Charity Newsletter - Mitchell Charlesworth · Although there is an annual limit of £5,000 up to 5 April 2016 and £8,000 from 6 April 2016, charities often include greater amounts

| 1 | www.mitchellcharlesworth.co.uk

Charity NewsletterSPRING 2017

In this issue...

Charities Against Fraud website Page 3

The top 5 errors made by Charities when making tax claims Page 4

Changes to Gift Aid Small Donations Scheme Page 5

Charities exempt from quarterly online tax returns Page 5

Do Charities need insurance? Page 6

Gift Aid Page 8

Supreme Court win for Animal Charities Page 9

Charity trustees’ responsibilities Page 10

Charity team appoint new audit manager Page 11

| 2 |www.mitchellcharlesworth.co.uk

Charity Newsletter | Spring 2017

Introduction

In this edition, we discuss the changes made to the Gift Aid scheme, Gift Aid on a charity’s profits, common tax errors made by charities, the responsibilities of charity trustees. Finally we welcome a new addition to the team, Adunola Ige.

We hope you find this newsletter useful and if you would like to discuss any of the points raised in the articles, discuss a current issue or would like to arrange an appointment, please contact one of our specialist partners:

Welcome to the latest edition of our charity newsletter, providing you with updates on the latest news and legislation affecting the sector. Mitchell Charlesworth has a specialist team of charity advisors who are based across the North West and provide real support to the local charity community.

Philip GriffithsPartner0151 255 2300 [email protected]

Paul BoothPartner0161 817 6100 [email protected]



Charities Against Fraud website

The Charities Against Fraud website has been borne from the Commission’s collaboration with the Charity Sector Counter Fraud Group. The website is an initial point of reference for charity trustees, staff and volunteers to learn how to tackle fraud in their charity and includes guidance, top tips, case studies, as well as signposting users to other organisations tackling charity fraud.

Charity staff and trustees must stay alert to the risks and understand how to manage them. Top tips to reduce your charity’s vulnerability to fraud include:

1. Develop a strong counter fraud culture where staff are encouraged to play their part in identifying suspicious/potential fraudulent activities

2. Establish robust internal financial controls3. Encourage staff to voice concerns4. Have a fraud response plan so that everyone knows what to do

and when - stay calm but act quickly when incidents do occur5. Ensure your charity report incidents to Action Fraud and to the

Commission, via the dedicated reporting facility: [email protected]

Whilst fraud poses a serious threat to every organisation, charities can find themselves particularly vulnerable as a result of the large number of financial transactions they conduct.

For further information please visit www.charitiesagainstfraud.org.uk.

If you have any concerns regarding your charities’ governance and financial management, please do contact us.

A new website designed to help charities collectively tackle fraud has been launched by the Charity Commission.



1. Wrong authorised official/agent/nominee submitting the claim

Charities may change personnel or appoint a new agent/nominee, but fail to complete a change of details form (ChV1) to let HMRC know.

2. Claiming excessive GASDS (Gift Aid Small Donations Scheme)

Although there is an annual limit of £5,000 up to 5 April 2016 and £8,000 from 6 April 2016, charities often include greater amounts on their claims. It would seem that the confusion arises when a charity enters the total donation collected rather than the total eligible amount. To counter this, charities should only enter the maximum amount rather than the actual amount collected.

3. Out of date GASDS claims

The Gift Aid Small Donation Scheme runs tax year to tax year, and charities can only claim back for the previous two years – whereas Gift Aid runs from accounting periods and charities can claim for the previous four years.

4. Errors completing a paper claim form

As the form is scanned and read electronically, charities are advised not to put lines through boxes or ‘N/A’ and should leave them blank instead.

5. Additional correspondence is sometimes included

The guidance notes ask charities not include additional correspondence

The outreach team also revealed that the main queries received from charities related to:

• Help completing application and change of details forms• Chasing progress of claims• Advice on the Gift Aid Small Donations Scheme (GASDS)• Advice on ‘eligible’ donations• Whether charities need to complete a Corporation Tax (CT) return

If you have any questions or queries concerning Gift Aid, Gift Aid Small Donation Scheme, Corporation Tax or any other subject please contact our team.

