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Today’s challenges and sector developments

PricewaterhouseCoopers' Charities Group combines years of experience of working with charities with a thorough understanding of today's challenges and sector developments, to provide informed and in-depth guidance to our clients.

• Public Benefit Guidance
• Charities Act 2006
• Companies Act 2006
• What’s new from the Charity Commission
• Other Charity Commission news
• Other sector news

Public Benefit Guidance

All charities will now have to provide evidence that they are operating for the benefit of the public and on 16 January 2008, the Charity Commission issued their general guidance on public benefit.

The purpose of this guidance is to:

• explain the requirement that, to be a charity in England and Wales, an organisation must have charitable aims that are for the public benefit;
• raise awareness and understanding of the public benefit requirement amongst the public and the charitable sector;
• explain how the public benefit requirement operates in practice; and
• explain the new requirement for charity trustees to report on public benefit.

The requirements for charities to show public benefit are due to come into effect from March 2008 and existing registered charities will be asked to report on their public benefit for accounting periods which begin on or after 1 April 2008.

There will be consultations in 2008 within some sub-sectors (relief of poverty, education, religion, and fee-charging charities) and sub-sector specific guidance is due to be released by the end of 2008.

The key principles within the new guidance are:

• That there must be identifiable benefit or benefits; and
• The benefit must be receivable by the public or a significant section thereof

Looking at each of those principles in turn:

1. Identifiable benefit or benefits

• It must be clear what the benefits are;
• The benefits must be related to the aims; and
• The benefits must be balanced against any detriment or harm.

2. Benefit to the public or a significant section of public

• The beneficiaries must be appropriate to the aims;
• Where benefit is to a section of the public, the benefit must not be unreasonably restricted:
• by geographical or other restriction; or
• by ability to pay any fees charged;
• People in poverty must not be excluded from the opportunity to benefit - and therefore this is likely to be one of the key areas of review for fee-charging charities; and
• Any private benefits must be incidental

The Charity Commission’s role in assessing public benefit is about deciding whether a particular organisation is or is not a charity.  When making decisions about whether or not an organisation is a charity, the Commission will consider the following three things:

• Aims – what the organisation’s aims are, whether those aims are charitable and whether the aims are fully and accurately reflected in the organisation’s stated objects;
• Benefit – there must be an identifiable benefit or benefits; and
• Public – benefit must be to the public or a section of the public

If an organisation fails to meet the legal requirements of any one or more of those areas, it cannot be a charity.

The Commission have also issued Summary Guidance for Trustees - this is a four page summary of the key principles within the main guidance.

Further guidance can be obtained from the Charity Commission or from the PricewaterhouseCoopers Charities Group.

Charities Act 2006

On 8 November 2006 the Charities Act received Royal Assent.  The Charities Act aims to support a dynamic and vibrant sector, ensuring that it continues to enjoy high levels of public confidence.

The Act will reform charity law and regulation to:

• enable charities to administer themselves more efficiently and be more effective
• improve the regulation of charity fundraising, and reduce regulation on the sector, especially for smaller charities
• provide a clear definition of charity with an emphasis on public benefit
• modernise the Charity Commission's functions and powers as regulator, increase its accountability, and preserve its independence from Ministers.

The new law does not come into effect immediately after Royal Assent.  Instead various parts are being brought in to force through 2007 and 2008. An implementation plan sets out this process and indicates when the various provisions of the Act will come into force.

For more details click here:

First Commencement Order

Commencement with effect from 27 February 2007 unless stated differently below:

The main provisions that were commenced by this Order have been:

• The new Charity Commission, its objectives, functions and duties (sections 6 & 7, schedules 1 & 2).
• The requirement for the Commission to develop guidance and consult on the public benefit test (section 4).
• Interim changes to the registration threshold for small charities – which will be followed by an order to increase the threshold to £5,000 annual income (section 10) (with effect from April 2007).
• The relaxation of publicity requirements relating to schemes (section 22).
• The participation of Scottish and Northern Irish charities in Common Investment and Deposit Funds (section 23).
• Changes to the audit thresholds for unincorporated and incorporated charities (sections 28 & 32).
• The power for the Commission to determine the membership of a charity, and the power for the Commission to enter premises and seize documents under a warrant (sections 25 & 26).
• Changes to the restrictions on mortgages of charity land (section 27).
• Waiver of trustee’s disqualification and the power for the Commission to relieve trustees and auditors from liability for breach or trust or duty (sections 35 & 38).
• The ability for charities to purchase trustee indemnity insurance (section 39).
• The power for unincorporated charities to modify powers or procedures (section 42).
• The reserve power to control fundraising by charitable institutions (section 69).

