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Charity News

VAT cost-sharing exemption

Friday, May 11th, 2012

Jo Bartlett, Charities & Not for Profit Manager, Broomfield & Alexander

One of the recurrent complaints by charities is that they have to incur VAT like commercial bodies; but since many of their activities do not allow the recovery of this VAT, it leads to an additional cost in the charity. An announcement in the Chancellor’s autumn statement indicates that there may be some relief on its way, in the form of a proposal to introduce a cost-sharing exemption into UK legislation.

This could specifically benefit charities that outsource ‘back office’ functions such as HR and IT, here there is often a significant VAT charge that the charity may not currently be able to recover.

The exemption will be introduced in 2012 and will apply to such services shared between bodies making exempt and/or non-business supplies, including charities. The idea is that these bodies can come together to set up a ‘cost-sharing group’ (CSG), which can provide those services to its members exempt from VAT.

Although the CSG’s own VAT costs will be irrecoverable, its members can still benefit since there will be a saving of VAT on the recharges, such as for staff costs, made by the CSG.

Conditions include the requirement that CSG services must be directly necessary for the exercise of its members’ exempt or non-business activities, they must be supplied at cost and use of the exemption must not cause or are likely to cause distortion of competition.

HMRC have published draft legislation but, until detailed guidance is developed, the exact interpretation of how CSGs have to work in order to satisfy these conditions is not clear. However, interested parties may wish to start considering whether forming a CSG could be of benefit.

Liz Maher of Centurion VAT is looking for comments to include in the consultation on the proposed VAT Cost Sharing Exemption- view her thoughts and comments here.

Why not follow @BroomfieldWales on Twitter to keep up with the latest information on finance in the charity and the third sector and other business and financial topics, or by simply registering for our monthly newsletter

Public Benefit Update

Friday, May 11th, 2012

Jo Bartlett, Charities & Not for Profit Manager, Broomfield & Alexander

On December 21, 2011 the Charity Commission published an update to its guidance on public benefit. This followed the decision, on October 14, 2011, of the Upper Tribunal Tax and Chancery Chamber in relation to private fee paying schools with charitable status and the public benefit requirement.

To be charitable an entity must have aims which exclusively fall within the definition of Charitable Purposes in section 2 of the Charities Act 2011 AND the poor must not be excluded from benefitting.

It is the responsibility of the Trustees to ensure their objects are pursued so as to provide public benefit and that the poor are not excluded. If they fail to do this then it is the Trustees who are in breach.

There must be more than a de minimis or token benefit for the poor. There are three types of benefit:

Direct, which is a benefit from the main service of the charity; Indirect, which is a benefit that is received other than by the main service; and wider, which are benefits received by the community at large.

Other activities would be taken into account as part of the public benefit requirement. For a fee charging school these may include:

• The provision of scholarships and bursaries

• Sharing of facilities (including teachers) with local state schools

• Sharing of other facilities such as playing fields, pools or sports grounds

Although the tribunal emphasised that the scope of its decision was limited to educational charities, the principles in relation to the public benefit requirement will have a broader relevance to other fee charging charities.

What to consider in a charity merger

Friday, May 4th, 2012

Sarah Case, Director, Broomfield & Alexander

Considering a merger?

Charities are increasingly exploring a variety of different ways of working together, often due to the need to be more efficient with resources or to access additional funding opportunities.

There are many different forms of collaboration, including the sharing of resources (such as premises or staff), joint marketing or fundraising projects, or the submission of joint funding bids, possibly through a formal consortium arrangement. Although by no means inevitable, successful collaborations may eventually lead to a merger of two or more charities, and the most successful mergers are often between charities who have already worked together.

The importance of thorough planning for a charity merger cannot be overstated and there are a number of issues which need to be considered to ensure that the process runs smoothly:

Ensure that the Trustees have sufficient powers

For a merger to be legally sound, Trustees must act in line with the powers in their charity’s governing document, or those given to them by law. If these powers are insufficient, the Trustees can ask the Charity Commission for extra powers to facilitate the merger.

It is equally vital to make sure you have comprehensive information about the purposes, powers and property of the charities involved in a potential merger in order to identify any problems or legal barriers in advance of a formal decision.

Make sure the purposes of the two merging charities are compatible

The purposes of the merging charities do not have to be identical, but they should be compatible and the main duty of Trustees transferring assets to another charity is to take into account the interests of the people their charity was set up to help.

Also, transferring charities must ensure the recipient charity has purposes which are suitable in relation to the terms of the dissolution clause, or any other power being used by the transferring charity.

