Author Archives: Martin Bailey - Partner

About Martin Bailey - Partner

T +44 (0)20 7874 8877

I have particular expertise in the charity and the social business sector, working with organisations in 'The Third Sector' since joining the profession and developing vast knowledge and extensive experience in this time.

Charities are unique and have specialised reporting, compliance, and governance requirements. They require someone with specialist skills and knowledge to support them, allowing them to focus on their important work.

I work with organisations rather than for them, providing support and advice to issues as they arise - whether that be core accounts and audit compliance, VAT and taxation planning, governance issues, risk management, strategic reviews and advice, or designing accounting systems.

It is also worth considering whether annual external audit review of controls is sufficient

Charity Trustees’ responsibilities – A review of key areas following Kids Company – Part 1

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 18th April 2016

Categories:

Charities & Social Businesses

The failing of a charity with the public profile and popularity of Kids Company came as a shock to both the sector and the wider public, and has prompted much to be written about the lessons that can be learned from these events, including a report by the Public Administration and Constitutional Affairs Committee.

But in many ways there aren’t any new lessons to learn – these lessons are more of a reminder to trustees about the need for good governance and financial management. After all, the legal responsibilities of trustees are not new – they are long established in law and explained in Charity Commission in their guidance notes.

So let’s look at some of the key financial management and governance matters of which trustees (and CEOs and FDs) should be aware:

1. Financial Management – don’t shun responsibility

Don’t forget the financial management side of running a charity, or think that this responsibility lies with the treasurer, financial controller, bookkeeper, professional advisor, etc.

As trustees you are ultimately responsible and may (in certain circumstances) be personally financially liable – so make sure you are happy that the organisation is being managed well and you are getting the information you require to monitor performance. This information should be complete to the extent that you are able to gain an understanding on the financial position of the charity, but not so detailed that you cannot see the wood for the trees and you get bogged down in the detail. By no means an exhaustive list, but consider the need for full management accounts, variance analysis, KPIs, forecasts, scenario planning (for example if some future funding is uncertain), etc.

If you don’t feel you getting answers to your questions, keep asking them!

2. What are your charitable objectives?

The world is an ever changing place and the needs of your beneficiaries may also change. Or you may find resources are more readily available for funding different types of projects. Mission creep can take hold perhaps without noticing.

But a charity’s resources should be spent on meeting its charitable aims as set out in its governing document. Are you happy that expenditure is being incurred on meeting the organisation’s objectives and are there controls to ensure this? For example:

Are fully budgeted projects approved by management and trustees before activities are carried out?
Is all expenditure approved by management to ensure in line with objectives, strategy, and the approved projects?

In other words, making sure that resources are spent as planned and not on an ad-hoc basis.

3. Systems, Procedures, and Controls

Fully documented systems, procedures, and controls should be in place. These should be communicated to all staff, and subject to regular review.

Ensure that they are meaningful and relevant to the charity – if all income is received under contract, is there a need for systems and controls over cash donations?

It is also worth considering whether annual external audit review of controls is sufficient – or whether an internal audit would provide wider ranging coverage and more immediate feedback of the charity’s activities.

The above suggestions are by no means exhaustive and not necessarily the best approach for each charity. Making sure the processes are specific to your own organisation and reflective of its specific needs and circumstances are essential. In my next blog, I will look at more financial specific matters including budgeting, reserves levels, and cash management.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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At this stage, perhaps it’s not so much ‘’no news is good news’’ as it is ‘‘no news is not bad news’’.

Charity rates relief – is this under threat?

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 6th October 2015

Categories:

This week saw the Conservative Party Conference take place in Manchester. During his speech, George Osborne announced that local councils will keep all proceeds raised from business rates (and the local government grant back to councils will be phased out), calling it the “biggest transfer of power to our local government in living memory”.

Now politicians usually make the news with what they say – but when reading about the plan for business rates proceeds, I was struck by something that the Chancellor didn’t say.

Charities currently enjoy 80% mandatory relief on business rates – granted by central government. Relief on the remaining 20% is granted at the discretion of the local council. George Osborne made no mention in his speech as to whether the 80% mandatory relief will remain. This could be taken to mean that the relief is staying – no news being good news.

But is this good news? If councils are able to retain all proceeds from business rates, then they may be less incentivised to grant the additional 20% discretionary relief. This could potentially give rise to additional liabilities on charities and put additional strains on their resources in having to fund rates previously waived.