The full feedback was published by the Charity Tax Group and can be read here. https://www.charitytaxgroup.org.uk/news-post/2016/feedback-hmrcs-charities-outreach-team/

HMRC Charities Outreach Team has revealed charities most common errors made by charities when making tax claims

The top 5 Errors made by Charities when making tax claims



Changes to Gift Aid Small Donations Scheme from 6 April 2017

A review of the scheme has taken place and the following changes take effect from 6 April 2017:

The requirements that

• The organisation has been recognised as a charity “for tax purposes” or registered with HMRC as a CASC for at least two complete tax years; and

• The organisation has made a successful Gift Aid claim in at least two of the previous four tax years without a gap of two years between claims or since the last claim made

have both been removed. These changes should make it easier for newly formed charities to access this scheme and it make it more attractive for smaller charities.

It is still the case that a penalty incurred by a charity in respect of a Gift Aid or GASDS claim will disqualify it from making a GASDS claim in the tax year in which the offending claim was made and the following tax year.

The claim limits still remain, so a charity can only claim a top up payment on small donations of the lower of 10 times the amount of its Gift Aid donations from that tax year or £8,000.Where charities and CASC’s are connected (where the same persons or connected persons have control over them and their purposes and activities are the same or substantially similar) then they share the GASDS limit between them.

From 6 April 2017 donations made by contactless payment will also qualify under GASDS but cheque payments, debit and credit card, text message and bank transfers remain excluded as when these methods are used it should be more straightforward to get the donors details to obtain a Gift Aid declaration.

Conclusion

The new rules are designed to simplify the GASDS and make it more accessible to more, particularly smaller charities. It is worth investigating if your charity can make a claim.

Under the Gift Aid Small Donations Scheme (GASDS), Charities and Community Amateur Sports Clubs (CASC’s) can claim an extra 25p for every £1 received on small cash donations of £20 or less without needing a Gift Aid declaration or establishing a link to the donor’s tax record. This was subject to a limit of £2,000 (being 25% of the maximum amount of £8,000 of donations from 6 April 2016).

Charities exempt from quarterly online tax returns

We have been contacted by a number of our concerned charity clients regarding the imposition of quarterly tax returns.

We understand that HM Revenue and Customs (HMRC) has advised that charities will be exempt from new digital filing requirements as a result of responses to the Making Tax Digital consultation.

However, the exemption does not extend to any trading subsidiaries of charities who will have to follow the new rules.

If you have any questions or concerns please contact our charities team.



Do Charities need insurance?

Are there any compulsory insurances?

Yes. If you employ staff then you are required by law to have employers’ liability insurance, and charities can be penalised if they fail to put appropriate cover in place with a hefty fine of £2,500 for every day the charity remains uninsured.

Similarly if the charity owns or operates motor vehicles then the charity will be required to buy motor insurance.

But we don’t have employees, we just have volunteers?

In the eyes of insurance legislation, volunteers are deemed to be employees and therefore employers’ liability insurance will also need to be in place irrespective of whether you have employees or just use volunteers.

Do we need insurance whilst visiting external events?

Although public liability insurance is not a legal requirement, it could still be a requirement of external venues i.e. at fetes, exhibitions etc. Therefore charities should carefully check their risk assessments or any other paperwork when planning to attend an external event. We would always recommend public liability insurance is put in place for any charitable body or social organisation that interacts with the public to avoid ambiguity and protect against legal costs and expenses in defence of alleged injuries to members of the public and third party property damage claims.

It also covers damages and compensation awards against the charity. When purchasing public liability insurance you need to ensure that the policy covers all your charity’s activities, including any fundraising events you may be organising.

Our charity provides a free service - do we still need professional indemnity insurance?

If your charity is providing any professional service (e.g. counselling) or provides advice then it can be held liable if any omissions or errors have been made or the charity are considered to have acted negligently which results in injury, loss, damage to a third party. These losses can be physical, mental or financial. Professional indemnity covers you for legal costs in defence of alleged claims of providing incorrect advice or negligent services. It would also cover damages and compensation awarded against the charity.

