Charities have ten months from the end of the financial year to send their Accounts and Annual Return to the Charity Commission. A record of filing is shown on the Charity Commission’s website.

Since 2008 the Commission has used a ‘flagging’ system on its Register of Charities. Charities who have filed on time are flagged in green and charities with any outstanding documents are flagged in red.

The Commission is launching a regional press campaign to encourage local trustees to ensure their documents are filed on time. The aim is to increase the number of charities filing on time as last year 20% of Charities did not meet the filing deadline. 

Should you have any queries on filing of accounts and annual returns, please contact our charities expert and a senior manager Wendy Bambrick on 01727 869141 or a member of our charities and the not-for-profit team.

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The Charities Aid Foundation (CAF) has published a report entitled, ‘How to Connect with Donors’. It has found that sophisticated donors want charities to demonstrate their effectiveness and to adopt new forms of communication.

Over 200 CAF and non-CAF donors, in an online survey, were asked for their views on how the recession affects charities and what they thought charities could do to alleviate the effects of the recession.

 

The survey revealed that:

• 77% of donors felt that charities should change the way they communicate with them, suggesting that social networking and emailing should be used.
• 85% think charities should be partnering with other charities.
• 94% think that charities should demonstrate their efficiency to weather the recession.
• 92% think that charities need to ensure that they are showing the impact of their work to donors.
• 86% think that charities should review their finances and 85% felt that they should demonstrate their transparency.

Donors also recommended ideas which would help charities secure new sources of income:

• 82% suggested an increase in the use of volunteers.
• 75% suggested applying for more grants.
• 69% suggested asking for a donation of goods.
• 53% suggested dedicating more resources for fundraising.

The full report can be downloaded from http://www.cafonline.org/connectdonors.

Should you have any queries on connecting with donors, please contact our charities expert and a senior manager Wendy Bambrick on 01727 869141 or a member of our charities and the not-for-profit team.

 

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The Government has given charities and donors a relatively short deadline in which to make their views known on how the Gift Aid regime might be changed.

Ian Pearson, economic secretary to the Treasury, recently announced that the Government expects the proposals to be finalised by 30 September 2010.

There is little doubt that the consensus is for the Gift Aid rules to be made simpler; regrettably, ‘simplification’ seems to have become a euphemism in recent years for rising tax.We can only hope that simpler means what it says in a dictionary this time. Charities provide too much valuable support in otherwise insufficiently supported areas to become the victims of political language and spin.

Please click on this link for more details on Government’s timetable for drawing up proposals to reform Gift Aid.

For further information on Gift Aid, please contact our charities expert and a senior manager Wendy Bambrick on 01727 869141 or a member of our charities and the not-for-profit team.

 

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What is an Independent Examination?

Independent Examination (IE) is an alternative to a financial full audit for smaller charities - a legally acceptable form of external scrutiny of their end of year accounts.

 

Which charities are eligible for Independent Examination?

• Registered charities
• Excepted charities (often churches or scout or guide organisations)
• Charities whose governing documents/constitutions do not specify an ‘audit’
  (NB: constitutions can be amended if this is the only stumbling block)
• Charities where there is not a donor or funder who requires an ‘audit’
  (NB: if they do require an ‘audit’, it may be worth negotiating with the donor/funder)
• Charities that are ‘small’

What charities are classed as small?

 

For year ends on or before 30 March 2009 limited company charities did not come under the IE regime and instead had a Reporting Accountant and not an Independent Examiner. For year ends on or after 31 March 2009 they were brought in line with unincorporated charities.

 

The thresholds for unincorporated and incorporated charities having IEs are as follows:

 

For year ends of 31 March 2009:

 

Gross income for the year of £10,001 - £500,000 (£10,000 or below no external scrutiny is required). BUT If a charity’s income is £100,000 or more and its gross assets are £2.8 million or more it would have to have an audit.

 

For year ends of 1 April 2009 or after:

 

Gross income for the year of £25,001 - £500,000 (£25,000 or below no external scrutiny is required). BUT If a charity’s income is £250,000 or more and its gross assets are £3.26 million or more it would have to have an audit.

 

Why choose an IE?