If councils are to enjoy the benefits of the proceeds from business rates, then they are also effectively suffering the cost of providing the relief. Since 2013 councils have been able to keep 50% of the proceeds from business rates and there are tales of councils seemingly becoming more interested in reviewing property tenants and whether a charity occupies the premises or a trading subsidiary. This may suggest that they are looking to maximise rates proceeds, and minimise the amount of relief given.

At this stage, perhaps it’s not so much ‘’no news is good news’’ as it is ‘‘no news is not bad news’’. However, with rates relief worth an estimated £1.69billion to charities, this is a relief to the sector that is worth fighting for, and that the sector will fight for. Something to keep an eye on….

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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This means that the production of plays, operas, musicals, and potentially even circuses can all qualify for TTR.

Theatre Tax Relief – A Guide

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 10th April 2015

Categories:

Charities & Social Businesses

Creative industry reliefs are not new to the UK – the film, animation, video games, and high-end television industries are all potentially able to benefit from existing tax reliefs.

Now the live performing arts industry can also benefit following the introduction of Theatre Tax Relief (“TTR”) in the Finance Bill 2014. Claims can be made for qualifying expenditure incurred after 1 September 2014. So who can claim and how does the relief work?

Who can claim theatre tax relief?

TTR is available to production companies that are responsible for the production, running, and closing of a theatrical production. The production company can be a commercial company – be it can also be another organisation such as a charity or a charity’s trading subsidiary.

To qualify, the production company must:

• be actively engaged in the decision making at all stages of the production;
• make an “effective” creative, technical, and artistic contribution to the production; and
• directly negotiate for, contract for, and pay for rights/goods/services in relation to the production.

What is meant by ‘theatrical production’?

A theatrical production is defined as being as a dramatic production or a ballet where:

• the performers (including actors, singers, dancers etc) give their performances wholly or mainly through playing a role;
• each performance in the proposed run is live; and
• the presentation of live performances is the main object, or one of the main objects, of the company’s activities in relation to the production.

This means that the production of plays, operas, musicals, and potentially even circuses can all qualify for TTR.

There are also certain criteria that prevent a production from qualifying for TTR – productions that involve wild animals, include a contest or competition, are of a sexual nature, or where the main purpose is to advertise goods/services do not qualify.

Are there any other conditions for theatre tax relief?

Yes – there are two further main conditions that must be met in order to be eligible for the relief:

Commercial purpose condition – only professional theatrical productions qualify, i.e. it is the intention that all or a high proportion of performances are to paying members of the public or provided for educational purposes
EEA expenditure condition – at least 25% of the core expenditure on the production must incurred within the European Economic Area (EEA).

Interestingly, there is no cultural test to pass to qualify for and claim TTR.

What is the rate of theatre tax relief?

Relief is obtained on 80% of the lower of qualifying expenditure and overall available loss on the theatrical production trade, and there are two rates of relief:

• 20% – non-touring productions
• 25% – touring productions (subject to certain criteria to qualify as touring)

What expenditure qualifies for theatre tax relief?

Expenditure qualifies if it is incurred in relation to the producing and closing of the production. Expenditure incurred in the ordinary running of the production does not qualify – but a substantial recasting or set redesign mid-performance run may qualify.

Non-direct costs such as financing, marketing, legal services, or storage do not qualify.

Is there a separate tax return?

No there is no separate return. The relevant tax is corporation tax and the relief is claimed via the CT600 corporation tax return. This raises a couple of practical points.

An organisation can still claim the relief even if it has does not have a corporation tax liability against which to offset the relief (for example due to no taxable profits for the period) or if it does not pay corporation tax (for example if the organisation is a charity and it has been approved by HMRC as exempt from tax) – in such circumstances, the relief is obtained by means of a cash payment from HMRC.

There are also a couple of further practical considerations for charities. The first is that charities are unlikely to be preparing and submitting annual corporation tax returns. Therefore, these will now be required each year in order to claim the relief.

The second consideration is that charities may require a trading subsidiary in order to claim the relief, for example if the charity is unincorporated (which may give rise to further practical issues such as VAT impact and group reporting requirements).

An example

Let’s take a simplified example of a non-touring opera production. Total income on the production is £1.5million, and total expenditure is £2.5million. Let’s assume that qualifying expenditure is £2million.

In the above example, relief is obtained on 80% of qualifying expenditure – meaning relief at 20% of £320,000 (£2million x 80% x 20%). As noted above, this may be a cash payment from HMRC as it doesn’t have to offset a tax liability.

Conclusion

This is a new relief and, given the detailed guidance from HMRC is not expected until Spring 2015, there may be devil in the detail – conditions and criteria mentioned above are certainly not exhaustive. However, the relief is available now for qualifying organisation and well worth investigating. To find out if your organisation has a valid claim or for further information, please do get in touch.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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any charity with income in excess of £1million will be subject to audit in accordance with the Charities Act 2011.

