In our charity seminar we accessed the current key issues affecting the sector including CIO's, VAT, investment policies, tax relief and more.

2. Charities – the key issues
Wednesday 11 June 2014
Targetfollow Room
Theatre Royal, Norwich

3. Mark Proctor
Charities Partner
and Chairman

4. Introduction
• Specialist charities and academies team
• Extensive charity client portfolio
• Charity Finance Award 2013
• Charity Auditor Award 2013

5. Matthew Waters
Charities Team

6. Trustees’ responsibilities
What is a Trustee?
“the person(s) having the general control and
management of the administration of a charity.” s.177
Charities Act 2011

7. Trustees’ responsibilities
What are a Trustee’s duties?
- duty of compliance
- duty of prudence
- duty of care
From the Charity Commission guidance
‘The Essential Trustee’.

8. Duty of compliance
Act according to the charity’s governing document
- keep governing document under review
- funds administered in accordance with investment
policy
- election and term length of trustees
- area of operation

9. Duty of compliance
Comply with charity law
- annual report and financial statements in appropriate
format
- also comply with other relevant legislation (ie.
Employment law)

10. Duty of compliance
Act with integrity
- personal conflicts of interest
- mis-use of charity funds or assets

11. Duty of prudence
Protecting the charity’s assets
- use only to further the purposes and interests of the
charity

12. Duty of prudence
Adequacy of financial procedures and controls
- governance reviews
- investment policy
- reserves policy
- risk reviews
- trustee roles
- decision making

13. Duty of care
Reasonable care and skill
- higher ‘care’ threshold for qualified accountants and
other professionals
Seek professional advice when appropriate
- and act upon

14. Duty of care
Limited liability
- trustee liability can be limited if demonstrated that due
care was exercised, were acting within the charity’s
objects and professional advice was acted upon
Collective responsibility
- all trustees collectively liable unless they make clear
they disagreed with a particular decision and were
overruled

15. Scott Hansell
Consultant
Lovewell Blake Financial Planning Limited

16. Charity investment mandates –
the challenges

17. The challenges for charities
“Many organisations are having to dip into their reserves, cut
vital front line services and some are concerned about whether
they can survive the toughest of times”.
John Low, CEO of Charities Aid Foundation

18. The needs of charities
Charities often have specific goals and objectives for their
investments such as providing an income or keeping pace
with inflation.
When donations fall, charities will rely on their investments
increasingly to meet liabilities, and to carry out activities
and core functions.

19. The needs of charities
So there’s a need for investment solutions which:
• aim to mirror these goals and objectives
• are designed to try to avoid short-term losses and
provide portfolio liquidity if required
• can be tailored to meet your organisation’s
requirements

20. Increasing certainty – the benefit of a
dynamic asset allocation approach
Return
Target Return Portfolio
Market Portfolio
Time
Charities may access their assets at specific points on the
black line.

21. Increasing certainty – the benefit of a
dynamic asset allocation approach
Our approach is to stay as close to the goals as
possible – this minimises the risk of having to dip
into reserves at depressed values.

22. The lost years – traditional
‘stock broker’ investing
Ti
Feb 2000
Feb 2012

23. The lost years – traditional
‘stock broker’ investing
What is needed?
• a more modern active approach – potential returns in
all prevailing market conditions

24. The lost years – traditional
‘stock broker’ investing
How?
• a broad investment universe
• unique access to specialist institutional investment
techniques
• better management of volatility

25. Charities’ investment policies
• A policy can be given in the first instance to any
professional advisory company in order for them to
tailor your needs and objectives effectively.
• A formal written policy will provide you with a framework
for identifying your key objectives, managing the
charity’s resources effectively and will demonstrate
good governance.

26. Charities’ investment policies
• A formal investment policy may attract future
benefactors who could see value in your principles. Any
investment policy will link to your reserves policy and
help demonstrate sustainability.
• Your investment policy should be consistent with your
charity’s fundamental principles. It should reflect your
charity’s values, accountability, risk controls and ethics.

