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Winter 2016 ANGLICANDIOCESEB R I E F I N G

Letter from the Editor | A view from the bridge | Schools — it’s time to up our game | FRS 102 and SORP 2015

Does your investment policy need C.P.R? | Business Expense Payments Exemption Employment Tax calendar | Apprenticeship Levy | An effective anti-fraud policy

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Letter from the EditorWelcome to the first issue of our Anglican Diocese Briefing.

We go to press as we prepare to welcome delegates to our specialist seminar for the sector on 12 January 2017, where we’ll be discussing many of the issues highlighted here in our briefing.

To find out more or register click here. We hope you’ll find plenty inside to whet your appetite and stimulate your thoughts.

Adam Halsey, our Head of Faith Charities and one of the foremost advisers in the sector, opens with his take on the broad sweep of challenges facing Anglican dioceses today. We’re also pleased to bring you:

• insight from Howard Dellar, of law firm Lee Bolton Monier-Williams, on how the academies agenda is affecting relationships between dioceses and local authorities;

• Tom Brain, our Senior Charities Manager witha detailed look at how dioceses have fared transitioning to FRS 102 and the new Charities SORP;

• Barry Newbury, of Epoch Wealth Management with practical guidance on how charities and dioceses can formulate effective investment policies; and

• haysmacintyre’s Nick Bustin writing on the new Apprenticeship Levy, which takes effect in April 2017.

My own advice on why all charities need an anti-fraud policy and what it should cover, wraps up our briefing.

Our aim with this briefing is to draw on our own expertise and that of our professional network to pull together practical information and advice, specifically tailored for Anglican dioceses. We welcome your views on the contents, and any suggestions you have on what you would like us to cover in future.

For more information please contact:Adam Halsey, Head of Faith Charities T 020 7969 5657 E ahalsey@haysmacintyre.com

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A view from the bridge

Here we pick up on four of the key areas Anglican dioceses can consider.

Effective long term financial planning Anglican dioceses are often asset rich and cash poor, they are complex organisations structured to take account of the needs of multiple stakeholders. As such, to face the future with confidence they require a comprehensive financial strategy that goes far beyond a simple annual budget.

To put in place a strategy of this nature, a diocese needs to consider every aspect of its financial model. This will include its investments and property, its central functions and its parishes, it will review clergy and laity, and scrutinise income, costs and cashflow.

This process will enable the diocese to plan ahead and reduce the chance of having to make short-term decisions driven by cashflow, that may not be best in the long term. For example, it may flag that the diocese has more property than it needs, that there are opportunities to downsize in some cases, or build income through rent; or conversely that there are likely to be costs on the horizon because of changing clergy demographics.

Whatever the result, this is far more than a paper exercise. By working through its finances like this, the diocese is able to present a clear and unambiguous message to its stakeholders of where it stands.

The economic volatility we are experiencing now will pass with time, but in the interim dioceses must do all they can to mitigate risks to their financial position. Comprehensive planning can minimise the chance of unexpected drops in income causing panic and worry.

Consistent messagingThe way dioceses access funds has changed considerably in recent years. Grants and funding, whether allocated to dioceses from the national church or from bodies such as the Heritage Lottery Fund – now come with many more strings attached.

For funding applications to be successful, dioceses must be able to demonstrate the wider public benefit of their work at a parish and community level. While they can do this through effective messaging on websites and other external communications, where it really makes a difference is in credible financial statements, with an audit statement attached.

If dioceses can build the right messages into financial statements early on, the process of applying for funding becomes more straightforward and they can avoid having to retro fit the rationale later on. Knowing that they will (quite rightly) be held accountable for what they achieve with a portion of funding, this approach can give them confidence they have the information they need to demonstrate their objectives and results.

2016 was certainly a year to remember, and like other institutions and charities, Anglican dioceses have had to take stock of the social, economic and political reverberations caused by the Brexit vote and the US election.

After such a volatile year, how can Anglican dioceses ready themselves to weather what lies ahead? 2016 has taught us predicting the future is not easy. What we do know is that in periods of economic uncertainty, mitigating risks with good forward planning is more important than ever.

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Robust controlsFinancial controls are a now an increasingly hot topic for the church and in the wider charity context. High profile scandals like Kids Company have increased scrutiny on the whole sector.

Whenever institutions fail, questions are asked as to whether they had the correct controls in place, and why issues were not spotted sooner.

