 3. 2016 is likely to be a defining year in the charity and not-for-profit (NFP) sector for a number of reasons. Firstly, the Charity Commission is likely to be given new powers to disqualify individuals from acting as trustees or holding senior positions in charities via the Charities (Protection and Social Investment) Bill. Although the legislation has not yet been passed, the Commission has already published details of their likely approach. This will include ensuring that individuals affected would be given the right to make representations to the Commission. A formal appeals process will also be implemented. The Commission has stated that they will undertake a consultation on this power should the Bill be passed. This Bill will also amend the existing Charities Act 2011 which would permit charities to make social investments. Secondly, the Commission has increased the number and frequency of investigations that they are carrying out on charities and this is set to continue. Triggers for investigations include persistent late filing of accounts and other documentation as well as ‘whistleblowing’ by staff or members of the public about the activities of certain charities. The Commission’s transparent approach requires them to announce any investigations that they undertake into certain charities. As a result, reputation management will be key to those charities which are subject to investigation. Another theme that is likely to increase during 2016 is the impact of outcome based measures. There is an increasing amount of information in the public domain with respect to the effectiveness of certain charities. It is felt that donors (as well as the Government) will more likely donate to those charities which can demonstrate better than average outcomes. Therefore, it is those charities which recognise that outcomes monitoring is becoming increasingly important, which are likely to do better. The forthcoming year also sees the implementation of FRS 102 and the new Charity Statement of Recommended Practice (SORP) within financial statements. These changes have been expected for a few years and will result in significant differences to the manner in which financial statements are prepared. A summary of the key changes is set out on page 9. We wish you all the best for the coming 12 months and hope you can navigate the evolving regulation and financial reporting landscape. If we can be of any assistance, please do not hesitate to contact us. We pride ourselves on our high quality of service and our personalised approach to each of our charity clients, and would love to support you in achieving your objectives. Subarna Banerjee Chair of our charity and NFP group London partner e: s.banerjee@uhy-uk.com 2016 is likely to be a defining year in the charity and not-for-profit sector. 2 EDITOR’S VIEW OF THE YEAR AHEAD CHARITY AND NOT-FOR-PROFIT
  • 4. How do you use your core values on a day-to-day basis? All our relationships are personal; be they with charities, corporations or individuals. It has taken time to build a team around us and to secure gifted support rather than paying for services or support. This has led to more charities and supporters becoming part of our BRIT family and I am delighted that this approach is working. What are the key risks for your charity and the sector as a whole? We are avoiding risk by employing one full-time member of staff and ensuring that all our operational needs are provided to us for free. This ensures that we do not have a high annual operating cost where we would be in a pressured position to actively fundraise just to survive. Sustainability of any charity is vital and this is why we are working closely with our charity partners to ensure that the BRIT Centre is built to attract national and regional users; be they corporations, charities or the public. Every area within our Centre would need to be self-sustaining and our partnerships are integral to this planning and strategy. What has been the impact of regulation on your charity? Minimal. Any involvement with young people is managed by their parent charity and we have partnered, for example, with the NSPCC and Action for Children to assist us with safeguarding and governance. We do not actively approach the public for funding and as well as being a member of the Fundraising Standards Board, their CEO is also an adviser to provide us with guidance and support. What role do you see professional advisers playing to you and the sector? We are surrounded by a wealth of professional advisers and they drive BRIT forward together. We have asked for advisers in every element of our operational and strategic development so that we have the very best professional support to hand. We do not overburden them and the relationships are flexible so that they give what time they can without feeling pressured in any way. This is one of the most challenging areas as they are very personal relationships and each adviser needs to be afforded time so they feel engaged in and integral to our work. How do you develop your fundraising strategy? Waiting for the right time and by securing the right resources needed for the