Look carefully into the rules controlling any special trusts, restricted funds or permanent endowment

It is essential to identify at the outset any classes of funds – such as special trusts, restricted funds or permanent endowment – because they must be dealt with according to the rules governing their use. They cannot be simply mixed in with the general assets belonging to the recipient charity.

Consider the involvement of your members in the merger process

The governing document of the charity will usually explain the role of members in the administration of the charity. Trustees looking to complete a merger should consider the involvement of members from the start. This is especially important if the proposal requires the consent of or other input from members.

Make sure the estimated costs of the merger are realistic

Underestimating the cost of a merger can create major problems further down the line, so it pays to keep actual and expected costs under close scrutiny at all stages. Some costs can be anticipated early in the process, such as changes to services, integrating ICT systems, professional advisory fees, advertising, rebranding,

relocating and governance costs. Costs that are less predictable include missing out on opportunities due to time spent on the merger, and disruption to the smooth running of the charity through, for example, having to relocate your premises or implement a redundancy programme.

Speak to an advisor early on in the process

It is important to contact a specialist charity advisor as early as possible in the merger process. If you would like any further details about working together through collaborations and mergers, then please do get in touch.

Substantial donor rules retargeted

Wednesday, April 11th, 2012

Sarah Case, Director, Broomfield & Alexander

HMRC’s Tainted Donation rules, in application since 1 April 2011, have given charities the opportunity to review arrangements with potential donors.

Under the Substantial Donor rules that were previously in force, innocent transactions with a substantial donor (or their connections) during the six years following the gift could put a charity’s tax exemptions at risk.

Historically, to manage this risk, transactions to be avoided included employment by the charity of relatives of a major donor and properties rented to the same persons – the possibility of these relationships occurring sometimes prevented major donations that were wholly motivated by desire to support the charity.

The new anti-avoidance rules are better targeted to prevent an impact on innocent and reasonable arrangements. Although removal of the old donation thresholds (£25k over 12 months and £100k over six years) potentially increases the number of donations within the scope of the rules, the key change is that a ‘tainted’ donation is one where financial advantage is judged as a main purpose of the donor.

Whereas breach of the old rules led to a tax charge for the charity, under the new rules, if the donation is tainted, it is the donor who will normally have to repay any related gift aid claimed by either donor or charity. Thus a charity is no longer at risk of financial loss where a donor may have a motive of financial advantage that the charity did not know about.

Charities – planning for closure

Wednesday, April 11th, 2012

Peter Gotham, MHA MacIntyre Hudson

Make sure that you plan your closure in time to rescue some of your good work, says Peter Gotham of Macintyre Hudson

Across the voluntary sector, traditional sources of funding are drying up. I am left wondering how many charities are gambling on “something turning up” to avoid a possible closure in six months or so? Sometimes reputation, relationship, hard work or just plain good luck will bring that extra bit of income, and the charity lives to fight another day.

But even a rescue can be only a short-term solution, merely postponing the inevitable – whittling away at financial and emotional reserves in the meantime. And if the gamble does not work or bad luck or increasing disillusionment intervene, then often a planned closure becomes impossible and the train hits the buffers. There is then no chance of a controlled closure – with the possible saving of some activity and even jobs.

At this stage in the third sector economic cycle, I am increasingly seeing a difference between the charities that hold on until the last moment, and end up with a chaotic closure, and those that play a little safer.

Charities with a reasonable level of reserves might, with good advice, have enough time and energy to rescue some of the charitable delivery – and perhaps to form a successor body that is more able to cope with the changes buffeting the sector at the moment.

Any threat of closure, however remote, is stressful, and early advice is important to help trustees understand the risks they are facing and assist in keeping the team together.

One form of liability that can cause particular difficulty is contingent liabilities – liabilities that become due, or crystallise, only in certain circumstances. These can commonly be dilapidation clauses on leases, termination payments due on early cessation of photocopier or premises leases, or termination payments due on defined-benefit pension schemes. Charities can find their decision-making unduly affected by a wish to avoid these ‘cliff-edge’ liabilities – where a demand will, of itself, make the charity insolvent.

I have seen premises retained, at a constant drain on resources, just to avoid crystallisation of premises liabilities. Particular staff are even retained to avoid crystallisation. Staff are sometimes kept on because the departure of the final member of a pension scheme would crystallise a defined-benefit pension liability.

One question about liabilities is when a contingent liability becomes so imminent that it needs to be taken into account when assessing solvency.

Obviously the situation will be different from charity to charity, and I would not wish to risk giving catch-all advice.

However, ignoring the issues rarely helps to maintain the positive dynamics that good delivery of the charity’s mission requires.

