Cashless not to be relied on as donors

A survey conducted by Pennies, the digital charity box, has revealed that one in ten Brits "don’t have time" to donate to charity. With time tight it isn’t surprising that the most popular way to give is the quick and easy option of dropping a few coins in a charity box. However, the survey also found that this may now be under pressure because as many as 33% of us regularly leave the house without any cash, rising to more than half (54%) of 25-34 year olds.

The shift to digital payments could well have a lasting impact on charitable donations as over half of the nation (53%) say they have noticed a decline in physical charity boxes or barely notice them at all anymore.

Charities warned to be vigilant on VAT

An advisory firm is warning charities in Wales to be vigilant when it comes to registering their charity with the Charity Commission in order to avoid a run-in with HM Revenue & Customs. Newport-based Centurion VAT Specialists has noticed an increasing trend for HMRC to contact non VAT registered charities in order to establish whether they generate sufficient income to be VAT registered, potentially leading to costly VAT bills for charities.

VAT registration is triggered when an organisation generates an amount which exceeds the VAT threshold of taxable business income. The threshold is currently set at £81,000, although this figure is likely to change in the 2015 Budget in March.

Liz Maher of Centurion VAT Specialists says: “It is vital that charities recognise that their primary purpose trading activities could still be regarded as business activities from a VAT perspective and that if the amount of taxable income generated reaches the registration threshold, even if it is zero-rated income from the sale of donated goods, then a charity must notify HMRC.

“Through some of our charity clients we understand that HMRC is taking a more proactive review of accounts registered with the Charity Commission to establish if charities have failed to recognise that they have triggered a VAT registration requirement.

“Charities, possibly even more so than other organisations, need to be careful with their accounting practices and need to ensure that they are checking the VAT liabilities of their income stream and the values generated at regular intervals. This is a simple but crucial audit which could cut additional costs for organisations which are keen to avoid them.”

Middle classes are biggest users of charities

You couldn´t be more wrong if you thought that the majority of people using charities were those with lower incomes. That simply isn´t the case, according to the Charities Aid Foundation. The middle classes use more charities than those on the lowest income.

Those earning over £55,000 are more likely to use a larger variety of charities than those with incomes of less than £14,000. Higher income earners used four charities on average in the past year while those with lower incomes used less than three.

The CAF research reveals how much we all depend on charities in our everyday lives. Eight in ten people (79%) have used a charity in the last 12 months and almost half of us (47%) feel charities are central or make a difference to our lives, even if we wouldn’t struggle without them.

Families with children over the age of 11 are most likely to have used a charity within the last 12 months with nine out of ten (89%) having done so. A third of lone parents say they would struggle without the charity help they receive. Charity shops are the most popular way to benefit from charity, with more than six in ten of us buying something in the last 12 months.

More than a third of people say they have visited a museum, art gallery, garden or stately home run by a charity. One in ten of us have attended counselling sessions or support groups provided by a charity and 18% have used a charity-run community centre. In the past year, around one in six of us have sought advice from a charity helpline or found information on a charity website.

Deborah Fairclough, head of research at the Charities Aid Foundation, says: ‘’This research shows how deeply charities are woven into the fabric of our lives in this country. We support them and rely on them, from buying items in charity shops to help the causes close to our hearts to seeking advice from charities on a whole range of issues. Many of us don’t even realise we’re using a charity, but even a trip to a National Trust property or a visit to a museum can be thanks to the wonderful work of charities in the UK.’’

Financial issues facing charities

MHA, the national association of independent accountants, has published a report into the top financial issues currently facing charities in Britain. These issues are as follows:

The new SORPs (Statements of Recommended Practice) which came into force on 1 January 2015. One is to support the Financial Reporting Standard for Smaller Entities (FRSSE) and one to support the Financial Reporting Standard applicable in the UK and Republic of Ireland. Charities of a size eligible to choose need to consider carefully which SORP to follow particularly as the FRSSE one is likely to have a short life span and following it initially may well lead to more change in a year or two.

Operating a charity trading subsidiary - commercial trading activities of charities require careful consideration if difficulties are to be avoided, says MHA. Generally it is advisable to undertake these activities within the charity itself, taking advantage of exemptions available under charity and tax law. Where exemptions are breached, however, it is appropriate for activities to be undertaken through a wholly owned trading subsidiary.

Whilst this is a tried and trusted structure that has long been accepted by the Office of the Scottish Charity Regulator (OSCR), the Charity Commission and HMRC (HM Revenue and Customs), MHA says there are some significant challenges to be overcome.

Managing risk - there is a requirement for trustees of charities over the audit threshold to include a risk management statement in their trustees’ annual report, and in order for trustees to make this positive statement they will need to consider risks and their management in a formal way. The new SORPs reinforce the importance of the risk management statement. MHA says that to effectively manage the risks of the charity trustees will need a framework in place which will allow them to identify and categorise the risks facing the charity, and to make decisions about how to respond to these risks.

Avoiding conflict of interest - trustees’ duty of compliance requires integrity and the avoidance of any conflicts of interest between the charity and personal or professional interests. This includes perceived as well as actual conflicts of interest. According to law they cannot receive any benefit in their capacity as trustee unless they have express legal authority covering this. It can be quite challenging to do so, acknowledges MHA, but trustees must aim to identify conflicts of interest at an early stage and manage them appropriately.

Ensuring delegation processes are fit for purpose - the board has ultimate responsibility for the organisation but it cannot run it on a day to day basis. Delegation is, therefore, crucial, but, says MHA, for this to be successful it needs to involve a clear structure and terms of reference to ensure everyone involved understands their roles and individual responsibilities. Failure to review delegation processes can lead to operational problems and to governance issues.

