Charities News AUTUMN 2022
Welcome Welcome everyone to our latest edition of the Albert Goodman Charity newsletter. I’ve had some wonderful feedback about our first edition, so I’m delighted to be able to share our next edition with you. We are back in very difficult times (did we ever leave them?!), but rather than focus too much on something that you’re already very aware of, we’ve dedicated this newsletter on things that have been happening recently in the sector (before you get anywhere near Government!) – I hope that you find it useful and informative.
Michelle Ferris Partner, Head of Charities and Care, Albert Goodman
POLITICAL ACTIVITY AND CAMPAIGNING BY CHARITIES In early October, the Charity Commission published the latest in their “5-minute guides” for Trustees – this time on political activity and campaigning by charities. With many charities increasingly finding themselves supporting the most vulnerable in society, it can be very easy to stray into political commentary. This in itself is not problematic, but a line is drawn where a charity promotes a particular party or candidate. For example, a charity that supports homeless people is able to argue for changes in policy on social housing to support homeless individuals but cannot promote a particular political party who support their lobbying. The charity may feel that carrying out political activity in lobbying for change is the best way to support the charity’s purpose, but it must not become the reason for the charity’s existence, and the charity should ensure that they always seek to engage equally with all major political parties. Orland Fraser KC said in his recent speech at the Charity Commission annual public meeting (see later for a fuller piece on this) that he anticipated “vigorous exchanges about what is needed from government at this time” and that he expected “charities to be part of this conversation”, although he also stressed the importance of the guidance that charities must avoid party political campaigning. At the event he urged “charitable kindness” saying “Charities can model a different kind of public discourse than the aggression we sometimes sadly see from the political party debate”. He went on to add that he believed charities should campaign with “vigour and energy” but “they should also do so with tolerance and kindness.” The rules can be complex and it is easy for charities to inadvertently stray into political activity, but the guide is designed to make the situation more straightforward to understand – it is a quick read and I’d encourage Trustees of all charities to read the guidance. All of the Charity Commission’s 5-minute guides can be found here: 5-minute guides for charity trustees - GOV.UK (www.gov.uk)
THE VAT BUSINESS TEST FOR CHARITIES As many of you reading this will be aware, VAT can be a minefield for charities, particularly around whether the charity is carrying out a business activity for VAT purposes. HMRC has recently issued revised guidance on this matter, but on its own the guidance is not entirely clear and can appear self-contradictory.
The phrase “for the purpose of obtaining income” isn’t made clear, particularly as the Courts have held that the motive of the supplier in making charges isn’t generally relevant. If fees are charged then whether or not the fee is below cost, if stage 1 is met, the activity is business for VAT purposes, except in exceptional cases.
Steve Chamberlain, Head of VAT at AG, writes to add some clarification.
There are some exceptions by concession, for example charities providing welfare services at below cost, or certain charges by academies to pupils at or below cost.
Background Quite a bit of caselaw on the subject arises because a charity can claim relief from VAT for the construction or purchase of premises it will use solely for a non-business purpose. HMRC lost several cases where the UK tribunals were willing to allow zero-rating for, for example, the construction of a new charitable creche building. It was clear that the UK tribunals were taking a more generous line than HMRC thought appropriate. The key issue was, if a charity charges for the goods or services it provides, at what point does this become a business activity? HMRC persisted until it achieved judgements in the Higher Courts that would set binding precedents.
Latest guidance HMRC says in its VAT notice 701/1 that a 2-stage test should be undertaken. Stage 1 – the activity results in a supply of goods or services for consideration. The supplier (the charity) and the recipient have entered into a legal relationship whereby the charity has agreed to provide something, in return for payment. There is a direct link between the provision of the good/service, and the payment made. This part clearly reflects the caselaw, although of course in particular cases, determining whether money received from a funder is a grant, or is consideration for a good or service rendered to the funder (or someone it nominates) can be quite involved.
Other exceptional cases could include those where the fee is notional (e.g. a peppercorn), and charged simply to create a binding contract. Or where the payment is a purely token amount so that the beneficiary feels (s)he has made a contribution.
Further developments Sometimes, of course, a charity wants to be seen as in business for VAT purposes, particularly where it provides services to corporates or public sector bodies who can recover VAT charged. Each activity of the charity should be considered separately, and as I blogged on here, a recent case involving The Towards Zero Foundation is interesting in that regard. The charity initially provided services without charge, on the basis that this would establish a market for its paid for service. On the facts, the Tribunal agreed that the free tests were an integral part of its business model, and there was a single activity that should be treated as business for VAT purposes, thereby entitling the charity to reclaim input VAT on all of its costs.
Conclusion What does this mean in practice? Charities should have a VAT strategy, taking account whether VAT registration is compulsory or desirable, and should be clear on what is necessary to achieve that. Identifying whether its activities are by way of business or not is part of that.
Stage 2: The supply is made for the purpose of obtaining income (remuneration)
Charities relying on old guidance for the meaning of nonbusiness, whether for VAT registration purposes or because they are hoping for zero-rating for a property project, should consider the new interpretation.
An activity is not economic just because a payment is received. It must also be carried out for the purpose of obtaining income (remuneration), even if the charge is below cost.