Charity audit limits – new thresholds imminent

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 23rd February 2015

Categories:

Charities & Social Businesses

Following a recent consultation process, the Cabinet Office has confirmed that it is proceeding with its plans to increase the charity audit income threshold in England and Wales. The consultation was held following a recommendation by Lord Hodgson in his review of the Charities Act 2006 that the audit threshold be increased.

The outcome of the consultation process is that the income threshold is being increased from £500,000 to £1million – meaning that any charity with income in excess of £1million will be subject to audit in accordance with the Charities Act 2011.

This new threshold of £1million will also be the threshold at which parent charities have to prepare consolidated accounts.

It is worth noting that the asset threshold for an audit remains unchanged – so for a charity with assets in excess of £3.26million and income in excess of £500,000, an audit will be required.

The thresholds for independent examinations have also been kept the same. However, it is interesting that several of the consultation responses expressed concerns at the rigour of the independent examination process and questioned the level of assurance that an independent examination provides. This is, perhaps, a discussion for the sector to have in the future – but the Government is to share the consultation feedback with the Charity Commission with a view to the guidance on independent examinations, and audits, being improved.

Subject to parliamentary approval, the new thresholds will take effect for accounting periods ending on or after 31 March 2015.

If you have any questions over the impact on these changes for your charity, then please do get in touch.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Until the ICAEW released its new guidance, the Charity Commission’s approach to this area (guidance CC35, which has since been withdrawn for review and update) was that a subsidiary could pay to its parent charity as a gift aid donation an amount greater than its accounting profits – but this will now change following the ICAEW review.

Donations by a subsidiary company to its parent charity – beware a potential pitfall

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 2nd December 2014

Categories:

It is common for charities to carry out trading activities for profit via their wholly-owned subsidiaries. The subsidiary company then donates some or all of its profits to the parent charity, reducing or eliminating completely its corporation tax liability for the period in question (as long as the donation is paid to the parent charity within 9 months of the end of the accounting period).

However, the Institute of Chartered Accountants in England and Wales (“ICAEW”) has recently provided some new guidance in this area following concerns that this practice may, in some circumstances, result in breaches of company law under the Companies Act 2006.

This is because there is a difference between taxable profits and distributable profits, and this means that a donation by the subsidiary company may be part donation and part distribution of reserves. Under the Companies Act 2006, a company cannot distribute an amount more than it has available in distributable reserves – so it may be that a subsidiary is making a distribution to its parent charity that it cannot make (in accordance with the Companies Act 2006).

Until the ICAEW released its new guidance, the Charity Commission’s approach to this area (guidance CC35, which has since been withdrawn for review and update) was that a subsidiary could pay to its parent charity as a gift aid donation an amount greater than its accounting profits – but this will now change following the ICAEW review.

Perhaps, this is best explained by way of an example.

Let’s assume a wholly-owned subsidiary makes accounting profits for the year of £500,000.

It has expenditure disallowable for tax purposes of £10,000, leaving it with taxable profits of £510,000. Let’s also assume it is subject to corporation tax at 20%.

Finally let’s assume the subsidiary company has historically made a donation to its parent charity of all of its profits, such that its profit and loss reserves have a token balance of, say, £1 only – and in this example, the subsidiary has made a donation of £500,000 in the current year.

Now, with taxable profits of £510,000, the donation of £500,000 reduces the taxable element to £10,000, giving rise to a £2,000 tax liability.

Therefore, the subsidiary has distributable reserves of £498,001 (£500,000 accounting profits less the £2,000 tax liability plus the £1 notional reserves balance).

The donation of £500,000 means that it has paid out more than its available distributable reserves – i.e. it has made an illegal distribution of £1,999.

Where this has happened, the parent charity will be liable to repay the excess amounts received (£1,999 in the above example) to the subsidiary and will need to make the necessary disclosures in its accounts.

There may also be a tax implication of such a situation, and HMRC are expected to publish their guidance on this area in due course.

Now it is unlikely that this situation will affect many charities, since the majority of subsidiaries make their payments to their parent charities out of the distributable reserves. However, charities should review their circumstances.

If you have any queries about this matter, or think that you may be affected, then please do get in touch for advice and guidance.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Taxes and Reliefs Affecting Charities – Part 2

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 24th July 2014

Categories:

In the second part of my mini-series on taxes and reliefs affecting charities, I identify and discuss a further 5 areas where charities may be affected by UK tax legislation, including business rates relief.