campaign. To accelerate the development of the BRIT Centre, we are holding our first active fundraising event. Through BRITATHON, 14 September, we will engage with the CEOs of the FTSE 100, FTSE 250 and business leaders to ask them to come together in support of young people facing trauma and adversity. Young people are at the heart of our fundraising strategy and we are empowering them to be engaged with our social media and fundraising drive. What would be your top three tips to give to anyone setting up a charity? There are tens of thousands of charities in the UK and there may be the opportunity to approach an existing charity and work together. Many charities seem to struggle when the early involvement of founding trustees, donors and supporters dwindles over time due to limited funding or changes in the need or initial objectives. It will not be the case for every charity, but it is more likely to survive in the long-term through mergers where the essence of the cause is maintained and resources are pooled for the good of the beneficiary(ies). Phil Packer, MBE British Inspiration Trust www.britishinspirationtrust.org.uk 3 IN THE SPOTLIGHT: PHIL PACKER, MBE, BRITISH INSPIRATION TRUST In this section, we interview Phil Packer, the founder of the British Inspiration Trust (BRIT), a charity which supports young people facing trauma and adversity. We know you as the founder of BRIT. What is your background and how did you end up starting BRIT? I sustained catastrophic spinal cord injuries whilst on operational duty and experienced both physical and psychological trauma. To focus on the future and to regain self-confidence and self-worth, I set out to complete a variety of physical challenges for charitable causes. This inadvertently led to appointments and roles as Patron or Ambassador to numerous charities and I was struck by the sheer scale of young people struggling to cope with serious trauma in their lives, particularly those with little or no support. With collective agreement from a wealth of charity experts and advisers that there was a vital need to support these young people, I founded BRIT. What do you consider to be BRIT’s major achievements? My intent was to run BRIT with minimal overheads and to avoid asking the public for funding. We have been putting the building blocks in place over the past four years as well as conducting research in the best ways to deliver our vision and mission. I am proud that we have done this with gifted support rather than fundraising and am delighted that we have over 55 charity partners whose CEOs are BRIT advisers. Where do you see BRIT making a real difference? BRIT was established to help transform the lives of young people across the UK, between 16-25, who are facing trauma and adversity. We will do this by building the first ever dedicated Centre of Inspiration in the UK. The Centre will be built for our partner charities to refer their young people. We will provide a unique lifeline within a safe, inclusive and inspirational environment enabling young people to start rebuilding their lives by regaining their self-esteem, self-confidence and self-worth. BRIT will raise the estimated £15m to create a unique eco-friendly Centre of Inspiration that will become the future hub for respite, support and activities in order to provide a positive change to the lives of thousands of vulnerable young people. All our relationships are personal...It has taken time to build a team around us and to secure gifted support rather than paying for services or support. CHARITY AND NOT-FOR-PROFIT
  • 5. The charity sector is, unfortunately, often a target for fraudsters, perhaps because there is a perception that the lack of day-to-day involvement by trustees means there is less control than in a commercial organisation, where the directors are usually more hands-on. It is therefore vital that trustees remain aware of the risk of fraud, apply scepticism at all times and that adequate anti-fraud policies are in place (even if they believe that their charity’s financial controls are strong). A determined fraudster can often find ways around even relatively robust systems. INTERNAL FRAUDSTERS If you are a trustee or have a Board of Trustees you work with, we recommend the following questions are regularly asked as they can be common indicators of an increased fraud risk: • Does anyone in our organisation have any personal motives for carrying out fraud, such as conflict of interest or an excessive lifestyle? • Is our charity under increasing financial pressure due to cuts to income or spiralling costs? • Is our organisation overly dominated by one individual? • Does our charity have unusual or complex transactions which are difficult to follow or which are subject to a high degree of management judgement? • Is there a lack of record/document maintenance and a failure to follow standard policies at all times? • Does anyone in our organisation demonstrate an eagerness to work unusual or excessive hours, or is anyone reluctant to take annual leave? • Do we have robust controls for payroll arrangements, including checks that any amounts paid out are the right