Determining the appropriate level of reserves - significant reserves would begin to suggest that resources are being stockpiled and not applied for the charitable purposes for which they were received. However, to operate with nothing in reserve might be considered to be foolish and reckless.

The charity must have a reserves policy and a well crafted and thought through reserves policy can pay dividends by facilitating development of the organisation and its activities, assisting in strategic planning, providing a buffer to manage unforeseen financial difficulties and to demonstrate good stewardship to funders.

Fraud - there are a number of reasons why charities can be susceptible to fraud. These include the fact that a high level of confidence in the sector means people think it very unlikely; there can be a lack of strong controls either because of limited resource or over reliance on goodwill of employees or volunteers; and reliance on large number of volunteers. It is essential that trustees understand the risks to which the charity is exposed and where it might be vulnerable to fraud risk and make sure that controls are designed accordingly and that proper training is given to trustees and staff.

Auto-enrolment - by 2016 every organisation in the UK, including charities, must make pensions provisions for their employees. It is important to know your staging date and make plans in good time.

Gift Aid - this can “gross-up” donations by 25% but the charity must ensure the system is correctly administered and does not fall foul of HMRC’s rules.

VAT - this can present a series of challenges with complex issues. Charities must keep on top of matters such as exemptions and obtaining the relief available in order to be VAT efficient.

Grudging acknowledgement for Charity Commission

The Charity Commission still can’t count some Members of Parliament amongst its fans, although there is an acknowledgement that it is doing more to please them. Following its initial roasting by the Committee of Public Accounts, Margaret Hodge MP, the committee’s chairman, has issued a grudging acknowledgement of the Commission’s actions.

Hodge says: "I am pleased that the Charity Commission has started to address my committee’s recommendations and has begun a fundamental transformation of the way it works under its new chief executive.

"But there is still a long way to go before the Commission proves it is fit for purpose. It still doesn’t know where best to direct its resources because it has not worked out the cost effectiveness of its different activities.

"It ought to set alarm bells ringing that the NAO found examples in its random selection of cases where the Commission could have done more to check the accuracy of what trustees tell it. The Commission’s plans to automate some of its processes will need to be looked at very carefully so that serious cases of abuse don’t slip through the net.

"Although the Commission is sharing more information with other public authorities, it needs to get much better at gaining access to data held by others. HMRC should go further in providing information to the Commission if it is to preserve public confidence in the tax system."

Amyas Morse, head of the National Audit Office, says: “The Commission is working to address the recent recommendations made by the Public Accounts Committee and the NAO. It has clearly stated its intent to become a robust regulator. It now needs to deliver on its intent, and there is still much to do. This includes building on its positive first steps to regulate more actively, as well as developing a better understanding of its future costs and the resources it needs from HMT. Furthermore, the Commission needs to show stakeholders how its new approach is enabling it to regulate the sector more effectively, and to make clear what the sector and the public can expect from it.”

Sir Stuart Etherington, chief executive of the National Council of Voluntary Organisations, observes: "This review reflects significant progress for which the Commission and its staff deserve much credit. The NAO identify a number of outstanding areas of concern. We are particularly keen to see the Commission return to a more conventional division between governance and executive. We look forward to seeing the results of the governance audit being carried out in the coming months.

"Given the need for the Commission to secure the confidence of the sector, it is very important that it quickly moves to publish regular, comprehensive indicators of its operational performance in all areas. This information is absent at the moment and will be a key way for the sector to see the Commission’s progress towards being the strong regulator we need."

There is one particular aspect which worries NCVO. It explains: "A glaring red mark is, however, the rise in delays to registering charities: the Commission is taking longer to register charities and has not met its targets in this area, so there is an increasing backlog of unprocessed applications that the Commission need to address."

IN BRIEF

BRITISH STUDENTS FOR THE US. In the first wave of early applications, 38 bright British students from low and middle income homes have won places at leading US universities through the Sutton Trust US Programme, as announced by the US-UK Fulbright Commission and the trust. Also, Bank of America Merrill Lynch has been named as the programme’s Founding Corporate Partner. Furthermore, the bank’s investment has been matched by Peter Baldwin and Lisbet Rausing who have supported the programme since its launch.

MILLION POUND MILESTONE. The Adnams Charity, founded in 1990 to celebrate the Suffolk brewer and distiller’s centenary as a public company, has given away grants totalling more than £1m. The charity is funded by a percentage of Adnams’ annual profits, mandated dividends, donations and legacies. The charity supports worthwhile causes within a 25-mile radius of the brewery’s base in seaside town Southwold and grants normally range from £100 to £2,500.

APPOINTMENTS. Foundations Independent Living Trust has elected Stephen Burke as chair to replace Baroness Kay Andrews, chair for the last five years. He is a director of United for all Ages and an independent director of Victory Housing Trust. He was leader of Hammersmith & Fulham Council. Neil Jones is to leave is post as chief executive of Make-A-Wish after over a decade. A successor has yet to be appointed. Leukaemia Care has appointed Kevin Hatelely as fundraising manager. Susie Parsons has joined parents charity NCT as interim chief executive for the next few month. Rupert Gavin, already prominent in business, media and the arts, including being executive chairman of his West End theatre producing company Incidental Colman, will take up the appointment of chairman of Historic Royal Palaces from 5 May this year. Neil Stone has been promoted to acting chief executive of the British Safety Council from policy and communications director, being succeeded by Joscelyne Shaw, previously head of policy and influencing. Leonard Cheshire Disability has appointed Sarah Bryan as fundraising director; most recently she has been a senior consultant working with the Design Council and Oxfam, among others.