The Charity Commission has made it clear that trustees have a duty to ensure that their internal financial controls are sufficiently robust. For dioceses, as for any institution this requires good governance, a solid management team and clear procedures.

In this context, dioceses must reflect on their own control environment, particularly where there is evidence that there have been concerns in the past. They need to be confident they can demonstrate to stakeholders that those issues have been addressed and that their procedures are fit for purpose.

Internal audit is now increasingly being considered by diocese, in part because many boards include lay members who have a public sector background, and expect to see it in place. Internal audit has come to represent better value for money and be more useful for dioceses, because it has changed in nature from a process that is all encompassing, to one that can take a deep dive into a particular area of concern.

Good communication In Anglican dioceses, as in any large organisation, communication is the key to managing change in a positive way. Time and again, we see situations where changes in diocese processes – for example a shift from a share to an offer model – results in a temporary drop in income which can make it difficult to balance with

increases in costs. What makes a difference is effective two-way communication between diocese, parishes and all the other stakeholders involved, so that all sides understand the benefits of the relationship as well as the obligations and responsibilities.

Forward, with confidence2017 is certainly set to be an interesting year. On the wider stage, the new administration in America, emerging plans for Brexit and political upheaval in Europe will all continue to feed the economic uncertainty.

The church faces its own particular challenges: working with sensitivity through historic issues linked to safeguarding, and ensuring the problems of the past are not repeated in the future; succession planning to mitigate the effects of an aging population of clergy; and the decline in legacy giving and congregation numbers.

Despite these challenges, Anglican dioceses are well placed to manage what will come. With good financial planning, clear communication and robust controls and processes in place, as well as great leadership they should be confident that they will successfully navigate the months and years ahead.

Adam Halsey, Head of Faith CharitiesT 020 7969 5657 E ahalsey@haysmacintyre.com

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The Academies agenda has also brought some tensions between DBEs and the Diocesan Boards of Finance. Most DBEs have seen the need to create a Multi Academy Trust (MAT) (or more than one). Many of these MATs now have larger budgets than the DBF, causing unease and even disquiet from time to time. And as the MATs have grown, so they have acquired executive staff such as a CEO (Chief Executive Officer) or COO (Chief Operating Officer). They wield considerable influence and even the Diocesan Director of Education (DDE) may feel they are no longer as ‘in control’ as once they were.

Meanwhile, the changes in Government and in the administration of education have brought a major new player onto the field in the form of the Regional Schools Commissioners (RSCs). In the past, a DBE might relate to the Directors of Children’s Services in a number of LAs. Now those relationships are becoming secondary to that between the RSC and the DBE. And the ability of a DBE to direct the way church schools are grouped, served, improved, sustained and nourished is now tempered by their credibility and standing with the RSC. Within the framework of a national Memorandum of Understanding, the RSC and his/her associated Headteacher Board have almost absolute power to dispense control and influence over schools. I even receive reports of DDEs and their MAT CEOs finding themselves in mutual conflict in the presence of the RSC: the interests of a growing and ambitious Diocesan MAT do not always match those of a diligent and risk-averse DBE.

One more additional stress looms over these already sometimes uneasy relationships. The Government has declared a commitment to allow for some form of structure to allow LAs to take charge of new MATs. To ensure that schools are well-served by this, and that we can continue to serve our traditional client base in DBEs and church schools, we are aiming to build strong links into this new initiative.

As a lawyer, I reflect that whatever we may think of Michael Gove’s decision to move the basis of educational provision from statute to contract, one major outcome has been that all these relationships require some form of quasi-contractual formalisation, and must be assessed for risk and responsibility at every level. Rather like the world of commercial property, where good agreements depend on all parties understanding each other’s true interests and negotiating until each party gets some of what they need to have, though not all of it; so the relationships in the multi-faceted

and highly variable brave new world of educational organisation require very clear and objective mutual understanding of each others’ needs, and very precise and open documentation supporting effective working arrangements between all parties.

The formal documentation is now fairly well-established in terms of Master Funding Agreements, Supplemental Funding Agreements, Commercial Transfer Agreements and Land Transfer (though the last can be very complex). Alongside this will sit an Academy Trust’s own due diligence for the financial soundness of schools coming into the Trust, and of each school’s educational performance. Where a DBE is involved, they will want a very strong ‘say’ in those assessments to match their statutory place in the legal Agreements.