Powers for Secretaries of State, the Minister for the Cabinet Office, and the National Assembly for Wales to give financial assistance to charitable, philanthropic or benevolent organisations (sections 70 & 71) (with effect from April 2007).

Second Commencement Order

The second order commencing provisions of the Charities Act 2006 was made in November 2007.  The main provisions commenced by the order are:

• Provisions relating to mergers of charities (section 44).
• Statements indicating benefits for charitable institutions, professional fundraisers, and commercial participators (sections 67 & 68).
• Provisions relating to audit and accounting for charities, including group accounts and changes to the accounting regime for small charitable companies (sections 29, 30, 31, 33, and an order under section 77, and schedule 6).

Third Commencement Order - early 2008

The main provisions that will be commenced by this Order will be:

• The new definition of charity and the public benefit requirement (sections 1, 2, 3, and 5).
• The Charity Tribunal (section 8 and schedules 3 & 4).
• New powers for the Charity Commission – to remove or suspend trustees from membership of a charity, to give specific directions for the protection of charity property, to direct the application of charity property, and to give advice and guidance (sections 19, 20, 21 and 24).
• Remuneration of trustees providing services to a charity (sections 36 & 37).
• Powers for unincorporated charities to transfer all property, to replace purposes or to spend capital (sections 40, 41 & 43).
• The Charitable Incorporated Organisation (section 34 and schedule 7).
• Changes to Cy Pres occasions and Schemes (sections 15 to 18).

Companies Act 2006

On 8 November 2006, the Companies Act 2006 received Royal Assent. The Act is intended to modernise core company law to provide simple, efficient and cost effective framework for UK companies. The Act will have implications for those charities that are incorporated. The Act should be fully implemented by October 2009.

Some of the key provisions are:

• Directors' duties - The Act includes a statutory statement of directors' duties which apply to all directors, including non-executive directors and directors of subsidiary companies;
• Company Secretary - The Act dispenses with the requirement for a private company to have a company secretary;
• Filing dates - Filing periods for annual statutory accounts have been shortened. Private companies will have to file their statutory accounts within nine months (currently ten months) of the end of the accounting reference period;
• Audited accounts - There are new requirements concerning the audit report;
• Parent companies - There are changes to the requirements and options on consolidation;
• Financial instruments - For all companies except small companies, there are new requirements to disclose information on financial instruments in the directors' report; and
• Annual General Meetings - The Act dispenses with the requirement for a private company to hold annual general meetings.

What’s new from the Charity Commission

www.charity-commission.gov.uk

Sector news

New conflicts of interest guidelines for arts charities - The Charity Commission and the Department for Culture Media and Sport (DCMS) have jointly prepared new conflicts of interest guidance for arts charities. It is intended particularly for trustees of charitable museums, galleries and libraries, including those sponsored by DCMS. The guidance sets out how trustees of such charities should identify and manage conflicts of interest and examines the different issues that might arise, including conflicts of loyalty and direct or indirect financial gain or benefit to a trustee.

The guidance explains how to deal with any transactions that involve a trustee benefit or are conducted between a trustee and the charity. It also identifies instances where charities might need to contact the Charity Commission for advice or authorisation.

Briefing on Faith and Social Cohesion Unit - The Charity Commission has produced a parliamentary briefing on the new Faith and Social Exclusion Unit. The Commission hopes, by launching the Unit, to create a centre of expertise on faith based charities and to become more responsive to their needs.

