Charities Alert - Crowe Horwath International

Charities Alert - Crowe Horwath International

Issue 01/2011

January/February 2011



Inside this issue

Sector news

Attorney General refers a further question on

public benefit

Government and the sector agree new


Guidance on referendums

Update to online risk toolkit

Consultation on investment guidance

Guidance on the Equality Act

Mapping the cuts

Government green paper explores ‘giving’

Charity Commission considers charging for


Guidance and


Guidance for audit committees

Charity reporting guidance

Tax and VAT news

Substantial donor rules to go

Gift Aid... the latest

Changes to the ‘Capital Goods Scheme’

Charities Alert Issue 01/2011

Given the changes in the investment markets

over recent years and the growth of the sector’s

investment in more ‘exotic’ products, this is

certainly an area where improved guidance will

be welcome.

Sector news

Attorney General

refers a further

question on

public benefit

The Attorney General has referred a

further question to the Charity Tribunal

relating to public benefit, the third in

recent months. The question raised is

whether the public benefit test can be

satisfied when there is a restricted pool

of beneficiaries defined by a relationship

to a particular individual or company

– the example cited is an employees’

benevolent fund. The question is

driven by the change introduced in

the Charities Act 2006 that removed

the presumption of public benefit from

charities providing poverty relief.

Charities likely to be affected by the

Tribunal decision can apply to be named

as an interested party, allowing them to

make submissions to the Tribunal.

Government and

the sector agree

new Compact

Late 2010 saw the government and

Compact Voice agree a renewed

Compact. An effective relationship

between the public and charity sectors

is, it seems, set to be a vital part of the

Big Society. With that in mind and given

the significant cuts in public sector

budgets, how the new, much more

concise Compact will work in practice

over the coming months, will be a key

part of that relationship.

The new Compact was shortly

followed by an announcement by the

Commission for the Compact that

it is to carry out an evaluation of the

Compact, assessing its impact since it

was introduced and looking at its likely

future role.

Guidance on


The Charity Commission has expanded

its guidance on campaigning and

political activity to clarify how the

principles applicable to campaigning

during elections apply to referendums.

It is obviously important that charities

are able to set out the pros and cons of

a ‘yes’ or ‘no’ vote for their beneficiaries,

however, it is equally important that

charities are not seen to cross the line

into party political campaigning.

This is timely advice, given the likely

referendum on voting reform later this


Update to online risk


Early in January the Charity Commission

released the second chapter of its

online risk toolkit. Titled ‘Due diligence,

monitoring and verification of the end

use of funds’, the guidance takes a

very practical approach and provides

pro-forma documents such as a

suspicious donor log and a monitoring

visit checklist. The further three chapters

covering fraud and financial crime;

raising, storing and moving funds; and

bribery and corruption will be released

over coming months.

The first and second chapters can be

downloaded via:




Consultation on

investment guidance

The Charity Commission launched a

consultation on its new draft guidance

on ‘Charities and Investment Matters’.

Given the changes in the investment

markets over recent years and the

growth of the sector’s investment in

more ‘exotic’ products, this is certainly

an area where improved guidance will

be welcome.

The consultation closes on 28 February.

Guidance on

the Equality Act

The implications of the Equality Act have

been a worry for many in the sector

since the Act came into force in October

2010. The key concern is that charities

with specific beneficiary groups could

be deemed to be in breach of the Act.

In response to the concerns in the

sector, the Commission has issued

summary guidance for charities on

how to ensure they remain within the

requirements of the Act. Further, fuller

guidance has been promised in the


Mapping the cuts

A group of sector bodies, including

ACEVO and NCVO, have set up a

website to allow charities to record

details of how they have been affected

by central and local government cuts.

The site includes a map showing the

geographical spread of the reported

cuts and details of what the funding was

for and who the funder was. The site

is likely to provide a useful resource for

helping to assess where the risks of cuts

lie, both geographically and in terms of

the types of services being hit.

Charities Alert Issue 01/2011

Sam Younger, Chief Executive of the Charity

Commission, has revealed that consideration

is being given to charging for the services

the Commission provides.

Government green

paper explores ‘giving’

Recent weeks saw the publication of

papers by government and the sector

on how the funding of charities will

develop over the coming years.

The government issued a green

paper on ‘giving’ in January, as it

continues to set out its stall on what

the ‘Big Society’ means. The paper

concentrates on making ‘giving’ easier

and more attractive to the public

and has a particular focus on the

use of technology. Examples in the

paper include the use of ‘round up

the pound’ donations for shoppers,

ATM donations, and increasing use of

social media and websites to make it

easier to find donating opportunities.

Interestingly, the paper also asks for

opinion on whether private foundations

should be required to make a minimum

level of annual donations.

A small number of essays on the topic

of ‘giving’ accompany the paper, with

authors including Stephen Howard,

Chief Executive of Business in the

Community, and Harvey Koh of the

Private Equity Foundation.

Consultation on the paper closes on

9 March.

…and from the sector

From the sector side of the fence came

a report by the Funding Commission

(a body established by NCVO) titled

Funding the Future. The report covers

similar themes to the government paper

and looks at how the sector’s income

could develop over the next ten years.

Increased use of technology again

features heavily, as does collaborative

working and use of commercial trading

to fund charitable activities.