With the drive for all schools to become Academies by 2022, it seems to me that we now need to ‘up the game’ in terms of risk protection, due diligence, and management of liabilities and accountabilities. Dioceses that had one or two MATs (and some still have none) may need to find a way of encompassing many MATs of 10-15 schools, or – occasionally – one large MAT. A MAT of 80 schools has been mooted in one Diocese, though it has yet to happen. Bishops, Archdeacons, Diocesan Board of Finance (DBFs) and DBEs who have previously felt they had maintained their network of schools, and set up effective oversight provision, through the appointment of Members to their one or two MATs will immediately see the need to recruit a larger number of potential Members, to train them and systematise the way they are held accountable for their oversight of the particular MATs to which they are appointed. Simultaneously, new and much more formal agreements will need to be made with the new MATs to allow the right access, reporting, and inspection processes to be reliable. MATs and individual schools will have to accept and sign up to routine reporting which they may instinctively resent and want to resist. And DBEs will need the capacity to receive, analyse, review and report on the data via their DDE to the Board and wider Diocese.

Those with legal obligations and duties in a Diocese, whether as company directors or charity trustees, will need the comfort of a system and structure that they can be advised formally is fit for purpose. DDEs and others who have to negotiate with RSCs and LAs will need such structures to be lean and efficient because there will be no sympathy with any kind of bureaucracy that burdens schools with added expense.

Schools — it’s time to up our game I lead a team which has advised almost every Diocesan Board of Education (DBE) in England and Wales; and which has therefore had dealings with almost every Local Authority (LA) in the country. For England, at least, the Academies agenda has pressured the relationships between Dioceses and LAs. Where the historic relationship has been good and collaborative, they have coped well. Where those relationships have been superficial, or even hostile, things have become much more difficult.

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I am acutely aware that many Dioceses still have not caught up with their backlog of land transfers, S554 Orders and other matters which have been all too easy to kick into the long grass. Many church school site trustees are hardly aware of their responsibilities and a significant minority of such trusts have enormous question marks against them: the deeds are long lost; the trusteeships have become confused or forgotten; people moved on before work was completed; reverters have been abandoned rather than resolved.

The urgency of these matters will become ever more acute if the pressure to convert schools continues to be ramped up. At the very least every DBE should be preparing a schedule of all its school sites, risk-rating each site and focussing efforts on those sites most likely to require conversion or disposal. Where DBEs (or DBFs) hold substantial sums of money under Uniform Statutory Trusts as a result of S554 or predecessor Orders, they should – if they have not already – be working out the charity structure they will need to make some or all of that resource available to build the capacity they will need in the next two or three years.

In my role at Lee Bolton Monier-Williams, heading up the Education, Ecclesiastical and Charity team, I know we have the ability to advise in all these areas. Even so, these issues are all going to develop and change in the next months.

Howard Dellar, Partner and Head of the Ecclesiastical, Education and Charities Department at Lee Bolton Monier-WilliamsT 020 7222 5381 E howard.dellar@lbmw.com

These may be the critical months for DBEs to have discussions and meetings with their own legal advisers, or indeed our team, so that everyone is in as strong a position as possible when everyone really feels the pressure to come. For our part we have a series of seminars, consultations, and conferences planned to help and assist all concerned. We are launching a new information resource in the autumn. I feel that time is precious now: there is not much of it; we must use it to good purpose.

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FRS 102 and SORP 2015 — first year challenges

FRS102 The Financial Reporting Standard applicable in the UK and Republic of Ireland, was actually first published by the Financial Reporting Council (FRC) in March 2013 so its implementation has been a long time coming, even allowing for the publication of revisions to the original standard in August 2014 and September 2015. The revised Statement of Recommended Practice Accounting and Reporting by Charities (SORP 2015) was a somewhat later arrival, being published in July 2014, but it still gave the sector a decent amount of lead time before mandatory adoption for accounting periods beginning on or after 1 January 2015. The implementation of FRS102, via SORP 2015, has not been unproblematic and in this article we will look at some of the major accounting and reporting issues that the Dioceses that we work with have encountered this year.

Changes to accounting practice

FRS102 was trailed as the biggest change to UK financial reporting for a generation. Whilst the volume of changes to accounting policy and practice have been extensive, but the number of changes that have actually had a significant impact resulting in a transitional restatement has been limited. The devil has, as ever, been in the detail.