27. What should an investment
policy cover?
• The scope of your investment powers.
• The charity’s key objectives, now and in the future.
• The charity’s attitude to investment risk.
• The current amount available for investment, timing of
objectives and liquidity needs.

28. What should an investment
policy cover?
• Any ethical preferences for investments.
• Who can make the investment decisions? I.e. a trustee
body or a nominated separate investment committee or
advisor

29. What should an investment
policy cover?
• How your investments will be monitored or judged?
Against benchmarks such as Bank of England base
rate + 5% or Inflation + 2% per annum.
• Reporting requirements or review meetings.

30. Workplace pension reform –
auto enrolment
• What are our new pension duties?
• What do charities have to do?
• Can we still use our existing pension scheme?

31. Workplace pension reform –
auto enrolment
• What is the staging date?
• Which employees should we include?
• What is Auto enrolment?

32. How can Lovewell Blake
Financial Planning help?
• Help you develop an investment policy.
• Cash management service – identify charity
accounts/FSCS protection.
• Long term investment advice to suit your charity’s
individual goals and investment policy.
• Ongoing reviews – on course to meet goals?

33. Matthew Waters
Charities Team

34. Charitable Incorporated
Organisations
Unincorporated charity
- registered with the Charity Commission
- trustees enter into contracts personally on behalf of the
Charity
Charitable company
- registered with Companies House and the Charity
Commission
- separate legal entity which enters into contracts

35. Charitable Incorporated
Organisations
Charitable Incorporated Organisations (CIOs)
- registered with the Charity Commission only
- separate legal entity which enters into
contracts

36. Statutory framework of CIOs
Legal framework (general regulations, insolvency and
dissolution regulations, etc) set out in the 2011 Charities
Act.

37. Statutory framework of CIOs
A CIO shall:
- be a body corporate
- have a constitution
- have a principal office in England or Wales
- have one or more members

38. Types of CIO – trustees and
members
Determining the CIO structure which best suits your
charity:
Foundation CIOs
- closed membership
- same voting members as trustees

39. Types of CIOs – trustees and
members
Association CIOs
- wider membership
- includes members who are not trustees

40. CIOs constitutions
The Charity Commission has produced model
constitutions for both Foundation and Association
CIOs.
- must be in a form specified by Charity Commission
regulations
- must explain any deviations from model constitutions
(advised to provide marked-up version showing
variances if significant number)

41. CIO constitutions
- must be in English if principal office is in England
- may be in English or Welsh if principal office is in Wales
The model constitutions are subject to Crown Copyright and
use of them is licensed under the terms of the Open
Government Licence.
Therefore, must acknowledge the source.

42. Suitability – the pros
No dual registration and regulation
- registered with the Charity Commission only
No minimum registration threshold
- can register if income less then £5,000

43. Suitability – the pros
Limited liability
- separate legal entity to employ staff, enter into
contracts, etc.
Specifically designed for charities
- income under £250k can produce receipts and
payments accounts
- not possible for Charitable Companies

44. Suitability – the cons
Delay in getting started
- advised 40 working days to respond to registrations
- could make unsuitable for reactionary appeals
requiring quick funding
Completely new structure
- untried and untested, unfamiliar to funders and
lenders
- deficiencies in some areas ie. where are charges
over assets lodged?

45. Suitability – the cons
No minimum registration threshold
- required to register and file returns regardless of size
Only exists at the Charity Commission
- if registration is lost the Charity will fold

46. Conversion to CIO
Unincorporated charities
No conversion process written into 2011 Charities Act.
Charity Commission guidance sets out process as:
- register new CIO with Charity Commission
- transfer all assets and undertakings into CIO and
settle all liabilities

47. Conversion to CIO
- dissolve unincorporated charity in accordance
with governing document
- apply for unincorporated charity to be removed
from register
Charitable Companies
2011 Charities Act contained provisions for conversion
but legal framework still in process of being finalised.
Regulations expected later in 2014.