amounts and paid to bona fide employees? • Is there appropriate segregation of duties and responsibilities in our finance teams? • Do we provide regular and appropriate management support to our finance staff? • Are we making sure conflicts of interest are avoided and that registers of interest are up-to-date? 4 • Can we be sure that senior staff and trustees are not gaining any private, personal commercial or financial benefit as a result of their position? EXTERNAL FRAUDSTERS The Charity Commission has recently reminded charities to be vigilant and look out for scams used by fraudsters to obtain bank details, and this is not the first time the Commission has proactively commented about fraud. Three donation scams that we have seen and that you should be aware of include: • Contacting you/your charity with news that you/they are due a large gift or donation from an organisation promoted as being a legitimate and registered charity in the UK, which does not exist. The scam is made to appear more credible through the use of false documentation showing parts of the Commission’s logo. • A fraudster informing you/your charity that they will be donating a large sum of money on the condition that you send half of the donation onto another specified charity, which is in fact the personal bank account of the fraudster. For example, the fraudster will offer you £50,000 on the condition that you send £25,000 to another specified charity in another country. When you agree, the payment of £50,000 is made using a compromised or stolen credit card. You keep £25,000 of the donation and send the remaining £25,000 to the other specified charity’s bank account. However, it is in fact the fraudster’s personal account. The card issuer identifies that the credit card was compromised and recalls the full amount of £50,000 from you. • A fraudster calls and advises you that there is an issue with your bank account, and asks you to call the number on the back of your bank card. However, the fraudster does not hang up, and when you call your genuine bank number the fraudster is still on the line (since it needs two people to end the call), and will answer pretending to be from your bank, obtaining your personal details. It is important that if you receive any calls like this you should always make the return call on a different phone to the one you receive the call on, and never disclose any personal information such as PINS, passwords or smart card security codes over the phone. IT IS IMPORTANT YOU HAVE SUFFICIENT INTERNAL CONTROLS Many smaller charities do not require a statutory year end audit. However, since the assurance provided by an audit is significantly more than gained from an independent examination, we see a number of our clients requesting audits. An alternative option is to arrange a robust internal audit service, involving several visits throughout the year. Such a service could be as detailed as you need, and will vary according to the size of your charity, but internal audit checks during the course of the year can be an excellent way of providing assurance between year end audits. Following the recent increase to the audit exemption threshold for charities, we believe there will be an increase in the number of charities implementing an internal audit function; since this is more flexible than the year end external audit. It can be focused on the specific areas which the trustees consider to be risky; this can be seen as better value for money. If you have any concerns or questions in this area please contact your usual UHY adviser. Allan Hickie Partner Sittingbourne e: a.hickie@uhy-uk.com THE RISK OF FRAUD IN THE CHARITY SECTOR CHARITY AND NOT-FOR-PROFIT
  • 6. The law on workplace pensions has changed. The Government has introduced auto-enrolment to help more people save for their future. This means that employers will need to automatically enrol some workers into a workplace pension plan and give other workers the option to join. Every employer with at least one member of staff has a duty to put those who meet certain criteria into a workplace pension scheme and contribute towards it. This is automatic enrolment. It may be automatic for your staff but it is not automatic for you. You need to take steps to make sure they are enrolled. WHEN IS MY STAGING DATE? The employer duties have been introduced in stages since October 2012. The date your employer duties first apply is known as your ‘staging date’. The Pensions Regulator (TPR) will advise you of your staging date at least 12 months in advance. WHAT IS THE EFFECT ON PENSION SCHEMES? The legislation requires you to provide a scheme that can automatically enrol your employees into a workplace pension. You must register that you have an auto-enrolment scheme in place with TPR at least five months after your staging date. The good news is, if you have an existing pension scheme, you may be able to use this to meet your employer duties as long as it meets certain criteria. However, many schemes do not meet the requirements, therefore, you may need to consider a new scheme or use the Government’s low cost scheme the National Employment Savings Trust (NEST). NEST is a pension scheme that is primarily aimed at low to medium earners and small employers that do not have access to a company pension scheme. 