PensionsThe biggest financial impact, that everyone was expecting, came from the requirement to recognise a liability for future deficit contributions to the Clergy Pension Scheme and the Church Workers Pension Scheme. Resulting in most dioceses having to recognise a liability valued in millions of pounds for the Clergy scheme. The liabilities under the Church Workers Scheme, by contrast, typically being valued in hundreds of thousands of pounds.

The complexities of calculating these liabilities have been resolved by the Pensions Board providing each Diocese with a valuation of their individual liability for both Schemes. Considerations of how to account for the movements and how to present the liability within the a DBF’s funds, as well as explaining the impact on the charity’s reserves, have been sources of significant discussion.

Most Dioceses have followed the Diocesan Accounts Group guidance in allocating the Clergy scheme liability against the Stipends Capital Fund (or equivalent), thereby minimising the impact on unrestricted reserves.

but the treatment of the movements in the liability has been more open to interpretation, with a number of different solutions being exhibited in 2015 financial statements. Each different treatment has been chosen for sound reasons depending on Dioceses’ differing circumstances, but we wait to see whether further guidance or emerging best practice determines any one treatment to be correct.

Again by contrast, the Church Workers Scheme presents a liability within a Diocese’s unrestricted funds and therefore does potentially impact on the charity’s reported reserves position.

Loans to parishes and individualsThe biggest impact that no one seemed to be expecting was in respect of loans to parishes and individuals, such as retired clergy with non-commercial terms. A typical example being a loan to purchase, or assist with the purchase of, a property where the term is not fixed and no amounts are repayable during the term, but the diocese is entitled to a share of the proceeds when the property is eventually sold. Variations include loans where interest is payable during the term of the loan, either at a commercial rate or at a non-market rate.

Under previous UK GAAP, these loans were recognised as a debtor receivable after more than one year, valued at the amount of the original loan. The only potential problem from an accounting point of view being whether the loan was recoverable, which, given the general state of the UK property market, tended to be a small problem in most cases. Under FRS102, this type of loan is required to be measured at the fair value of the amount(s) receivable under the loan ie the present value of the eventual sale proceeds. Determining the fair value today of an amount receivable at an unspecified point in the future appears, at first glance, to be problematic due to the number of unknowns. However, the requirement to recognise the present value of the sale proceeds gives us a simple, although not cost-free, solution. Remeasure the loan value based on the value of the property at the reporting date on the basis that the appropriate discount rate for determining the present value of the future sale proceeds is the rate of property inflation. However, finding a solution and being able to implement it are two different things and in many cases a formal valuation has not been obtainable for accounting purposes, so the impact has been deferred to 2016.

As we reach the end of the audit cycle for 2015’s accounts, it is an opportune moment to take stock of the challenges that we have all faced with transition to FRS102 and the new Charities SORP.

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Discounting

More generally, there is a requirement to recognise financial assets and liabilities at the present value of the amounts receivable or payable. For commercial loans this has no impact but for loans made at a concessionary rate of interest, which are not linked to property values, it has the potential to reduce the value of assets or liabilities due to the time value of money. In our experience, such loans are relatively insignificant to most dioceses but the potential impact of discounting will need to be borne in mind going forward.

Changes to narrative reporting and disclosures

In addition to accounting changes, the adoption of FRS102 has introduced new disclosure requirements, which have been extended by the requirements of SORP 2015. In particular, statements of policy relating to risk, reserves and remuneration of key management, as well as the requirement to disclose the remuneration of key management personnel, have presented headaches of one sort or another. The most severe of these headaches have arisen where policies either don’t exist or are not sufficiently well formulated to be drawn upon directly for reporting purposes.

In respect of risk, the challenge has not so much been about the identification of key risks, which has been a reporting requirement throughout the sector for a number of years, but rather the requirement to state the specific mitigating strategies that boards have put in place in response to those risks. In a number of cases, this is an ongoing exercise which will inform 2016 reports and accounts.

In respect of reserves, the main impact of the new requirements has been seen with regard to designated funds, whose original purpose may be vague or no longer aligned with the current objectives of the Diocese. Again, we anticipate 2016 being a period of “tidying up” for most dioceses, to a greater or lesser extent.