 

The main reason for choosing an IE as opposed to an audit, would be that there is less work involved for an Independent Examiner than for an Auditor and therefore the cost of an IE is likely to be less than the cost of an Audit.

 

Wendy Bambrick is a charities expert and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Wendy you can call her on 01727 869141. 

 

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Gift Aid is a very important component of the finances of many charities. Provided that they have clear evidence of the donations, it is currently possible for charities to claim tax on gift aided donation for up to six back years. Some charities word gift aid declarations to this effect.

Widespread changes are being made to all tax time limits on 1 April 2010 and this will affect gift aid claims. The basic time limit for gift aid claims will now be four years after the end of the tax year in which the donation was received. The change will happen immediately on 1 April and will directly affect two tax years where charities may think they have more time to make claims.

• Under the old rule claims for 2004/05 would have had a time limit of 31 January 2011. Under the new rule the time limit for that year will run out on 31 March 2010 because from 1 April 2010 any claim would be out of date because the new time limit (four years from the end of the tax year) would have expired on 5 April 2009.
• Similarly under the old rule claims for 2005/06 could have been made until 31 January 2012. The new time limit means that four years from the end of the tax year will be 5 April 2010 and that is the date by which claims need to be made.

Comment on charities and gift aid claims - changing times limits in the space provided below, or visit my profile for details of how to contact me. 

Wendy Bambrick is a charities expert and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Wendy you can call her on 01727 869141. 

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Charities with an accounting period starting on or after 1 April 2008 now need to confirm they have followed the Charity Commission’s guidance on public benefit in their annual report.

The Charity Commission has carried out assessments of 12 charities from three groups:

1. Independent schools
2. Charities for the advancement of religion and
3. Fee charging residential homes

The reports on these assessments were published by the Charity Commission in July 2009 (see www.charitycommission.gov.uk/publicbenefit).

In summary, out of the 12 charities assessed, eight ‘passed’ and four ‘failed’ (two independent schools and two care homes). Of the four that failed two were deemed to be charities, but not meeting the public benefit test, as they were not providing enough mean’s tested assistance for ‘high’ fees. One (an independent school) was deemed able to be a charity but did not meet all aspects of the public benefit test, essentially also due to the above. The fourth (a care home) had no conclusion reached as it had moved too far from its original objectives. These four organisations were not struck from the charity register but have been given three months to confirm their intention to produce a plan to comply with the public benefit requirement and a further nine months to produce the plan.

The Charity Commission has indicated it will carry out further assessments. The next programme will include charities which charge other types of fees, some smaller charities and charities for which some private benefit may be an issue, such as membership charities.

Wendy Bambrick is a charities expert and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Wendy you can call her on 01727 869141. 

 

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Awareness

 

On 4 December 2009 the Charity Commission released findings from a survey of 1,483 trustees in England and Wales on awareness of public benefit requirements.  The findings were that 76% of charity trustees said that they knew about the public benefit requirement.

 

The survey also found that:

• 98% of those who know about the requirements were confident that their charity could demonstrate public benefit.
• Of trustees of larger charities 11% said they knew a great deal about the requirements and 60% said they knew a fair amount.
• 92% of trustees who had used the Charity Commission’s guidance on public benefit found it useful and 66% of them said it was easy to understand.
• Smaller charities (those with income under £25,000) and charities with sport/recreation as their main activity were more likely to say they knew nothing about the public benefit requirement.

Assessments

 

The next round of Charity Commission public benefits assessments is to look at fee-charging arts charities.

 

Subsequent assessments, later next year, will look at charities for the advancement of health and those working in sports/recreation.

 

The arts charities that have been chosen are: 

• The Royal Opera House Covent Garden Limited
• The Young Concert Artists Trust
• The Castle Players
• Gwent Ballet Theatre.

Wendy Bambrick is a charities expert and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Wendy you can call her on 01727 869141. 

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On 1 October 2009, further elements of the Companies Act 2006 came into effect which will be of interest to charitable companies and their trading subsidiaries.  The changes are as follows:

1)       The company name and number needs to be included either in the trustees/directors report, the audit report or the balance sheet.

2)       Accounts must only be signed in black ink.