5 IS YOUR CHARITY READY FOR AUTO-ENROLMENT? WHAT ARE MY EMPLOYER DUTIES? Your employer duties will depend on the types of worker you employ. You will need to automatically enrol some workers into a pension scheme and arrange membership for others. You are also responsible for the ongoing maintenance of the scheme and have an obligation to keep certain records. You must: • comply with your duties; • have a suitable scheme; • register your arrangement with TPR; • auto enrol eligible jobholders; • make contributions; • keep records; and • re-enrol opt outs periodically. You must not: • refuse to comply; • miss your staging date; • miss making contributions; • incentivise workers to opt out; or • treat workers unfairly. WHAT HAPPENS IF I DO NOTHING? The employer duties are not optional. TPR will be responsible for ensuring that you comply with your employer duties. Although TPR’s approach will be to educate and encourage compliance, you will face substantial fines or even imprisonment if you do not comply. Every employer with at least one member of staff has a duty to put those who meet certain criteria into a workplace pension scheme and contribute towards it. CHARITY AND NOT-FOR-PROFIT
  • 7. 6 WHAT RECORDS DO I NEED TO KEEP? You will need to keep records of how you have met and continue to meet your employer duties. This includes information about your workers and their pension scheme, which must be provided to TPR when requested. WHO MUST I ENROL? Whether this is an easy or difficult task depends on your type of charity. If you use the services of casual workers, very young or very old workers, you will need to spend additional time analysing your workforce. If you only employ salaried staff, you will have an easier task. You will need to assess your workforce to determine whether they are treated as a ‘worker’. There are three different categories of worker, determined by their age and how much they earn: Eligible jobholders: Must be automatically enrolled. Non-eligible jobholders: Have the right to opt in. Entitled workers: Have the right to join a pension scheme. The categorisation of workers can be difficult in some circumstances and assistance may be required. We can help you define the relevant category for each member of your workforce. WHAT CONTRIBUTION MUST I MAKE? You will need to make contributions to the pension scheme for eligible jobholders, contributing at least 3% of their ‘qualifying pensionable earnings’. However, to help employers adjust, compulsory contributions will be phased in, starting at 1% before eventually rising to 3%. There will also be a total minimum contribution, which will need to be paid by employees if you do not meet the total minimum contributions. If you only pay the employer’s minimum contribution, employees’ contributions will start at 1% of their salary, before eventually rising to 4%. An additional 1% in the form of tax relief will mean that there is a minimum 8% contribution rate. As you can see, pensions auto-enrolment is not a straightforward business. If you have not already done so, we suggest that you act soon and seek professional advice. Roland Givans Partner Sheffield e: r.givans@uhy-uk.com A charity which uses the services of casual workers will need to spend additional time analysing its workforce. CHARITY AND NOT-FOR-PROFIT
  • 8. published in 2013 by the NCVO, “Good Governance: a practical guide for trustees, chairs and CEOs”. You should also read some of the Charity Commission guidance documents, accessible on the website, and all available to download as PDFs. There are a significant number of guides, such as “Internal financial controls for charities” (CC8) and “Charities and reserves” (CC19). Understanding finances – Are the management accounts produced frequently enough, and in a timely fashion? Are they easy to read by someone who is not from a financial background, and do they give a clear picture of the state of the finances and reserves? Do all of the trustees understand them? Would they welcome some training? Do not be afraid to ask these questions, even though you are new to the charity. It is important that all trustees understand the financial position of the charity, and do not depend solely on you to make decisions. It is not about the surplus - Too much emphasis can be placed on the SOFA – is there a surplus or a deficit – without understanding cash flow, or reserves, and the all too frequent over-dependence on restricted income to cover unrestricted expenditure. If staff are recruited for a specific project, they cannot be funded afterwards from unrestricted and unpredictable future income. Make sure that cash flow forecasting is part of the management accounting function. Understand the budget. Auditors and accountants – Take a look at what the auditor or accountant does for the charity, including testing the financial controls, and what else they can offer. Act upon any points raised in the annual auditor’s letter to management. Do not be afraid to take advice