Conversely, informed early advice can sometimes assist in identifying negotiation options to manage the relevant liabilities. This can mean there is then time, with teamwork, to identify possible routes forward for the effective delivery of the charity’s mission.

This article originally appeared in Third Sector magazine (3/4/12) and was written by Peter Gotham of MHA MacIntyre Hudson.

Broomfield & Alexander are members of MHA, a UK association of independent professional firms.

Are you fraud aware?

Tuesday, April 10th, 2012

Sarah Case, Director, Broomfield & Alexander

Companies and charities operating in Wales are being warned that they are particularly vulnerable to fraud as the faltering economy creates a combination of more desperate people and less secure organisations.

Charities in the UK estimate that they lost £1.1bn to fraud in 2010/11, according to the latest figures from the National Fraud Authority.

We’ve been talking to our clients on an on-going basis about the increasing risk for all organisations of fraud by both employees and other stakeholders. We have listed below the Charity Commissions top 10 tips with regard to fraud. At the very least you should benchmark yourself against these points.

If you or your organisation have any concerns in the area and feel that a full review may be appropriate please contact us at charities@broomfield.co.uk. We can offer services ranging from a simple fraud checklist to a full fraud review.

TOP TEN TIPS (CHARITIES COMMISSION)

1. Make sure you have access to accurate and up to date financial information and monitor the charity’s financial performance against its budget

2. Make sure that cheques and cash are kept securely, banked promptly and recorded in the accounting records

3. Ensure cheque books are kept in a secure place – do not sign blank cheques

4. Make sure there are proper controls in place to protect income received by post and bank it as soon as possible

5. Make sure there are proper controls in place in relation to fundraising events, such as making sure two people handle and record the money received, that money is banked as soon as possible and that collection boxes are numbered and recorded

6. Keep proper records when claiming gift aid – HMRC give advice on what should be recorded

7. Make sure you have a clear policy on paying expenses to staff and volunteers and make sure they are authorised by someone other than the claimant

8. Make sure you have controls to ensure that all income from trading is recorded and received

9. Have monitoring procedures in place to make sure grants have been used for the agreed purposes

10. Report any suspected fraud to the police and to the Charity Commission

You can download a copy of our fraud Helpsheet here; this contains advice and information on spotting, stopping and reviewing fraud controls in your charity.

Why not follow @BroomfieldWales on Twitter to keep up with the latest charity information and advice, or simply register for our monthly newsletter.

Warning to organisations in Wales of increasing fraud risks

Monday, April 9th, 2012

Sarah Case, Director, Broomfield & Alexander

With the UK losing a staggering £38bn a year through fraud, an increase in the number of high-profile fraud cases, and a recent report which reveals that charities are foregoing 2.4 per cent of their income to fraudsters, organisations in Wales are likely to be particularly prone to becoming the victims of fraud.

The propensity of the would-be fraudster to commit their crime is largely dependent on both their motive and the existence of opportunity,

As unemployment, rates of taxation, inflation and other factors that put pressure on disposable income all rise, so to does the motivation to commit fraud.

Meanwhile, cuts in public spending, upon which so many organisations in Wales depend either directly or indirectly, mean that many organisations will have to reduce administrative costs. This often means that processes and controls which might have prevented or detected fraud are weakened, increasing opportunities to commit the crime.

There are a number of recent high profile cases showing the financial, operational and reputation damage that fraud can cause, including the conviction of the former finance Director at the London Philharmonic Orchestra, who was sentenced to four years in prison after taking at least £660,000 from the charity – and possibly considerably more than that.

A recent National Fraud Authority’s review says that fraud in the UK costs the country £38bn a year, with the charity sector losing £1.3bn a year, a sum equal to about 2.4 per cent of its total income.

Companies and charities should take some basic precautions in the current climate.

All organisations need to ensure sure that they vigorously review financial information, especially actual results against those budgeted. They also need to be explicit in ensuring that staff understand that fraud risk is monitored and that dishonesty will not be tolerated.

Extra caution will normally be required in any situation in which cash changes hands. Robust counter-fraud policies and procedures are critical to all of us.

You can download a copy of our Fraud Helpsheet here which details various anti-fraud measures helping you to spot, stop and review your fraud controls.

Prime Minister announces ‘Big Society Capital’

Wednesday, April 4th, 2012

Jo Bartlett, Charities & Not for Profit Manager, Broomfield & Alexander

David Cameron has announced the setting up of a new fund to help charities and community groups.

The majority of funding for ’Big Society Capital’ will come from cash in bank accounts that have been dormant for more than 15 years. Estimates are that up to £600m will be available, the majority of which will come from the dormant accounts.