Contents Insurance - the main covers to consider

When insuring the contents of a building, trustees need to verify that their policy sufficiently protects the charity’s property, and Charities should consider whether:

• The policy covers the contents against theft• If so, does the theft cover impose any specific security requirement

ie multipoint locking systems, and if so, do the charity’s premises adhere to these?

• Does the policy extend to include accidental damage?• Is the cover on a new-for-old basis?• Is there any equipment that you regularly take away from the

premises? If so, is there appropriate cover in place for this?• Do you hold money on site? If so, do you have appropriate money

covers?

By law, charity trustees have a duty to protect their charity’s resources and assets. This can include insurance against certain risks such as loss, damage or liability arising from the charity’s day to day activities.


Additional Covers a Charity should consider:

Trustees & Management Liability Insurance

This covers the directors, managers, officers and trustees personally for legal claims made against them for a breach of trust, duty or negligence committed by them in their capacity as a trustee. These claims could come from third parties or the charity. Without this insurance protection these legal costs would be payable personally by the trustee or person accused.

This policy also provides an extension to cover the legal entity of the charity against similar claims made such as corporate manslaughter, breach of contract and Health & Safety Executive investigations. The policy covers the legal costs and expenses in defending the charity.

Fidelity Cover

This can protect the charity against loss of money or goods in the event of fraudulent acts of volunteers and employees.

Commercial Legal Expenses Insurance

This policy covers your legal defence costs connected to a variety of disputes including employment, health and safety and contract disputes. It also provides you with both an online and telephone advice service that can give you practical guidance on human resource and health and safety compliance.

Business Interruption/Loss of Revenue

This can cover the reduction in a charity’s income in the event of an insured event such as fire or theft. When considering this type of insurance it is important to seek professional insurance advice as an insurer’s definition of gross profit differs from that of an accountants.

How to decide what optional insurances your charity should consider?

Mitchell Charlesworth Insurance Solutions can arrange to review your charity’s insurance needs and ensure you’re appropriately insured. We can help you work through a charity risk assessment to determine what type of insurance cover is necessary for your particular charity. To discuss your insurance needs and what optional policies you would like to consider, please contact a member of the team who would be happy to arrange a free consultation meeting.

Please contact our Insurance Team, Richard Gorst or Carrie Arnold on 0151 423 7500.


‘Do Charities need insurance?’ continued...



Gift Aid

In 2000, the rules regarding gift aid payments were changed so that donations to a charity became deductible from profits as qualifying gift aid payments. Such donations are usually deductible when payment is actually made, however in the case of a wholly owned subsidiary, the subsidiary has nine months after the year end to make the payment giving plenty of time to determine precisely the amount required to cover the profits.

This has worked well for over 15 years however, two recent developments may well have complicated this matter.

Institute of Chartered Accountants in England and Wales guidance

Last year the Institute of Chartered Accountants in England and Wales (ICAEW), issued new guidance in the form of technical release 16/14BL, that determined that any such payment to a parent charity is, in law, a distribution, and as such a charity must have sufficient distributable reserves to make such a payment.

Previously even the Charity Commission’s own guidance suggested that a gift aid payment could exceed the company’s distributable reserves as set out in CC35.This was withdrawn in October 2014 and revised guidance issued in February 2016 confirming that a company could not distribute any more than its available reserves.

Thankfully the tax legislation still allows the gift aid payment to be treated as a qualifying donation despite the fact that for the purposes of company law it is regarded as a distribution.

Why are profits different?

The reason why the profit in the accounts may be different to the taxable profit is firstly because of timing differences, such as a difference between the depreciation charge on tangible fixed assets and the available capital allowances thereon, and secondly permanently disallowed expenses such as customer entertaining or certain legal fees. In such cases it may be impossible to avoid paying some corporation tax.

Introduction of FRS 102

The second development has been the introduction of the new accounting framework commonly known as FRS 102. One of the effects of FRS 102 is that as there is no legal obligation to make a gift aid payment, there is a suggestion within the accounting profession that such payments should not be recognised in the accounts until they are physically made.

This does not directly affect the tax treatment. If payment is made within nine months after the year end then it can be included in the corporation tax computation in the previous year.

The question does arise though as to whether any tax charge should be recognised in the accounts given that the gift aid payment is not included. This is important as any tax charge would reduce the distributable profits and therefore the ability to make the gift aid payment. Discussions are continuing on this point and it is hoped that further guidance will be issued shortly.