 

Accounts that do not comply with these new requirements are likely to be rejected by Companies House.

 

The act also brings in the introduction of a service address for directors.  Service addresses (for example the Charity’s head office) will be publicly available, but a director’s residential address (currently in the public domain unless a ‘Confidentiality Order’ is in place) becomes only available public authorities and credit reference agencies.

 

On 1 October, any residential addresses currently held by Companies house will automatically become the director’s service address.  In order to take advantage of this change, charities will need to inform Companies House of the new address.

 

Louise Giles is a charities expert and a manager at Mercer & Hole.  If you would like to discuss the contents of this post with Louise you can call her on 01727 869141. 

 

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

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The Charities Act 2006 changed the way in which excepted and exempt charities are regulated. It is the intention of the Charity Commission to ensure that all these charities are registered with the exception of certain charities that have there own ‘principal regulator’.

From 31 January 2009 all excepted charities with an annual income over £100,000 must register with the Charity Commission. The deadline is October 2009. These charities are largely connected with churches and scouts and guides.

Excepted charities with an annual income over £100,000 will not need to register until 2012.

There are however a certain group of churches that are required to register immediately if their annual income exceeds £5,000. These include The Church of the Nazarene, The Free Church of England, Independent Methodists, Wesleyan Reformed Union and Churches of Christ.

For exempt Charities, the majority of these are listed in Schedule 2 to the Charities Act 1993. How these charities will be dealt with will depend upon whether or not they are already governed or will be governed by a principal regulator in the future.

All exempt charities will ultimately be registered. It is likely that those with annual income over £100,000 will need to register first but no date has been set.

Further information is available at www.charity-commission.gov.uk/registration.

Louise Giles is a charities expert and a manager at Mercer & Hole.  If you would like to discuss the contents of this post with Louise you can call her on 01727 869141. 

 

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

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A recent survey undertaken by the Charity Commission showed that 58% of charities this year were affected by the recession compared to 38% last year.

Of these charities 69% have seen a fall in investment income and nearly 20% have seen a decrease in legacy income.

During these troubling times there are a few essential tips to remember:

1) Cash is king

Manage your cash flow – if necessary review your cash flow forecasts on a weekly basis. Don’t spend money before you have it and always make sure you are not spending restricted monies inappropriately.

2) Good Governance

Poor governance means that an organisation is less well equipped to react and adapt to change.  Take time to ensure the organisation has a clear strategy and people with the right skills for the job.  Share knowledge across the organisation, using multi skilling and flexibility of staff to ensure the organisation is using its resources as efficiently as possible.

3) Be prepared

Think ahead. Scenario plan for the worst possible outcome so that decisions can be made quickly if things get worse.

4) Review your relationship with your funders and major grant givers and make sure you are clear what the money is you have been given is for – it may be that restrictions on donations are not as constrictive as was originally thought.

5) Ask for help

Seek professional advice as soon as you think you might need it – there may be ways to rescue the organisation, perhaps through mergers or collaborations with other charities.

 

Louise Giles is a charities expert and a manager at Mercer & Hole.  If you would like to discuss the contents of this post with Louise you can call her on 01727 869141. 

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

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On 1 February 2009, further elements of the Companies Act 2006 regarding filing deadlines and late filing penalties came into effect which will be of interest to charitable companies and their trading subsidiaries. The changes are as follows:

1)       For private limited companies, including all Charitable companies the

deadline for filing accounts at Companies House has been reduced to nine months from ten months for all accounting periods beginning on or after 6^th April 2008. 

2)       The new filing penalties apply to all accounts that have been delivered late and are as follows:

Not more than one month                                               £150

More than one month but less than three months             £375

More than three months but less than six months             £750

More than six months                                                     £1,500

Please note that where a company fails to meet the deadline for a second year after the year ending 5 April 2009, the penalty will be double to that shown above.

Louise Giles is a charities expert and a manager at Mercer & Hole.  If you would like to discuss the contents of this post with Louise you can call her on 01727 869141. 

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

 

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The Charity Commission launched an online toolkit for trustees on protecting their charity from potential harm and abuse on 10 November 2009, called 'Protecting charities from harm'. It is a practical guide to assist trustees.