from them – an informal chat may be all it needs. Most importantly, keep in touch with fellow trustees, read meeting papers well in advance of the meetings, and be ready to challenge proposals to ensure that the figures stack up, and that the charity’s finances are not stretched beyond repair. If you would like to discuss any of this further, please contact your usual UHY adviser. Margot Madin Partner Nottingham e: m.madin@uhy-uk.com In this section our partner Margot Madin, also Honorary Treasurer of Home-Start UK and the Nottinghamshire Wildlife Trust, will provide insight from an insider’s perspective. Whether you are a newly-appointed Honorary Treasurer of a charity, or have acted for some time, and no matter the size of the charity, it is important to be aware of your duties and responsibilities as a trustee and more specifically as the person other trustees will look to for guidance on financial matters. Job description - All Treasurers should have a job description which has been approved by the Managing Committee, Council or Board of Trustees. Make sure that you understand your role before you start, and that the other trustees, Chairman and employees named on the job description also understand your role. Be aware that if you come from a financial background, more will be expected of you by other trustees, and they may rely on you to guide them on many, if not all, financial matters. Induction – You should have been given an induction pack including a short biography of each of your fellow trustees, an organogram/chart of the employees/ staff structure, a guide to the governance procedures of the charity, a manual of the charity’s financial policies and procedures, a copy of the latest risk register, the latest annual accounts, budget and management accounts, and full background details of the charity itself. You need to know what manuals and policies the charity has, and take time to review them to understand the ethos and general management environment it operates in. Meet people – As part of the induction, you should have been introduced to the Chief Executive and key officers/employees, if you have not already met them. Take time to get to know them, find out how closely you need to work with them, and how they prefer to keep in contact – remember that emails can get ignored in a busy working environment. Make it clear that you can always be contacted if anyone has any concerns about financial or governance matters. Find out who signs the cheques (if not you), who authorises expenditure, what level of expense needs to be approved by trustees, how investments are handled and who produces the annual budget. Guides to being a trustee – Dorothy Dalton has produced an excellent guide, Even if you have acted as a Treasurer for a while, here are a few tips from an insider’s perspective. TREASURER GUIDELINES 7 KEEPING YOU INFORMED Download this easy to print one page Treasurer guidelines document here. CHARITY AND NOT-FOR-PROFIT
  • 9. 8 and you need to be able to show how the claim has been calculated. Charitable trusts have four years from the end of the tax year in which a donation was received to submit the associated Gift Aid claim; charitable companies, CIOs and community amateur sports clubs have four years from the end of the financial period in which it was received. CAN DONORS RECEIVE ANYTHING IN RETURN? The basic rule for Gift Aid to apply is that a donor should not receive a benefit in exchange for their donation. However, certain modest ‘benefits’, such as the receipt of charity literature and a basic acknowledgment in that literature, are ignored. Those with a value that falls within set limits are also discounted and there is an option of splitting a receipt such that one part is treated as consideration for a benefit with the balance treated as a donation. Last but not least, there is an exemption for charges to view charity property, provided that certain conditions are met. Charities should tread carefully if any benefits are provided and take professional advice if in doubt. HMRC INSPECTIONS Gift Aid claims are generally processed without query. HMRC police the system via inspection visits and audits of claims and the supporting paperwork. Charities are risk-assessed by reference to the amounts claimed, their claims history and any other information in HMRC’s possession. It should be borne in mind that, if the Revenue find mistakes, they may seek penalties in addition to disallowing the amount claimed. They may also look to extrapolate the ‘error rate’ across previous claims. THE GIFT AID SMALL DONATION SCHEME Introduced in 2013, the GASDS enables charities to claim a Gift Aid like top-up on donations of up to £20 per donor per tax year. There is an upper limit for claims and various conditions have to be met. MORE COMPLEX ISSUES Gift Aid can extend to membership subscriptions, sponsored events, charity auctions, the sale of donated gifts and donations to overseas charities. In each case there are clear conditions that have to be met for income to attract relief. HOW CAN WE HELP? Gift Aid is an important element of funding for many charities – not only are the