When it comes to remuneration, policies are generally either well formulated or determined by a national church, but the difficulty has been in determining which elements of remuneration need to be disclosed for clergy trustees, especially in respect of housing. This challenge is not unique to the DBF sector and we anticipate that wider best practice will emerge from a number of sectors, in particular independent schools, over the coming year.

In conclusion, 2015 may have officially been the year of transition when it comes to financial reporting but it is likely that 2016 will see further significant change as FRS102 and SORP 2015 bed-in and best practice emerges in a number of areas.

Tom Brain, Senior Charities Manager at haysmacintyreT 020 7969 5670 E tbrain@haysmacintyre.com

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Does your investment policy need CPR?

Unfortunately, other than offering some rudimentary observations on the funds, we are without the means to measure anything of significance until we establish what it is the Charity is trying to achieve. Assessing the suitability of an investment strategy in terms of how well it has met the income requirements, tolerance to risk, performance target and ethical criteria of an organisation can only be done when it is clear what these things are. In other words, it’s about checking if you have ‘round pegs in round holes’.

For this we need to analyse the Investment Policy of the organisation, as (in theory) this should be the key brief given to the Investment Manager and it is this document that the portfolio should be judged against.

The reality

In practice, we’ve found that many religious orders do not have an up to date Statement of Investment Principles (SIP) or Investment Policy (IP) for their organisation. In many cases, if there is a document, it was drafted before the current decision maker’s tenure and no longer reflects the needs of the organisation or the evolving landscape of investment management.

When reviewing these policies, we apply the C.P.R. test. Are the objectives of the Investment Policy for the organisation:

• Clear?• Prioritised?• Realistic?

From our experience, five out of ten of the investment policies we look at fail on all three tests and ten out of ten fail at least one!

This problem can lay dormant for many years when there are cosy, long term relationships in place with Investment Managers and, given the above, it’s hardly surprising that trustees also find it hard to answer the question. Surely the success of anything can only be measured when you are clear on what you’re trying to achieve?

It’s vital that organisations are able to demonstrate they have sound governance around their investment portfolios and with the country facing such a period of significant change, this has never been so important.

There is huge political uncertainty following the Brexit and the increased austerity measures have inevitably led to reductions in charitable giving from the general

public. There also continues to be pressure on donations due to falling congregations. All this places a greater burden on trustees to ensure the portfolio is carefully and appropriately invested, as it’s likely to have a significant bearing on securing the organisation’s future.

New investment options

With the relaxing of the rules around permanent endowments and restricted funds, many dioceses are now looking to take advantage of ‘total return’ strategies that will - in theory - reduce volatility and blur the lines between income and growth.

These strategies vary in style but in principle they aim to achieve a positive return in most market conditions by using different management techniques through the purchase of multiple asset classes. Put simply, the Investment Manager takes a number of decisions on markets which mean they can make money whether the market rises or falls. They won’t always get their calls right, but assuming they get them right more often than they get them wrong, this will mean that the fund makes money irrespective of what’s happening in the outside world. This approach means that total return funds typically have much more manager influence on the outcomes of the fund. Investors should therefore be careful not to commit to one style over another and in many cases it can be prudent to blend a number of these funds to reduce the dependence on a single manager and reduce overall risk. Care should always be taken when investing as such funds tend to carry additional complexity over traditional funds and increased risk when compared to cash. Please remember that past performance is no indication of future returns. The value of investments goes down as well as up and cannot be guaranteed. Also note that income from investments can fluctuate as well.

Total return strategies can add a new dimension to existing portfolios and be extremely effective. But simply moving part or all of the portfolio into these arrangements without addressing/updating the SIP/IP is tantamount to building a house on sand. All decisions need to be made with perspective and where the needs of the organisations IP are Clear, Prioritised and Realistic (CPR).

Even if a charity with a well thought through policy decides to entertain the possibility of adding a ‘total return’ strategy, there is a need to bring the trustees together to ensure everyone is in agreement and to ensure the policy covers this new element.

“How’s the portfolio doing?” As Consultants/Investment Advisers to the Charity sector, this is a question we are often asked and we’re usually given little more than a portfolio valuation to assist with the reply.

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A four stage solution

We’ve worked with many different charities and religious orders over the last five years to ensure the problems identified above are dealt with, allowing them to move forward with clarity and confidence. Once the key decision makers have come together on a clear brief, the question, “how’s the portfolio doing?” can be addressed and from there, decisive action can be taken.