If you think this change could affect you, please feel free to get in touch steve.chamberlain@albertgoodman.co.uk
HMRC’s stage 2 is less clearly articulated:-
Trustee Expenses (and the option to Gift Aid these expenses back to the charity!) Eleanor Berry, Charities Manager at Albert Goodman, gives her thoughts from a trustee perspective about claiming expenses. We all know and adhere to the rule that as Trustees we cannot be remunerated for our trustee role. However, we are entitled to have our expenses reimbursed by the charity. Expenses can include a wide range of costs, for example, travel and other costs of attending meetings, specific telephone and broadband charges, travelling on trustee business, and providing childcare or care of other dependants while attending to trustee business. Expense claims should be supported by bills or receipts, and it is good practice for charities to have an expenses policy. But what if you don’t want to be reimbursed for your legitimate expenses and the charity is registered for Gift Aid? If you have chosen to forego your expenses (which I know many of us do, as we don’t want to see the charity out of pocket), you could set up a system whereby you make the expense claim, the charity reimburses you (by way of physical payment), and you subsequently donate the expense payment back to the charity (again, by way of physical payment), Gift Aid can then be claimed on the donation. Certainly helpful, when 25p in every £1 can be claimed (Gift Aid rules apply)!
Please feel free to get in touch if you’d like to learn more and see how it could benefit your charity.
DOES YOUR CHARITY UNDERESTIMATE THE RISK OF CYBER CRIME? With 17-21 October being designated “Charity Fraud Awareness Week”, a warning was produced by the Charity Commission that in a recent survey, one in eight (12%) of charities reported having been the subject of a cyber attack in the last 12 months, yet only 24% have a formal policy in place to manage the risk of cyber attacks and only 55% reported that cyber security was a fairly or very high priority in their organisation. With most charities now holding electronic data on people that engage with the charity, the loss often is not only a financial one. The most common types of attacks are phishing and impersonation, both involving others impersonating a senior person within the organisation, and it is often personal data that is more valuable to the fraudster than financial gain. This can then have a substantial impact on the credibility of the charity and the trust that donors place on you, and all charities could do without a reputational stain when it comes to raising money from donors currently. The good news is that there are simple steps that you can take to make the organisation less susceptible
to cyber fraud. These include changing passwords regularly, using two-factor authentication, making sure that antivirus and other protection software is up to date, and taking regular back ups of information. Charity Fraud Awareness Week is run by the Charity Commission and the Fraud Advisory Panel and aims to bring the sector together to share best practise. There are some excellent resources available on the Charity Fraud Awareness Week website: Home Page - Prevent Charity Fraud
CHARITY COMMISSION Annual Public Meeting The Charity Commission held their annual public meeting on 12th October in Cardiff. Orlando Fraser KC, the chair of the Charity Commission paid tribute to Her Majesty Queen Elizabeth II and spoke about the impact of the oncoming storm of the financial living crisis on the charitable sector. He also acknowledged that the crisis poses challenges for charities themselves – with most having ever increasing demand from their beneficiaries, but suffering from local authority cuts and reductions in fundraising from donors, themselves feeling the pinch.
our overall performance. But in enforcing charity law, we will be beholden to no-one, and nothing, but the law itself”. Following the disastrous procedure under which he was eventually appointed Chair, I’m sure many will welcome this confirmation!
Speaking 6 months after his appointment in April, Mr Fraser KC also reiterated his intention for the Commission to be “fair, balanced and independent”. He spoke to his previously stated desire to “deal firmly with intentional wrongdoers and those who are grossly negligent”, to ensure that trust continues to maintained in the interests of the entire sector. Finally he expressed his view that the Commission should be free from political influence, saying “under my leadership, the Commission will be independent – of party politicians, of government, interest groups, of the media and of the sector itself. We, and I, will report to Parliament, to which we are directly accountable for
One thing that was snuck into the speech was the Commissions desire to introduce a trustee portal account for all 700,000 trustees that there are in England and Wales. It was described as a “the trustee’s personalised online Bible.” The principle is a good one, but I fear that the Charity Commission will come up against a problem they’ve been struggling with for as long as they’ve been in existence – how to connect with trustees who don’t want to be connected with. It was telling that only 900 people signed up to watch the annual public meeting – with no confirmation of how many of those were trustees, but at most 0.13% of the target audience!
CHARITIES FINANCE MANAGERS’ GROUP Back in June, Albert Goodman held the inaugural meeting of the Charity Finance Managers Group. One of the things I have noted from my time working in the sector is that being a finance manager in a charity can be quite an isolating role – often they’re the only person who understands the finances in real depth and there is a lot to deal with from changing regulation to explaining accounts to Trustees. The group was founded to give finance managers (or equivalent roles) a group and a sounding board for things that are bothering them, or simply things to discuss with like minded individuals.
software. We were delighted to have a presentation from Xledger (Accounting software for Accountants - Xledger UK), along with a discussion on Xero (Accounting Software - Xero UK) lead by the Albert Goodman cloud team. Whilst aimed at different ends of the market, the discussion was incredibly useful.
If you’d like to come along to our next session early in the New Year (topic to be decided), please let Kerry Hake know (mainly so we can get the right amount of cake!)
Our second meeting happened earlier in October, with the focus (following feedback from the first group) being accounting
End note Just as we think we’re coming out of the turmoil of Covid, a potentially more difficult landslide of problems looks likely to hit – the cost of living crisis is increasing demands for the services provided by charities at a time when giving looks likely to hit a low. But still I continue to speak with charities whose teams are showing extraordinary resilience in incredibly difficult times, and who continue to be focused that those most in need in our society receive the help they need. For that, I thank each and every person who continue to give their dedication to the sector. The start of November marks Trustees Week in the UK and we will be highlighting the brilliant ways that Trustees make a difference – keep an eye out for our interviews and hopefully we’ll able to bring you some extracts in our next edition. Until next time, take care.
Michelle Ferris Head of Charities and Care, Albert Goodman
CONTRIBUTING TO YOUR SUCCESS If you would like to discuss any matters in this newsletter please get in touch with your usual Albert Goodman contact or Michelle Ferris direct.
michelle.ferris@albertgoodman.co.uk
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