Charities often use subsidiary companies to undertake trading activities that cannot be carried out in the charity itself, then make gift aid payments to the charity to shelter any profits made in the subsidiary from corporation tax. Recent developments suggest that such arrangements may need to be more formalised if they are to be effective in the future.


Mitchell Charlesworth comment

It seems like this is another case of the lunatics taking over the asylum, however we have always agreed that a subsidiary of a charity is not in a position to make a gift aid payment in excess of its distributable reserves as otherwise it would make the subsidiary appear insolvent.

One way to deal with this would be to try to ensure that:

• The charity owns the fixed assets that are used by the subsidiary and to charge the subsidiary a rental fee for their use;

• Any expenses that are potentially disallowable are charged in the charity.

In this way the taxable profit of the subsidiary should always be equal to the accounting profit.

The subsidiary could also ensure the gift aid payment becomes a legal obligation, by the directors agreeing the payment before the year end at an amount to be determined, and noting this in the minutes of a meeting, then advising the charity of this.

In this way the gift aid amount can be provided in the accounts and no provision for corporation tax would be necessary as a result.

Alternatively it may bring back the use of a Deed of Covenant. They work in the same way as gift aid as far as taxation is concerned, however they are a legally binding document and there would be no need to annually agree gift aid payments before each year end.

‘Gift Aid’ continued...


Supreme Court win for Animal Charities

The ruling meant that Mrs Ilott will now receive just £50,000 out of the total estate of £500,000, the amount originally awarded in a county court ruling. Ilott had been estranged from her mother for over 25 years at the time of her mother’s death, who had written a letter to the Executor alongside her will which confirmed her intention not to leave any money to the daughter.

The Supreme Court ruled unanimously in favour of the three charities overturning the decision of the Court of Appeal.

Lord Hughes, one of the Supreme Court judges who handed down the ruling, said: “Charities depend heavily on testamentary bequests for their work, which is by definition of public benefit and in many cases will be for demonstrably humanitarian purpose.

“More fundamentally,” the judge said. “These charities were the chosen beneficiaries of the deceased.”

James Aspden, partner at Wilsons Solicitors who represented the three charities, said:

“The Supreme Court’s unanimous ruling confirms, very clearly, that we are in general free to choose who will inherit our property when we die. It clears up a number of points where the law had become uncertain and will enable people drafting wills to give clearer advice to their clients. The most important message it sends is that your wishes matter and that if you choose to record those wishes in a will, they will be listened to.”

Last month, the Supreme Court reached a landmark ruling by finding in favour of three animal charities, who were appealing against a decision by the Court of Appeal in July 2015, to award £164,000 to Heather Ilott, the estranged daughter of the late Melita Jackson who left all of her assets to the three organisations in 2004.



Charity trustees’ responsibilities

These responsibilities are set out in law through the Trustee Act 2000 and summarised through Charity Commission guidance (“Charity trustee: what’s involved (CC3a)”). The main responsibilities are:

• Ensure your charity is carrying out its purposes for the public benefit

• Comply with your charity’s governing document and the law• Act in your charity’s best interests• Manage your charity’s resources responsibly• Act with reasonable care and skill• Ensure your charity is accountable

Of these, the one that is the most subjective, and hence gives rise to the most concern amongst trustees, is how to ensure that they act with “reasonable care and skill”. What does this mean? How is it defined? The Charity Commission guidance explains this by stating that a trustee:

• Must use reasonable care and skill, making use of their skills and experience and taking appropriate advice when necessary

• Should give enough time, thought and energy to their role, for example by preparing for, attending and actively participating in all trustees’ meetings

The good news is that this does not mean that a trustee has to be an expert in all fields. In many respects, the expectation is that a trustee will give as much care and attention to the affairs of the charity as they would give to their own. They should also be aware of their own limitations and seek external professional advice where they don’t have appropriate technical knowledge and experience.

This also means that the expectations of individual trustees within a charity may be a different. A qualified solicitor on the board of a trust will be expected to apply their professional knowledge and expertise in relation to charity matters. There is therefore a higher level of expectation of the solicitor trustee in relation to legal matters than would be the case of a trustee with no legal background.