Charity Tribunal Rules published

The finalised Charity Tribunal Rules have been produced by the Ministry of Justice. Charity lawyer Alison McKenna has been appointed as the full-time President of the Tribunal. She will take up the post in June but will work on an ‘as required’ basis until then. The other 12 members of the Tribunal have yet to be appointed and although the legislation does allow for the President to hear cases alone the Government wishes to wait until this appointment process in complete.

Eventually the Tribunal will be made up of the President, five legally qualified members and seven lay members.

Clarity for charity complaints - The Commission receives around 2,000 complaints about charities a year; these are wide-ranging but their remit means they can only look into specific types of issues. To explain the process more clearly, the Commission has published revised guidance. Complaints about charities (CC47) covers their proportionate approach, identifying what they can, and can’t, look into and signposting other organisations who may be able to help with complaints they can’t pursue.

Charity governance - involving young people.  This is a summary of a round table discussion on 12 October 2007 involving The Governance Hub, National Children’s Bureau (NCB), Participation Works and the Charity Commission.  Representatives from a range of organisations including The Red Cross, Scouts, Girl Guiding, V and other charities working with young people, plus representatives of the Big Lottery Fund and the National Youth Agency took part; a number of participants are or have been young trustees. 

Environmental responsibility - what role should charities play? - this is a summary of the Commission's half day seminar in October 2007.  The seminar covered the extent to which it was considered to be a legitimate use of charitable money for charities to take in-house measures to improve the environmental responsibility of the way they work along with environmental activities furthering existing charities’ objectives.

Simplification plan – The Commission’s 2007 simplification plan confirmed their commitment to reducing the burden of Commission regulation by at least 25% by March 2010.  The plan describes those measures already being taken as well as outlining the modernising aspects of the Charities Act 2006.

Recent updates

Religious and poverty groups public benefit guidance published

The Commission has released draft guidance on ‘Public Benefit and the Advancement of Religion’ and ‘Public Benefit and the Prevention or Relief of Poverty’ in order to help charities working in these fields demonstrate their public benefit.

Charity Commission publishes fee-charging guidance

The Commission has published its public benefit guidance for fee-charging charities.  The guidance is currently in draft form and is open for consultation until 11 July this year.  The final guidance is expected in December.

The draft guidance sets out a number of issues for governors and trustees to consider - including why their fees are set at the level they are, what the impact of these fees will be on access to the services provided and in what ways the school , for example, can provide opportunities for those unable to afford the fees to benefit from the school's activities.

New registration requirement - The Charity Commission has launched a new online application service which will initially be available to organisations applying with an approved governing document. Both the charity application form and governing document can be submitted electronically. From the 1st April 2008, organisations will need to demonstrate that their aims are for public benefit as part of the application process.

2008 Charity Commission Study into Public Trust and Confidence in Charities (May 2008) - The Charity Commission has published the 2008 Charity Commission Study into Public Trust and Confidence in Charities. This is based on independent research conducted by Ipsos MORI which shows there has been an increase in public trust and confidence since the research was last undertaken in 2005. The research looks at what drives public trust and confidence, and includes research on the percentage of people that give money, goods or time to charities, and what people's perception of charities is. The Commission has also produced some initial analysis of issues that the research raises.

CC9 Speaking Out - Guidance on Campaigning and Political Activity by Charities.  This guidance aims to help trustees work out the best way of getting their message across confidently. There are questions that trustees need to consider before starting any campaigning and political activity, for instance where the activity fits in their overall strategy, and its likelihood of success.  In this guidance, the Charity Commission give answers to the most frequent questions that arise, and have included a Checklist for Trustees , so that trustees can make well-informed decisions, and speak out on the things that matter most to their charity, if they choose to do so.

SORP information sheet - This information sheet provides informal guidance on the application of the SORP to assist in the preparation of financial statements.

Other Charity Commission news

Charity working at the heart of society – the way forward 2005-2008 - This is the results of a wide-ranging strategic review of how the Charity Commission will move forward over the next 3 years. It includes a new vision, mission and their plans for better service delivery.

File early – a challenge to the sector - The Commission estimates that over a quarter of charities miss their filing deadline and many others only file in the last month possible.