The money will be used to invest in ‘social enterprises’. In turn these social enterprises must be able to show that the money can be repaid through the income they generate.

There is no such thing as difficult people

Wednesday, April 4th, 2012

Alison Love, Alison Love Ltd

Difficult people I have known!

We can all think of people we have come across in our working lives (no names mentioned) who were difficult to deal with. Someone who seemed to have the ability to say or do absolutely the right thing to really wind you up. Someone who doesn’t listen? Takes credit for work you’ve done? Wastes your time with trivial issues? Acts like a know-it-all? Can only talk about themselves? Constantly criticizes? Sound all too familiar?

Whose problem is it?

When we come across one of these characters it can have a significant impact on how we feel, our emotional wellbeing and how happy (and productive) we are at work. This is especially true when the person you’re struggling with is your boss or a team member.

Often it is all too easy to fall into the role of victim. Whatever is going wrong isn’t our fault and by blaming others we feel better in the short-term.

The problem with being a victim is that you give up control and it does not resolve the situation. I saw this put brilliantly recently as ”it is like allowing someone to live rent free in your head”.

It’s all about you.

What one person see’s as a difficult or challenging person is not the same as others as we all have different levels of tolerance to certain behaviours. For example some people get incensed when someone is late for an appointment while others will be far more relaxed about it. I am in the latter camp so will incense others for whom strict timekeeping is important.

Only 2% of the population are considered to be truly difficult. It is therefore far more likely that where there is a problem with a difficult person, it is really a conflict; a difference of views, ideas, values or interests. Far better in this situation to appreciate that you are unlikely to change the person concerned and the only person you have the possibility of changing is yourself; not your personality but your behaviour.

So what can you do?

Understand your own behaviour – the first thing to do is to understand your own behaviour. We all have a default behaviour programme and a default response to conflict. It can be enormously helpful to understand your own default behaviour in order to avoid simply reacting to the other persons behaviour and instead think and choose your behaviour.
Take charge of your own behaviour – be aware of how your own behaviour (and the words you use) impacts on how others might react and adapt your behaviour accordingly. Do not allow yourself to be hooked by what other people say or do.
Build your confidence and self-esteem – believe in yourself first, in that way your interactions with others will improve.
Improve your listening skills – deep listening is one of the most difficult skills to learn and practise. It involves listening to the words and what is behind them and reflecting back what you think you have heard. You will need to listen more than you speak.
Understand the impact of your language/tone/body language – the words and what is behind the words are very important and can make a huge difference to the way the other person reacts. People are more influenced by how you say things than what you say.
Become more assertive - learn to become assertive rather than submissive or aggressive. The latter will often exacerbate a conflict situation and make your life harder.
Be likeable - people are more likely to do as you ask if they like, respect and trust you.
Learn the art of persuasion – persuading others involves changing the other persons mindset and will require the skills, qualities and characteristics to make you believable and credible.
Empathise – always be aware that the other person may see the world differently from you. Empathise with their viewpoint and offer solutions that ensure a win-win outcome.

It is not always easy to put these into practice, particularly when someone is struggling to deal with a difficult individual. It will take some hard work and patience. However, it is worth the effort as the benefits can be enormously powerful and unless you do take control the only person you will be hurting is yourself.

For more information about how to gain the skills needed to manage difficult people or conflict situations (including coaching support and training courses) please visit my website at www.alisonlove.co.uk.

Alison Love will be holding a breakfast seminar in Cardiff on 24 May, From Conflict to Collaboration; a win-win for all your relationships – for more information or to register to attend, please click here.

Changes to Gift Aid Declarations

Thursday, March 15th, 2012

Sarah Case, Director, Broomfield & Alexander

Charities have until 31 December to comply with guidance issued this month by HM Revenue & Customs

Charities will have until the end of the year to make changes to Gift Aid declarations to comply with guidance published earlier this month, according to HM Revenue & Customs.

A recent HMRC statement accompanying the new guidance did not make it clear whether charities would have to make those changes immediately, or whether they would have to seek retrospective changes to previous declarations.

HMRC has confirmed that it will continue to accept Gift Aid claims on donations made using forms based on the wording in the old HMRC model declaration until 31 December 2012

Where a charity has already received a Gift Aid declaration based on the old wording in the guidance they do not need to get the donor to supply a new declaration with the new wording.

Gift Aid declarations do not need to incorporate all the information set out in HMRC’s model form if the charity had provided that information to donors in a different way, such as if volunteers explained Gift Aid rules verbally using a set script including all the necessary information.

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