sums recovered from HMRC substantial (in excess of £1bn per year in total) but the availability of further tax relief is believed to be an important factor in encouraging higher earners to donate more. Nevertheless, it is estimated that significant sums go unclaimed either because the necessary paperwork is not in place or because the charities concerned wish to avoid any possible issues with HMRC. Gift Aid is great if it is operated properly. If you are not sure if your paperwork is adequate, ask us to review it (even a last-ditch review prior to an HMRC audit can help to avoid some serious problems). If you are not sure that you are quite within the rules – or you want to know whether you can extend Gift Aid to a particular source of income, please contact your usual UHY adviser. Mark Giddens Partner London e: m.giddens@uhy-uk.com Of the various tax reliefs associated with charitable giving, Gift Aid is the best known and, for the majority of charities, the most useful. HOW DOES IT WORK? It is open to any individual UK taxpayer to apply Gift Aid to a donation to a UK charity or a registered community amateur sports club. The payment is treated as made after the deduction of basic rate tax (currently 20%) and the charity is able to recover this from HMRC. If the individual is a higher or additional rate taxpayer they can claim further relief. If we take as an example a donation of £80, with a Gift Aid declaration the charity can claim £20 from HMRC (bringing the amount of the donation up to £100); if the donor is a 40% taxpayer they can claim relief such that their tax bill is reduced by £20 (bringing the net cost of the donation down to £60). Gift Aid is subject to certain conditions which include: • For the tax year in question, the individual must pay or bear UK income tax and/or Capital Gains Tax at least equal to the tax deemed to be deducted from their donations. • The donation must be a sum of money which belongs to the donor. • Outright payments to a charity in return for services, rights or goods are not eligible. • A valid Gift Aid declaration must be made. THE PAPERWORK The Gift Aid system is audited by HMRC and it is essential that the appropriate paperwork is completed and appropriate records kept. There are a number of basic requirements for a written Gift Aid declaration – the simplest way of ensuring that these are met is to use the wording from HMRC’s model form. In the case of an oral declaration the same information needs to be obtained and the charity must either keep a recording of the conversation or (far safer) send the donor written confirmation. HMRC encourage the online submission of claims for Gift Aid relief. Whether you apply online or on paper, however, the basic requirements are the same – you need to obtain and retain properly worded and completed declarations for each donation GIFT AID BASICS Of the various tax reliefs associated with charitable giving, Gift Aid is the best known and, for the majority of charities, the most useful. CHARITY AND NOT-FOR-PROFIT
  • 10. INCOME RECOGNITION Under the new accounting framework, income is recognised if your charity has entitlement to the income, the likelihood of receipt is probable and the amount can be reliably measured. This represents a change as, under the previous framework, the likelihood of receipt had to be ‘virtually certain’. As a result, it is possible that you will now be able to account for some elements of income in an earlier period. FINANCIAL INSTRUMENTS Financial instruments will need to be categorised between basic (such as cash, debtors, creditors and straightforward investments) and non-basic (such as swaps, options and forward contracts). The accounting treatment for ‘basic’ financial instruments does not change significantly, however, ‘non-basic’ financial instruments will need to be measured at fair value at each balance sheet date. This will affect the net assets of your charity and may make reported results more volatile. If you use financial instruments to hedge financial risks you may be able to adopt ‘hedge accounting’. This would reduce the volatility of the results reported in the SOFA. MIXED MOTIVE INVESTMENTS Mixed motive investments relate to an investment which is expected to generate an economic return as well as promoting an object of a charity. Notwithstanding the charitable element, gains and losses must be disclosed as investment returns rather than charitable income and costs. Such investments must also be disclosed on the face of the balance sheet or separately within the investments section of the notes to the financial statements. MULTI-EMPLOYER BENEFIT SCHEMES Similar to the current accounting framework, employers who are part of such schemes must account for their share of assets and liabilities of the scheme. If this information is not available, an employer must account for such schemes as a defined contribution scheme. However under the new framework, if an employer has agreed to fund a deficit relating to past service, it must also include the net present value of this liability in its balance sheet. RELATED PARTIES AND REMUNERATION The definition of related