We believe this four stage process offers a quick and effective solution to the problem.

POLICY

Creation of robust, compliant set of objectives and corresponding investment policy

REVIEWCHALLENGE DOCUMENT

ANALYSIS

Independent scrutiny of existing investments. Are they aligned to investment policy? Are they competitive?

SUITABILITYPERFORMANCE CHARGES

REPORTING

Creation of a consistent, clear and repeatable reporting process.

OBJECTIVES ACHIEVED?

PERFORMANCE DASHBOARD

PEER GROUPCOMPARISONS

IMPLEMENTATION

Implementation of an appropriate and competitive strategy which is aligned to your objectives.

POOLED VSSEGREGATED?

SINGLE VSMULTIPLE?

INVESTMENT MANAGER TENDERPROCESS

STAGE 1 STAGE 2

STAGE 3 STAGE 4

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Does your investment policy need CPR? cont...Stage 1 – Policy review/creation

In a structured but interactive workshop with the trustees or investment sub-committee, we will encourage a consensus to be achieved on everything, from the fundamental objectives of the portfolio to the organisation’s ethical stance.

The workshop usually lasts for half a day and blends a tutorial with a think tank. With some encouragement from us and irrespective of the starting position (many have no policy at all), we leave the session with enough of a consensus to produce a blueprint of the Investment Policy.

Stage 2 – Analysis

Armed with a new and relevant Investment Policy, we then review both the suitability of the investment portfolio and the incumbent manager’s performance.

This is almost certainly going to highlight some issues if the new brief has changed significantly, but most charities now feel that independent scrutiny of the investment manager is an essential part of having good governance. When you consider how important the investments are to the future of the organisation, it is vital that everyone concerned feels they need to perform and that it will be noticed when they don’t.

Stage 3 – Implementing an appropriate strategy

Over the last ten years, many investment managers (IM) have moved away from bespoke solutions to more of a “house view” investment strategy. At the same time, many managers have been reviewing the size of portfolio they’ll deal with.

This has meant that many charities are ‘too small’ for the big players and those that are big enough will tend to get a generic solution. Having gone to the trouble of drafting a suitable SIP/IP, selecting the most suitable solution can be daunting as they may have been left high and dry.

The right solution can take a number of forms. Should you have a pooled or segregated portfolio? Should you invest in active or passive solutions? And how can you best comply with any ethical criteria set down?

The right solution for you may involve more than one investment strategy and may invest with more than one investment manager. We’ve found this stage to be the one where our experience really helps trustees get what they were originally asking for - a portfolio which suits them.

Stage 4 – Reporting

Despite demonstrating sound governance in creating an appropriate Investment Policy and appointing the right investment manager for the role, interpreting their performance can often cause confusion.

It’s easy for an investment manager to bamboozle even experienced trustees, whether inadvertently or by design with jargon and an array of indecipherable acronyms!

It’s important to be able to forensically analyse the returns to ensure that the IM is performing to the best of their ability and within the brief provided to them. But what’s more important is to be able to communicate the findings in plain English, to empower trustees and allow them to make strong decisions, based on sound logic.

Through the production of condensed ‘dashboards’, we’ve managed to engage trustees in a way they’ve not experienced before. Having simple, clear benchmarks to monitor performance and producing one-page summaries which assess performance versus the objectives laid out in the Investment Policy means that the attempted translation of long indecipherable investment reports becomes a thing of the past.

The next steps

Barry Newbury, Managing Partner at Epoch Wealth ManagementT 01225 487772 E barry@epochwm.co.uk

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If you think you’d benefit from undertaking such a process for your diocese, help is at hand. Epoch Wealth Management has been working closely with haysmacintyre for six years and we specialise in providing this service to charities and not for profit organisations of all shapes and sizes. To get in touch, call 01225 487772 or visit www.epochwm.co.uk.

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Business Expense Payments ExemptionFrom 6 April 2016 P11D Dispensation Agreements no longer apply. Instead employers will be required to “self-assess” the tax and National Insurance treatment of benefits and expense payments paid to or on behalf of employees. Where an employer is satisfied that an expense has been incurred “wholly, exclusively and necessarily” in the performance of the employee’s duties, details of those expenses do not need to be reported within an employee’s P11D. However, where the costs incurred do not fulfil any part of the above test, details of those costs incurred must be reported to HM Revenue & Customs (HMRC) on a P11D.