The toolkit launched with its first chapter, Charities and terrorism, which provides key information on the UK’s counter-terrorism legislation and how it affects charities’ work.

Three further sections will be published over the coming year:

• Safeguarding charity funds;
• Safeguarding charities – people, property, reputation; and
• Case study archive (good practice examples from the sector for all chapters) and other sources of help.

For further information see the charity commission website, www.charitycommission.gov.uk.

Wendy Bambrick is a charities expert and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Wendy you can call her on 01727 869141.

We will be blogging on SME Plus Blog and Tax Plus Blog on Pre-Budget Report day.  If you do not already subscribe to our blogs click here for SME Plus Blog or here for Tax Plus Blog to ensure you get our comment and analysis as and when it happens. 

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In England and Wales at present there are several charity acts (for example the Charities Act 1993 and the Charities Act 2006), the 2006 Act was not a consolidating act.

In September 2009 the Office of the Third Sector issued a consultation document on the consolidation of charity law.

Their aim is to make the existing legislation more user friendly. For example, provisions relating to the preparation of group accounts by charities will now be dealt with in the part which deals with charity accounts and not in a separate Schedule.

The closing date for the consultation is 4 December 2009, the document and the draft Charities Consolidation Bill can be found online at www.cabinetoffice.gov.uk.

Wendy Bambrick is a charities expert and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Wendy you can call her on 01727 869141.

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Two recent announcements will mean that Charities could benefit from VAT savings in the future.

The CFDG (Charities Finance Directors’ Group) recently attended a meeting with HMRC. The purpose of the meeting was to discuss current tax issues affecting the sector. Following the meeting HMRC agreed to consider the direct and indirect tax implications of sponsorship activities and also the VAT issues which affect joint venture and similar arrangements. The meeting is seen to be a very positive move by HMRC.

HMRC have also recently conceded on an issue, following a VAT test case taken by the Nuffield Foundation. The case considered whether VAT paid on investment management charges could be reclaimed by Charities. This move by HMRC means that Charities will now be able to reclaim some of the VAT paid on such charges, with the possibility of retrospective claims.

An HMRC Brief is expected shortly with more details. 

Jane Stacey is a VAT adviser and a senior manager at Mercer & Hole. The views given in this blog are personal to the author, if you would like to discuss the contents of this post with Jane you can call her on 01727 869141.

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HMRC has recently announced an important change regarding certain buildings used by charities.

Business Brief 39/09 sets out the revised treatment of buildings used by charities for non business purposes. The supply of such buildings is zero rated where the charity provides the developer with a “qualifying use” certificate. Any change of use by a Charity in the ten year period following the supply will trigger a self -supply VAT charge.

Previously HMRC allowed zero rating for such buildings where there was up to 10% business use of the building, by concession (ESC 3.29).

Following a review of this issue and recent Court decisions, HMRC now take the view that the statutory position is that a building must be used at least 95% for non business purposes to qualify for zero rating. As such the concession will be withdrawn.

A 12 month transitional period began on 1 July 2009 and during this time, charities can opt to use the concession or apply the new rules.

This change could have a huge impact on charities’ financial position. It is understood that pressure is being put on the Government to reverse this decision. However, a reversal is thought to be unlikely.

Comment on this blog in the space provided below, or visit my profile for details of how to contact me.

Jane Stacey is a VAT Manager at Mercer & Hole.

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Some financial thresholds on charity accounts have been amended for financial years ending on or after 1 April 2009. 

The main changes are:

• A charity is required to send a copy of its accounts and trustees’ annual report to the Charity Commission if its gross income is more than £25,000 (increased from £10,000), (the Charity Commission is likely to introduce some form of sampling for charities with income between £10,000 and £25,000 so that small charities cannot assume that submission of their documents will never be required).
• External scrutiny of the accounts will only be required where a charity has gross income of more than £25,000 (also increased from £10,000).
• Unincorporated charities with income over £250,000 must prepare accrual accounts (increased from £100,000).
• A full audit is now required where:
  • Gross income is more than £500,000 (unchanged).
  • Gross income is more than £250,000 (increased from £100,000) and total assets are more than £3.26 million (increased from £2.8 million).

