Charity trustees have well known duties of stewardship, which means ensuring that resources are used for charitable purposes and are not put at risk unnecessarily. There is also, of course, a duty to use them effectively. Three areas to consider are:
Remember the case of the Bank of England investing in the payday lender Wonga? Charities might be encouraged to consider an ethical investment policy, so investments don’t compromise the aims of their charity.
Charities are certainly adapting to changing funding environments. In seeking to reduce reliance on grant funding, many charities have looked to increase enterprise trading and charging for services. But the tax impacts of developing new opportunities and even delivering the same services under different arrangements have sometimes been overlooked – these need to be on a charity’s radar.
There has been a significant change in the focus of the Charity Commission’s guidance on reserves (CC19 – revised in 2016). The new key messages include underlying steer towards keeping reserves to address risks of ‘unplanned closures’ and to plan for the maintenance of essential services. This is a turnaround from having to justify why reserves are being retained, to requiring an explanation as to why they are adequate.
Consider a charity which delivers services that are funded through a blend of contracts and grant income. To comply with the Charity Statement of Recommended Practice (SORP), the year end accounts need to recognise income from service contracts to the extent that the service had been delivered, whereas grant income would generally be recognised at the point that the grant was receivable.
Making Tax Digital – charities exempt but trading subsidiaries will be affected
The Government has confirmed that it will introduce legislation to exempt charities from the Making Tax Digital requirements. This is welcome and will protect smaller charities and those with limited digital capability.
With the vast majority of measures already being announced, and with very few sector specific announcements, there were no real surprises for the Not for Profit (NFP) sector in the 2017 Spring Budget.
Items with a NFP focus which were previously made public and will come into effect shortly include:
Amendments to Social Investment Tax Relief (SITR) – whilst the government has increased the amount of investment which can be raised under this scheme to £1.
With MHA, we have created Keeping Your Charity on the Right Track, a 12 month programme to help you improve your organisational governance in a stepped and measured way. Each month’s article covers an area of charity governance for review and leads you through good practice.
Often as board members rotate, the new trustees simply accept what has gone before and receive the same financial reports without question.
HM Revenue & Customs (HMRC) are changing the way they collect tax information. The changes, referred to as Making Tax Digital (MTD), are billed as a “digital revolution” that will “transform the experience of millions of taxpayers”. The changes will come into force from April 2018 with plans to deliver a full digital tax service by 2020.
The Education Funding Agency (EFA) has released the Academies Financial Handbook 2016, which is effective from 1 September 2016.
We consider the Handbook essential reading for trustees, members, accounting officers and chief finance officers/school business managers. Must-reads are Annex B: Schedule of freedoms and delegations and Annex C: Schedules of requirements.
Our Not for Profit team was delighted to have been singled out once again for praise by Charity Finance magazine as part of its annual survey.
The Charity Finance Audit Survey examines questionnaires completed anonymously by more than 1,000 UK charities, along with audit data from the UK’s Top 350 charities by income.