Whilst the underlying test has not changed, under the Business Expense Payments Exemption regime the onus is firmly placed upon the employer to “get it right”. Consequently, it is important to ensure your systems and controls can cope with the demands being placed on you as an employer. If you are unable to correctly determine the tax and National Insurance treatment of your employees’ expenses, you are potentially putting your organisation at risk.

It will be prudent for you to have robust controls and procedures in place to ensure that, for example:• You have an up-to-date staff expenses policy in

place;• All employees are aware of the policy and the basis

upon which expenses are paid/reimbursed to them;• There is no self-authorisation of expenses; and• You are able to distinguish those expenses

which have been incurred “wholly, exclusivelyand necessarily” in the normal course of theemployment.

Without these controls you will potentially have some difficulties submitting accurate forms P11D to HMRC, you will need to bear this in mind. HMRC can seek to recover any underpaid tax and National Insurance together with interest and penalties where there has been a failure to submit complete and accurate forms P11D.

Furthermore, HMRC can seek to revoke any previously agreed P11D Dispensation agreement for the four years prior to 6 April 2016, where they are not satisfied the terms of the agreement have been met.

Benchmark scale rates

One exception to the Business Expense Payments Exemption regime is where an employer pays employees fixed rates for the provision of meals whilst travelling which are in excess of the HMRC Benchmark rates. Any new rates will need to be re-negotiated with HMRC before 6 April 2016. We will be able to assist you with your application.

It must be possible to be able to demonstrate to HMRC that the rates are reasonable and are intended to meet the actual costs incurred. It will be necessary to undertake a random sampling exercise to demonstrate the amounts which will be reimbursed are reasonable.

HMRC typically expect any sampling exercise to be based upon:• a random sample;• 10% of the eligible employees; and• a minimum period of one month.

Once obtained, the agreement to pay the flat rate expenses will be in place for up to five years. This will prove advantageous for employers who incur a high level of subsistence claims.

You will also need to consider how employees are advised of these changes and what information needs to be made available to them.

Nick Bustin, Director, Employment TaxT 020 7969 5578 E nbustin@haysmacintyre.com

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Employment Taxes calendar

TBA

19

22

DECEMBER 2016The Chancellor’s Autumn Statement.

Deadline for postal payments for month ended 5 December to reach HMRC Accounts Office

Deadline for electronic payments for month ended 5 December to reach HMRC Accounts Office

19

22

31

JANUARY 2017Deadline for postal payments for month/quarter ended 5 January to reach HMRC Accounts Office

Deadline for electronic payments for month/quarter ended 5 January to reach HMRC Accounts Office

Revised date for submitting forms P11D and P11D(b) for certain internationally mobile employees where prior agreement has been reached with HMRC

5

19

22

FEBRUARY 2017Notify changes in company car or fuel benefits for the quarter to 5 January, using form P46 (Car)

Deadline for postal payments for month ended 5 February to reach HMRC Accounts Office

Deadline for electronic payments for month ended 5 February to reach HMRC Accounts Office

MARCH 2017

TBA The Chancellor’s Budget

19

22

Deadline for postal payments for month ended 5 March to reach HMRC Accounts Office

Deadline for electronic payments for month ended 5 March to reach HMRC Accounts Office

19

22

APRIL 20175 2016/17 tax year end;

Final FPS submission for the 2016/17 tax year to be made on or before date of last payment to employees in the tax year.

Deadline for postal payments for month ended 5 April to reach HMRC Accounts Office

Deadline for electronic payments for month ended 5 April to reach HMRC Accounts Office

© haysmacintyre - Anglican Diocese Briefing - Winter 2016 Page 14

Apprenticeship Levy

The legislation includes a provision where it will be necessary to take into account payrolls of all connected parties in order to determine whether the £3m threshold has been exceeded.

Furthermore, there will be no exemptions for independent schools, charities or their subsidiary trading companies or other not for profit employers.

The levy will be payable at a rate of 0.5% by employers with an annual payroll cost in excess of £3m. For the purposes of the levy the £3m is calculated by reference to the total employee earnings, including any bonuses but excluding benefits in kind, employer’s National Insurance contributions and pension payments. The levy will be collected via the PAYE system. An annual allowance of £15,000 will be applied when calculating the total amount due for the year. Schools will need to take into account the impact of the levy whilst reviewing their future years’ budgets.