parties has been expanded to include key management personnel. As a result, the total remuneration and expense reimbursement for those staff managing a charity must be disclosed. More detail is also required in respect of redundancy and termination payments. HOLIDAY PAY ACCRUAL Under the new accounting framework, a holiday pay accrual must be included in the financial statements if it is material. This represents a change to current accounting standards in that such an accrual was optional. The accrual is accounted for by reference to the amount of untaken holiday at the year end, multiplied by the rate of pay for that individual. These are just the key changes you should be aware of. There are many more minor changes which may affect you in certain situations. If you would like to discuss your own circumstances, please get in touch with your usual UHY adviser. Subarna Banerjee Partner London e: s.banerjee@uhy-uk.com The implementation date for FRS 102 and the new Charity Statement of Recommended Practice (SORP) is approaching rapidly. It is effective for accounting periods commencing on or after 1 January 2015. As a result, the year ended 31 December 2015 will be the first time that charities with a December year end will need to prepare their financial statements under the new accounting framework. We outline below the key changes that you will need to consider: TRUSTEES’ ANNUAL REPORT There are a number of areas where disclosures will change in the Trustees’ Annual Report: • You will need to explain your social investment policies, if they are applicable. • You will need to explain in detail the risks and uncertainties you are facing and how those risks are being managed. • The arrangements for setting pay and remuneration of key personnel, including benchmarks and parameters, must be disclosed. • Trustees will need to compare the amount of reserves held with your charity’s reserves policy and explain how your charity will bring the level of reserves into line with that policy. PRIMARY STATEMENTS The Statement of Financial Activities (SOFA) • Narrative descriptions are simplified, such as ‘Net incoming resources’ being replaced by ‘Net income’. • Governance costs are included within support costs. • Net gains and losses on investments must be included before net income. Balance sheet • Heritage assets must be disclosed separately from other assets where practical. There is no longer a requirement that heritage assets must relate to your charity’s objects. • Mixed motive investments must be disclosed either on the face of the balance sheet or identified as a separate class of investment in the notes. • There are a range of disclosures that will affect the balance sheet in relation to financial instruments. 9 FRS 102 AND THE NEW CHARITY SORP There are a number of areas where disclosures will change in the Trustees’ Annual Report. CHARITY AND NOT-FOR-PROFIT
  • 11. 10 As a charity you may, or may not, be aware of all of the entitlements available to you. For some, the VAT entitlements can be straightforward. For others, the various entitlements may not be so obvious, such as claiming refunds of VAT on expenditure or even being able to remove the 20% VAT charge from supplier costs in the first place. Despite the range of reliefs from taxation available to the charity and not-for-profit sector, it remains a significant source of revenue for the Government and HMRC’s approach should be regarded in that context. In this section we look at the broad VAT picture for charity and not-for-profit bodies. The primary difficulties arising for the charitable sector stem from the requirement to apply the principles of a ‘business tax’ to its activities, many of which may not be carried out with any commercial motives at all. As VAT is a European tax, the UK’s extensive network of charities and not-for- profit organisations is somewhat unique among our European neighbours. Where a charity is engaged in ‘non-business activities’ it is outside the scope of VAT. This has two consequences in that whilst any non-business activities (carried out in return for grants for example) may be free of VAT, the charity is generally unable to reclaim VAT incurred on associated costs. Conversely, where a charity starts to provide services or sell merchandise to third parties or even its members, HMRC regards this as making supplies in return for consideration which VAT law deems to be an economic activity and carried on in the course of business. The organisation then has to consider two quite separate aspects; first, is the income subject to VAT at either the 20%, 5% or 0% VAT rates, or exempt from VAT entirely and, secondly, can it reclaim input VAT incurred on associated expenditure. There are also international considerations to take into account. When thinking about the VAT treatment of your business activities, you should bear in mind that in most cases the VAT treatment will be pretty clear. There will be many occasions when it is not so clear though, either between 20% VAT and 0% VAT for example (either of which will allow input VAT recovery), or even exemption from VAT which will not. When the choice is between