48. CIOs – points to consider
Start conversion process early
- have registration in place ready for year end and
asset transfers

49. CIOs – points to consider
Administration
- charity stationery will need to be updated for new
registration number and statement that organisation
is a CIO etc.
- new bank account(s) will need to be set up in CIO’s
name

50. CIOs – points to consider
- notify relevant authorities eg HMRC
- will require professional advice re: leases, employee
contracts, pension schemes, land registry, legacies left
to unincorporated charity (notify local solicitors?)
Housekeeping
- take opportunity to review charity’s objects,
composition of board, membership procedures, etc.

51. Keeping up to date
- www.charitycommission.gov.uk
- www.cabinetoffice.gov.uk
- www.lovewell-blake.co.uk/media-centre/

52. Liz Hill
VAT Consultant
VAT Threats and Opportunities

53. Agenda
• Liability of grants, donations and contracts
• Fund raising and sponsorship
• Advertising
• Donated goods for sale
• Supply of staff
• Certified zero rating of purchases
• Relevant charitable purpose

54. Grants, donations and contracts
• Grants and donations – VAT free (outside the scope),
provided no benefit given to grantor/donor
• If goods, services or benefits provided, may have to
charge VAT at 20%

55. Grants, donations and contracts
• Contracts for services may be charged at 20%, if charity
provides service or goods
– Review contract schedule
– Assess both parties’ understanding

56. Grants, donations and contracts
• For example
– contract between charity and council for project
reviewing number of elderly persons using local bus
services
– contract between charity and council to provide
advisory services to young homeless people

57. Grants, donations and contracts
– grant funding paid by council to charity to support
annual event
– contract between two charities where one supplying
technical administration and management services to
other

58. Fund raising and sponsorship
• Fund raising income receipts – VAT free (exempt)
– downside - no recovery of VAT on expenditure

59. Fund raising and sponsorship
• Example - dinner dance with auction
• Ticket income – VAT free (exempt)
– cannot reclaim any VAT incurred on, say, hire of
tables and chairs
• Auctioned goods sold VAT free (zero rated)
– can reclaim VAT incurred on eg display stands

60. Fund raising and sponsorship
• Some costs to the charity should be VAT free (zero
rated) eg advertising and printing
– check with the printer
• Sponsorship charges may be VAT free (outside the
scope) as donations if nothing significant provided in
return
– for example, name in programme

61. Advertising
Sale of advertising is subject to VAT at 20% except:
• when publication has < 50% of adverts placed by private
persons. VAT free (outside the scope)
• supply to another charity of space for public
advertisement. VAT free (zero rated) or
• sale of advertising space in programme for fund raising
event. VAT free (exempt)

62. Donated goods for sale
• Sales of goods donated to a charity (or taxable person
who has agreed to give profits to a charity) are VAT free
(zero rated)
• For example
– clothing store donates fleeces to charity which sells
them at a jumble sale
• Goods available to public before donation

63. Donated goods for sale
• Extra Statutory Concession 3.21 permits zero rating
where:
– goods which are unfit to be made available to the
public eg clothing for rags or electrical equipment
• Rule about goods being made available to public is side-
stepped

64. Supply of staff
Supply of staff = business activity plus VAT (20%) except:
• joint contract of employment. VAT free (outside the
scope)
By concession, seconded staff. VAT free (outside the
scope) provided that:
• employee must be engaged in non business activities
and
• payment cannot exceed ‘normal remuneration’

65. Certified zero rated purchases
• Relevant goods supplied to a charity or paid for with
donated funds can be VAT free (zero rated)
• Relevant goods
• Charity must issue certificate to supplier
• Can also cover imported goods
• Incorrect issue can lead to a fine
• Medical equipment

66. Certified zero rated purchases
– Telecommunication equipment
– Ambulances
– Medical or surgical appliances for disabled persons
– Motor vehicles adapted for wheelchairs, handicapped
persons or terminally sick
– Resuscitation models