Employers will be able to use their Apprenticeship Levy contributions to pay for the training of apprentices but not their salary costs.

It is expected that employers will have between 18 and 24 months to use their Apprenticeship Levy contributions, with any unspent amounts being re-allocated to other employers with the capacity for additional training.

The impact of the Apprenticeship Levy will represent a true cost to all independent schools and it is something which will need to be monitored carefully.

Nick Bustin, Director, Employment TaxT 020 7969 5578 E nbustin@haysmacintyre.com

Description Calculation ImpactPayroll cost 400 employees x

£25,000 annual salary

£10,000,000

Apprenticeship Levy £10,000,000 x 0.5%

£50,000

Allowance of £15,000 £50,000 - £15,000

£35,000

A new apprenticeship Levy is due to come into effect from April 2017. The levy will be payable by all employers with an annual payroll of £3m or more, whether or not apprentices are engaged.

Page 15© haysmacintyre - Anglican Diocese Briefing - Winter 2016

An effective anti-fraud policy

What is an anti-fraud policy?

An anti-fraud policy outlines a charity’s attitude to fraud and sets out responsibilities for its prevention and detection.

A good anti-fraud policy should ensure:• There are appropriate measures to prevent and

deter fraud.• There are necessary procedures to detect fraud.• Employees are encouraged to take responsibility

and report any suspicions of fraud.• All instances of suspected fraud are investigated.• Appropriate disciplinary, civil or criminal proceedings

are undertaken.• All suspected fraud is reported to the appropriate

authorities.

Why should you have one?

The purpose of an anti-fraud policy is to:• Encourage an anti-fraud culture by setting the

tone from the top and act as a deterrent by setting out the consequences of engaging in fraudulent conduct.

• Define fraud, so that employees are aware of what actions constitute fraud.

• Establish the responsibilities within the charity.• Ensure that all employees know the procedure to

follow in the event of a fraud being discovered or suspected, including how to report fraud.

• Reduce the exposure of fraud to the charity.• Make staff aware of fraud and describe what to look

for.• Encourage management to think about fraud and

develop a plan to deal with it.• Set out an organisation’s whistle-blowing policy and/

or fraud response plan, if these are not separately documented.

What should it include?

The policy should include: 1. Policy statement: sets out the charity’s commitment

to prevent, detect, investigate and report fraud; the behaviour expected of staff and other third parties; and the action that will be taken against fraudsters.

2. Definition of fraud: Define fraud and provide examples of what might constitute fraud and dishonesty in the specific context of the charity. This may include theft, the misuse of funds or other resources, or more complicated crimes such as bribery and corruption, false accounting and the supply of false information.

3. Key responsibilities: Highlight the responsibilities of the trustees’, senior management and staff in preventing, detecting and reporting fraud, and in co-operating with any investigations. Specify the individual and/or body with overall responsibility for the policy.

4. Reporting suspicions: Set out whistle-blowing arrangements (if appropriate) and/or specify a designated individual(s) to whom staff can report concerns on a confidential basis. If a separate whistle-blowing policy exists, state where this can be found.

5. Fraud response plan: Outline the process that will be followed in the event of a fraud being discovered or suspected, such as how evidence will be secured and the investigation conducted. If a separate fraud response plan exists, state where this can be found.

For further information on creating an anti-fraud policy contact Sam Coutinho.

Sam Coutinho, Audit and Advisory Partner at haysmacintyreT 020 7969 5548 E scoutinho@haysmacintyre.com

An effective anti-fraud policy should be simple, concise and easily understood. Trustees are responsible for preventing and detecting fraud. However, very few charities have an anti-fraud policy.

haysmacintyre is registered to carry out audit work and regulated for a range of investment business by the Insitute of Chartered Accountants in England and Wales.A list of partners’ names is available for inspection at 26 Red Lion Square, London WC1R 4AG.Disclaimer: This publication has been produced by the partners of haysmacintyre and is for private circulation only. Whilst every care has been taken in preparation of this document, it may contain errors for which we cannot be held responsible. In the case of a specific problem, it is recommended that professional advice be sought. The material contained in this publication may not be reproduced in whole or in part by any means, without prior permission from haysmacintyre.

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