As noted by Martin Brookes, Chief

Executive of New Philanthropy Capital,

the paper’s targeted doubling of private

giving to £20 billion, based on an

investment of £10 million in a ‘better

asking campaign’ may be somewhat

ambitious; however, it does explore

some interesting ideas.

Charity Commission considers

charging for services

Guidance and Technical

Guidance for

audit committees

The Financial Reporting Council has

recently issued guidance on how audit

committees should operate. Although

targeted towards the corporate sector,

most of the guidance is applicable, or

can be adapted, to a charity context.

Issues covered include the role of audit

committees and relationships with the

statutory auditors and boards.

ACCA charity

reporting podcast

The Association of Chartered Certified

Accountants (ACCA) has released a

video podcast providing tips on charity

accounting featuring Ray Jones, Head

of Accounting Policy at the Charity

Commission. Issues covered in the

video include the Trustees’ Report,

common errors, income recognition and

accounting for contracts and multi-year


For those who are experienced in

charity accounting, the video, although

interesting, will probably not add much

to your knowledge. It is, however, likely

to be a useful tool for new trustees who

need a ‘primer’ on some of the key

charity accounting issues.

Sam Younger, Chief Executive

of the Charity Commission, has

revealed that consideration is being

given to charging for the services

the Commission provides. The

considered options range from an

annual subscription fee to a ‘pay-asyou-go’

system where basic, statutorily

required services remain free, but

advice, guidance and similar services

have to be paid for when used.

Perhaps not surprisingly, a poll by the

Directory of Social Change found that

90% of the 800 respondents did not

agree that the Commission should take

this route. Aside from the more obvious

complaints of having to pay for a service

that has always been provided for free,

reasons given for opposition included

perceived threats to the independence

of the Commission and fears that

smaller charities may forego advice to

save costs.

The Commission has recently closed a

consultation on its future strategy (see

last edition of Charities Alert) prompted

by the cuts to its budget following

the government spending review. It

is expected that the Commission will

publish the results of its review and the

consultation in time for the required

changes to begin in May this year.

How the Commission will balance its

reduced resources with the opposition

from much of the sector to any charges

remains to be seen.

…and more charity

reporting guidance

In a similar vein, the Chartered Institute

of Public Finance and Accountancy

(CIPFA) has released the first in a series

of guides to understanding charity

financial statements. The focus in this

edition is the types of external scrutiny

reports on financial statements (i.e. audit

report and independent examinations)

and what they actually mean.

Charities Alert Issue 01/2011

Tax and VAT news

Substantial donor rules to go

Draft legislation released by the government suggests that the

Finance Bill 2011 will replace the existing ‘substantial donor’

rules, which have long been a worry for the sector. The new

rules, if made law, will apply to donations on or after

1 April 2011 and will adopt a ‘purpose test’ approach.

The new legislation will deny tax relief where the main purpose

(or one of the main purposes) of the donor is to receive an

advantage from the charity. Where a donation is caught

under the new rules, tax relief is denied and, perhaps most

importantly, the donor (as opposed to the charity) will be the

primary target for recovery of any tax relief already obtained on

the donation.

Gift Aid… the latest

Early last year the Treasury set up a Gift Aid Forum with

a number of sector representative bodies to consider

improvements to Gift Aid. A number of potential changes

were discussed, but it was not possible to get unanimous

agreement; perhaps not surprising given the huge diversity of

charities, their donors and their beneficiaries.

Changes to the ‘Capital

Goods Scheme’

Significant changes to the Capital Goods Scheme were

introduced by HMRC at the beginning of 2011. Prior to the

changes, the Scheme, which relates to land or property

transactions costing £250,000 or more, was only applicable to

charities involved in ‘business activities’. This is no longer the


If a charity is required to apply the Scheme, there are

implications for the amount and timing of VAT recovery and

complex annual calculations are required to arrive at the correct

VAT position. Crowe Clark Whitehill’s VAT department has

released guidance on this matter. If you are commencing or

considering a large land or property project, we would advise

you to obtain advice as soon as possible.

To find out more on this change and other recent

developments please contact Arthur Blackburn or Robert

Warne, our VAT specialists on 020 7842 7100.

Peter Fanning, the Chief Executive of the Chartered Institute

of Taxation, offered to produce a report in his own name

reviewing the different proposals and considering options for

improving the Gift Aid system. The report and the response

from Justine Greening, the Economic Secretary to the Treasury,

can be found here:

Amongst other things, the letter from the Treasury made it clear

that there will be no extension to the 3% Gift Aid supplement

after 5 April 2011 and a composite rate of tax was rejected.

Also rejected were Gift Aid on non-cash donations (such as

donated goods and unclaimed trustees’ expenses) and relief

for couples when one partner donates on behalf of the couple.

HM Revenue & Customs (HMRC) is to set up a Charity Tax

Forum to look at wider issues including VAT, and to progress

some of the recommendations in the Fanning report, including

electronic ways of improving the Gift Aid process.

We hope you find Charities Alert of interest. If you have questions about any of the topics covered,

please call Pesh Framjee, Head of Not for Profit, or Sally Kirby, Editor of Charities Alert.

Office locations and contacts

Cheltenham - Mike Hall

01242 234421

Kent - Ian Weekes


01622 767676

Tunbridge Wells

01892 700200

London - Pesh Framjee

020 7842 7100

Midlands - Helen Drew


01562 60101


01922 725590

Manchester - Vicky Szulist

0161 214 7500

Thames Valley - Alastair Lyon

0118 959 7222

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