It is always worth remembering that it is possible for a charity to take out insurance to protect its trustees should something go wrong. Please contact Carrie Arnold ([email protected]) who is one of our insurance experts if you would like to discuss this.

We can only scratch the surface of trustee responsibilities in a short article, but at Mitchell Charlesworth, we have many years’ experience advising clients in these areas and would be happy to answer any questions or discuss any issues that you may have.

To assist charities and trustees to meet their responsibilities, we have produced a helpful checklist of board policies and procedures which can be printed off or downloaded and saved for future use. If you would like a copy of this then please send an email to Cara Bartlett ([email protected])

The responsibilities of charity trustees are one of the most common areas for questions from our clients. This is not surprising given that charity trustees can carry significant personal risks in return for volunteering their time and support. In the main though, what is expected of a trustee is relatively straight forward and not that onerous in practice.



Ms Ige began her career with Tenon, now known as RSM, in Manchester before audit roles with other accountancy practices. She joins Mitchell Charlesworth from Crowe Clark Whitehill and said she is looking forward to the challenges her new role will bring.

She said: “Mitchell Charlesworth has a strong reputation for the attention to detail that is given to each client and the high level of involvement of the partners in each engagement. I was in a senior role before, so I was attracted by the step to manager and the opportunities that come with the position.

“Working in audit is something I’ve always enjoyed because you can add value and integrity to an organisation’s process. It also offers the chance to give advice to clients about regulations, systems and a range of other operational and commercial issues, which I find interesting. Every day is different and already I’ve had the opportunity to see how things are done at Mitchell Charlesworth and how I can use my previous experience to add value to the team.

“So far I’ve been involved in tendering alongside the partners, which is an area that I have been looking forward to becoming involved with. I’m also looking forward to the other challenges that come my way, whether that’s in growing the business or servicing the existing client base to the high standards already set by my colleagues.”

Alison Buckley, partner at Mitchell Charlesworth, said Ms Ige had already become a valuable member of the Manchester team.

“Adunola brings with her a wealth of experience in audit that will be an asset to Mitchell Charlesworth,” she said. “Already she is proving to be an excellent manager and has taken the lead on several tendering projects so far. I have no doubt that she will play a vital part in the future of the firm as she continues to offer her expertise to our clients.”

Mitchell Charlesworth have strengthened their Charity team with the appointment of Adunola Ige as audit manager.

Charity team appoint new audit manager

Pictured L-R: Paul Booth Partner, Adunola Ige Manager and Alison Buckley Partner


CHESTER 24 Nicholas Street, Chester CH1 2AUt: 01244 323051 f: 01244 344535

LIVERPOOL 5 Temple Square, Temple Street, Liverpool L2 5RHt: 0151 255 2300 f: 0151 255 2301

MANCHESTER Centurion House, 129 Deansgate, Manchester M3 3WRt: 0161 817 6100 f: 0161 817 6101

WARRINGTON Victoria House, 488 Knutsford Road, Warrington WA4 1DXt: 01925 635141 f: 01925 655839

WIDNES Glebe Business Park, Lunts Heath Road, Widnes WA8 5SQt: 0151 423 7500 f: 0151 423 7505

More than just your accountants MC Vanguard Corporate Finance

Payroll - Outsourced Service

Tax Advisory

Audit & Accounts

Corporate Recovery & Insolvency

MC Insurance Solutions

MC Wealth Management

Cloud Accounting Solution for Making Tax Digital

Whilst the information is believed to be true, the communication may not be comprehensive and recipients should not act upon it without seeking professional advice.

Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Mitchell Charlesworth is the trading name of Mitchell Charlesworth LLP, registered in England and Wales number OC391811. A list of members is available for inspection at our offices.

Mitchell Charlesworth Insurance Solutions Limited is authorised and regulated by the Financial Conduct Authority.

Mitchell Charlesworth LLP is a member of Kreston International - A global network of independent accounting firms.

www.mitchellcharlesworth.co.uk

Documents

Charity Newsletter - Mitchell Charlesworth · Although there is an annual limit of £5,000 up to 5 April 2016 and £8,000 from 6 April 2016, charities often include greater amounts