Comment on changes to charity thresholds in the space provided below, or visit my profile for details of how to contact me. 

Wendy Brambrick is a General Practice Manager and charities and not-for-profit expert at Mercer & Hole. 

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It is a fairly common misconception that charities are relieved from paying VAT. In reality, charities are subject to the same VAT rules as any commercial organisation, although there are a number of specific reliefs for certain supplies made to and by charities. For many years, charities and associated groups have made representations to the government to allow charities to reclaim the irrecoverable VAT which they incur. This has so far been unsuccessful. Therefore, if a charity’s taxable business income breaches the VAT registration threshold, it has to register and account for VAT in the normal way.

Charities will normally have a complex VAT position as they will be receiving a mixture of business income (taxable and exempt) and non business income. They may also set up a trading subsidiary to carry out any significant trading activity. This can lead to a complicated VAT recovery position, as VAT incurred on costs has to be attributed to the relevant income stream and will either be fully recoverable, irrecoverable or partly recoverable. There are a number of different ways of undertaking the VAT recovery calculations, with scope for improving VAT recovery rates by adopting the most advantageous method. However, the benefit of implementing a “special method” has to be weighed against the cost of implementing and undertaking the calculations for such a method. The use of a special method also has to be agreed in advance with HMRC. Methods have to produce a fair result and be easily checked.

Charities do benefit from certain VAT reliefs, including advertising, donated goods, aids for the disabled/handicapped and certain types of buildings. The charity will have to certify that zero rating applies. Again the conditions/rules are very precise and advice should be always be sought in cases of doubt.

Charities are increasingly finding new ways to raise funds and as a result, it is more likely that they will enter into activities/transactions which may have VAT consequences. For example, two charities working together in “partnership” may inadvertently create a VAT cost when recharging each other for services. Advice should always be taken when entering into new contracts or amending existing contracts. Unfortunately HMRC do not take a lenient approach to charities which make errors in their VAT returns and penalties/interest may be imposed.

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Provisions implemented from 18 March 2008

The Charity Tribunal

The Charity Tribunal has been set up to challenge legal decisions made by the Charity Commission. Prior to the Act this could only be done through the high court. This route is designed to be low cost and informal.

Payments to Trustees

Previously any payments to Trustees had to be approved by the Charity Commission. It is now possible to pay Trustees for some goods and services they supply the charity as long as certain safeguards are met.

Failed Appeals

It is now possible to advice donors that should an appeal fail their donation will be used for a similar charitable purpose unless the donor has signed a declaration that they wish the donation to be returned.

Only the donors who have signed this declaration will need to be contacted to advise that the appeal has failed, thus reducing some administrative burden on the charity.

Provisions implemented from 1 April 2008

Public Benefit

As of 1 April 2008 the definition of ‘charity’ has become law. The definition covers the public benefit requirement and lists purposes which can be charitable.  The Charity Commission has provided guidance on the public benefit requirement on their website.

Charities will now need to confirm they have followed the guidance in the Annual Report.

Accounting

New provisions have come into force for non-incorporated and incorporated charities that cover:

• group accounts
• whistle blowing
• harmonisation of audit and independent examination thresholds
  

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You may well recall that the Chancellor announced some changes to personal tax from April next year, the main one being the reduction in the basic rate from 22% to 20%. Whilst the latter may seem to be nothing but good news there is unfortunately a knock-on effect on charities. At present if you are a higher rate taxpayer and give £100 to a charity it can reclaim basic rate tax at 22/78 increasing the value of your gift to £128 in its hands. The cost to you, after higher rate tax relief, will reduce to £77.

Continue Reading...

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Audit and independent examinations

The audit threshold for unincorporated charities has increased!
Continue Reading...

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Charitable Incorporated Organisations

Did you know incorporated charities have to comply with the requirements of both the Charities Commission and Companies House?

Continue Reading...

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I was asked recently for advice by a client, a 40% taxpayer. He wanted to make a substantial donation to charity, funded by the sale of an investment property. The property had a market value of £100,000 and the cost was £20,000.

Basically he had two choices : gift cash, or gift the property.

If he sold the property and gifted the funds to charity the position would be: Continue Reading...

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