VAT or exemption, an important factor to consider is the effect on input VAT recovery. When considering whether or not the organisation can reclaim VAT incurred on expenditure, it is easy to see by the prevalence of non-business and exempt business activities that much input VAT will be non-recoverable. This represents a huge cost to the sector as a whole but there are some specific reliefs where the VAT cost can be removed entirely, such as advertising costs, for example, or certain types of property development. VAT is of course a tax governed by law which means that many disputes with HMRC will end up in the Courts. The Courts have not been consistent in their decisions with some judges asking objectively whether something has been supplied in return for payment and is hence a business activity, with others applying a motive test to the activity allowing those that simply recoup costs to remain as non-business. CHARITIES AND VAT: WHAT ARE YOU ENTITLED TO? HMRC are more consistent in their approach whenever they can argue for standard-rating over zero-rating to raise VAT or for exemption or non-business to block significant input VAT refunds. We will continue to look in more detail at the VAT landscape for the charity and not-for-profit sector, so please keep an eye on our charity blog (see back page for details) and get in touch with your usual UHY adviser if you have any specific questions. Simon Newark Partner London e: s.newark@uhy-uk.com CHARITY AND NOT-FOR-PROFIT
  • 12. Helping you prosper Nationally we are one of the leading advisers to the charity and not-for-profit sector. With 26 offices across the UK, we are uniquely placed to give you the best advice because we understand both local needs and the national picture. For further information or to arrange a meeting to discuss your specific requirements, please contact one of our charity specialists named inside or read more about us on our website at www.uhy-uk.com/charities. Scotland Aberdeen Campbell Dallas Phone 01224 623 111 Email aberdeen@campbelldallas.co.uk Glasgow Campbell Dallas Phone 0141 886 6644 Email glasgow@campbelldallas.co.uk Perth Campbell Dallas Phone 01738 441 888 Email perth@campbelldallas.co.uk Stirling Campbell Dallas Phone 01786 460 030 Email stirling@campbelldallas.co.uk Wales Abergavenny UHY Hacker Young Phone 01873 852 124 Email abergavenny@uhy-uk.com Newport UHY Hacker Young Phone 01633 213 318 Email newport@uhy-uk.com Wrexham UHY Hacker Young Phone 01978 351 501 Email wrexham@uhy-uk.com UHY Hacker Young Group offices: England London UHY Hacker Young Phone 020 7216 4600 Email london@uhy-uk.com Ashford UHY Hacker Young Phone 01233 722 970 Email ashford@uhy-uk.com Birmingham UHY Hacker Young Phone 0121 233 4799 Email birmingham@uhy-uk.com Brighton & Hove UHY Hacker Young Phone 01273 726 445 Bristol UHY Hacker Young Phone 01454 629 636 Email bristol@uhy-uk.com Broadstairs UHY Hacker Young Phone 01843 609 276 Email broadstairs@uhy-uk.com Cambridge UHY Hacker Young Phone 01223 352 823 Email cambridge@uhy-uk.com Chester UHY Hacker Young Phone 01244 320 532 Email chester@uhy-uk.com Jarrow UHY Torgersens Phone 01914 280 001 Email info@uhy-torgersens.com Letchworth UHY Hacker Young Phone 01462 687 333 Email letchworth@uhy-uk.com Manchester UHY Hacker Young Phone 0161 236 6936 Email manchester@uhy-uk.com Newcastle UHY Torgersens Phone 0191 2308 100 Nottingham UHY Hacker Young Phone 0115 959 0900 Email nottingham@uhy-uk.com Royston UHY Hacker Young Phone 01763 247 321 Email royston@uhy-uk.com Sheffield UHY Hacker Young Phone 0114 262 9280 Email sheffield@uhy-uk.com Sittingbourne UHY Hacker Young Phone 01795 475 363 Email sittingbourne@uhy-uk.com Sunderland UHY Torgersens Phone 0191 567 8611 Email info@uhy-torgersens.com Winchester UHY Hacker Young Phone 01273 726 445 Email winchester@uhy-uk.com York UHY Calvert Smith Phone 01904 557 570 Email info@uhy-calvertsmith.com UHY Hacker Young Associates is a UK company which is the organising body of the UHY Hacker Young Group, a group of independent UK accounting and consultancy firms. Any services described herein are provided by the member firms and not by UHY Hacker Young Associates Limited. Each of the member firms is a separate and independent firm, a list of which is available on our website. Neither UHY Hacker Young Associates Limited nor any of its member firms has any liability for services provided by other members. A member of UHY International, a network of independent accounting and consulting firms. This publication is intended for general guidance only. No responsibility is accepted for loss occasioned to any person acting or refraining from actions as a result of any material in this publication. © UHY Hacker Young 2015 www.uhy-uk.com VISIT OUR CHARITY SECTOR BLOG The dynamic, competitive and highly regulated environment you operate in presents a number of unique challenges. As part of our commitment to keep you informed and up-to-date with all of the latest developments and ideas in the sector, our charity sector blog covers the latest issues and explains how these issues could affect you. www.uhy-uk.com/charity-sector-blog CHARITY AND NOT-FOR-PROFIT