67. RCP
• Relevant charitable purpose – otherwise than in the
course or furtherance of business
• Can result in VAT free (zero rating) building services
• For example - building of new village hall, charity office
or facility, sports hall
• Longridge Case (going to appeal)
• Change of use
• Rental of commercial property from landlord – can be
VAT free

68. Matthew Waters
Charities Team

69. Upcoming changes – SORP 2015
- 10 years since the previous Statement of Recommended
Practice issued
- New SORP drafted to accommodate upcoming changes
in financial reporting
- Consultation period over

70. Upcoming changes – SORP 2015
- Expected to be cleared by Financial Reporting
Council by the end of May 2014 and published by end
of June 2014
- Keep updated:
http://www.lovewell-blake.co.uk/media-centre

71. Upcoming changes – regulatory
The National Audit Office (NAO) reported on the
Charity Commission. The Commission accepted and
endorsed their recommendations:
- accepted that it was too cautious in tackling
problems
- to put more emphasis on compliance, regardless
of income
-

72. Upcoming changes – regulatory
- therefore more statutory enquiries, not just ‘high
risk’ charities
- enquiries into charities failing to submit accounts
on time
- conducted a review of 70 random sets of accounts
- 74% prepared to acceptable standard
- 26% signposted for guidance

73. Upcoming changes – regulatory
- individual scrutiny of 770 sets of accounts prompted
referrals to professional accountancy bodies to
highlight serious concerns about standard of work
- established new dedicated monitoring team

74. Social Investment Tax Relief (SITR)
New tax relief scheme to encourage support of social
enterprises.
Investors
- can deduct 30% of qualifying investment from income
tax liability
- applies from 6 April 2014 (awaiting Royal Assent –
July 2014)
- minimum period of investment of three years
- maximum annual investment of £1m

75. Social Investment Tax Relief (SITR)
- Can also defer capital gains tax if gain is invested in
social enterprise
- tax then payable when investment redeemed or sold
- no CGT on any gain on disposal of social investment
- income tax payable on any income from social
investment
- Not available if reliefs such as Enterprise Investment
Relief were obtained

76. Social Investment Tax Relief (SITR)
Eligibility
- Entity must have a defined, regulated social purpose
- eg Charity, Community Interest Company
- fewer than 500 employees
- gross assets no more than £15m
The entity seeking investment must register with
HM Revenue & Customs to be issued an SITR
Compliance Certificate. Cannot apply until Royal Assent
gained.

77. Social Investment Tax Relief (SITR)
Entity will need to meet a number of conditions regarding
control by parents and control of subsidiaries. If entity
seeking eligibility is part of a group, will need to refer to
detailed guidance and seek professional advice re
potential restructuring.

78. Social Investment Tax Relief (SITR)
Qualifying investment
- in the form of newly issued shares in a CIC or a
qualifying loan to either entity
- must be paid up in full, in cash, at time of investment

79. Social Investment Tax Relief (SITR)
There is a restriction on the amount a social enterprise can
raise under SITR, determined by a calculation (€200k
adjusted depending on CGT and SITR rates). At present, in
the most basic scenario, the enterprise can raise €344,827.
Within 28 months, all but an ‘insignificant amount’ of
monies raised using SITR must have been employed for
the purposes of the chosen ‘trade’ (charitable activity).
Failure to meet this condition will result in tax relief
being lost.

80. Social Investment Tax Relief (SITR)
Where we are:
- Guidance issued to enterprises and investors
- www.gov.uk
- investor can begin planning for 2014/15 tax year
- enterprise can determine if meets criteria but
cannot register at present

81. Social Investment Tax Relief (SITR)
- seek professional advice (loan agreements,
eligibility, investor tax position, enterprise group
restructuring, etc)
- Awaiting 2014 Finance Bill receiving Royal Assent
(expected July 2014)

82. Questions?