The Compliance Campaign – accounts are optional - This is a major Commission campaign to improve return rates for annual returns and accounts for charities with income greater than £10,000.

Review visits – process information and feedback - This sets out the context of the review visit programme, the review visit process and the aims of an individual review visit.

Other sector news

Professional fundraisers’ draft guidance published

The Office of the Third Sector has published draft guidance concerning new rules that will mean that agency fundraisers collecting on behalf of charities will be required to tell donors how much of the donation goes to the charity and how much goes towards paying fundraisers’ wages.

The rules were introduced by the Charities Act 2006 and came into force on 1 April. They affect telephone, door-to-door and street collectors, whilst shops that donate a proportion of the sale price on particular items must also state exactly how much goes to charity.

Scottish identification rules come into force

Scottish charities must begin to refer to themselves specifically as charities this week as part of new rules governing how they identify themselves.

From 1 April, all Scottish charities’ letters, adverts, invoices and fundraising and campaign literature must also carry the name and charity number featured in the Scottish Charity Register as well as any other name a charity is known by. The law was introduced last year, but has not been enforced.

PAYE: Filing online and paying electronically

HMRC have announced that from 6 April 2009 all employers with 50 or more employees will have to file employee starting and leaving details and some pension information online. This will be extended to all employers from April 2011.

Private schools could be forced to partner academies

Private schools may be expected to sponsor academies in deprived areas if they want to maintain their charitable status. The proposal is to create partnerships between academies - one of the government's flagship education reforms - and public schools.  The partnerships could range from private schools sponsoring or running academies in poor areas to teachers from the independent sector delivering lessons in academy classrooms.

New fundraising code for consultants

The Institute of Fundraising has published a new Code of Fundraising Practice which clarifies how consultants working with charities should conduct their operations. The code Best Practice for Fundraising Consultants, highlights the importance of consultants operating as independent agents, as opposed to employee members of staff, and outlines what is considered appropriate conduct for consultants. The code also covers the use of contracts, fees, and conflicts of interest among others.

Over cautious charities are losing out on Gift Aid

Charities are being over-cautious in their Gift Aid returns for fear of making mistakes, according to new joint research from HM Revenue & Customs and the Charities Aid Foundation. Key Barriers to the Adoption of Gift Aid is the result of a survey of 57 organisations, including charities and intermediary bodies that help third sector groups maximise their Gift Aid claims.

Phone companies persist in adding VAT to text donations

Mobile phone companies have continued to charge VAT on charitable donations sent by text message, despite knowing for two years they should not be doing so. VAT on text donations is estimated to cost the sector about £1m a year but charities should not be paying it.

Tax Law Rewrite Bill

The Tax Law Rewrite Bill on Corporation Tax was published on 22 February. It is the first of two Bills which are expected to substantially rewrite the whole of primary legislation in relation to the tax. Comments on the draft Bill should be submitted to HM Revenue & Customs by 23 May 2008.

New fundraising draft code

The Institute of Fundraising has published draft guidance on face-to-face fundraising. For the first time this includes prospecting, the practice of asking prospective donors to give their contact details but no money or bank details. The IoF is inviting feedback on whether prospecting constitutes faceto-face fundraising or not. Full text of the draft code can be read here:- www.institute-of-fundraising.org.uk

CFDG calls for simplification from the Treasury

The Charity Finance Directors Group has called for simplification in the 2008/2009 Budget, in order to prevent charities from being unfairly penalised by over-bureaucratic rules and regulations.

Charities urged to reclaim VAT before it's too late

Charities that believe they overpaid VAT between 1973 and 1996 have been advised by tax experts to make repayment claims immediately in the wake of a House of Lords ruling.

There is likely to be a “six-month window of opportunity” in which charities could claim for overpaid VAT after the Lords ruled on the Condé Nast v HM Revenue & Customs case on 23 January.

Please contact Keith Lawson on 020 7804 9064 or by email on keith.lawson@uk.pwc.com or your local VAT contact for further information or assistance.

Free publicity for charities

A 'positive' news website, optimistworld.com, which will provide a free listing for every UK charity, regardless of size, has been launched with the aim of offering lower income charities free publicity.