1 Inheritance Tax
Reliefs are available to individuals leaving at least 10% of their estate to charity, with the estate attracting a lower inheritance tax rate.

Transfers of property to a charity are generally exempt from inheritance tax, as long as the property is held for charitable purposes.

2 Gifts of Land and Shares
Gifting certain assets such as land, UK listed shares, and some other investments to charity can generate income and capital gains tax reliefs for the donor, subject to certain criteria and anti-avoidance provisions.

These reliefs are available to the donor – the charity benefits from receiving the assets.

3 Stamp Duty Land Tax
Charities are generally exempt from paying stamp duty land tax (SDLT) where the property is used directly for charitable purposes, or indirectly by generating investment income to fund its activities.

There are conditions that may require repayment of the relief, for example if there are changes in circumstances of the charity and/or the use of the property.

4 Business Rates Relief
Charities occupying commercial property used for charitable activities are entitled to 80% relief against the full business rates – and local authorities can waive the other 20% if they wish.

However, this relief is not usually available if the property is held or occupied by a charity’s trading subsidiary since this carries out non-charitable activities.

5 VAT
VAT affects a charity in several ways, such as whether a charity is required to charge VAT on any services it provides, whether it is able to reclaim any VAT it has suffered, or whether it is entitled to relief on the goods and services it buys.

Even if a charity is not considered to be trading, it may be carrying out a business activity that requires it to register for VAT, such as charging admission to view property, selling advertising space or sponsorship in return for providing the donor with a benefit, and hiring out property.

If undertaking fundraising events, a charity may not need to charge VAT on income from the sale of tickets if the events are clearly organised and promoted with the aim of generating funds for the charity and its charitable activities.

Charities may carry out certain activities that are zero-rated – this requires them to register for VAT, but allows them to recover the VAT paid in relation to these activities without charging VAT on its supplies. Such activities include sale or hire of goods donated to the charity.

If a charity does carry out a business activity that requires it to register for VAT, then it can reclaim VAT incurred in connection with this business activity.

Charities are also entitled to various VAT reliefs on expenditure not available to individuals or businesses. Currently, these include a reduced rate of VAT charged on fuel, power, and certain energy saving materials used in a charitable building, and zero-rated supplies including advertising, certain medicinal products, and selected goods used in connection with collecting donations.

Conclusion
UK tax legislation can be a minefield, and it is now more important than ever that organisations are aware of their responsibilities. However, there can be generous allowances and reliefs available – so please do get in contact if I can assist your organisation take advantage of these whilst fulfilling your compliance requirements.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Guide to the new Charities SORP

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 17th July 2014

Categories:

Charities & Social Businesses

In July 2014, the Charity Commission and Office of the Scottish Charity Regulator (“OSCR”) published the new Charities Statement of Recommended Practice, known as the “SORP”.

The culmination of much debate and deliberation, drafting and delay, the SORP sets out the accounting treatment that charities should follow when preparing their accounts.

As I have previously blogged, there are in fact two SORPs: one for those charities reporting under full UK accounting standards, Financial Reporting Standard 102 (“FRS 102”), and one for charities that adopt the reduced disclosure framework FRSSE (or the Financial Reporting Standard for Smaller Entities).

The SORPs come into effect for accounting periods commencing on or after 1 January 2015.

The SORPs reflect the changes brought about as a result of FRS 102, but also include new and updated guidance for technical areas affecting the sector.

Information about the impact of the new SORPs can be found on our website.

For information on the key changes affecting those charities adopting the FRS 102 SORP, please download our guide or get in touch.

Guide to new Charities SORP – FRS 102

Updated: Changed hyperlink to PDF guide Dec 2020.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Taxes and Reliefs Affecting Charities – Part 1

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 24th June 2014

Categories:

“Charities don’t pay tax!”

If only things were that simple!

It could be suggested that charities are more likely to be exposed to the impacts of tax and tax administration than commercial companies.

In fact, a charity is likely to suffer tax – paying VAT on its purchases which it may not be able to recover.

A charity may not actually pay any tax on its income or gains, or have to prepare tax returns – but it must meet certain criteria in order to get these exemptions. Charities need to be aware of all conditions and criteria in relation to their tax position, not least meeting HMRC’s definition of a charity.

Below I highlight some of the common taxes that impact charities, as well as some of the reliefs and exemptions available to charities.

1 Income and Gains
Generally, charities are exempt from income, capital gains or corporation tax on their income and gains provided that both the income and the assets are used for charitable purposes.

This applies to most sources of income such as donations, legacies, rental income, income from investments, capital gains, and lottery income.

Money generated from fundraising events also attracts this exemption.

2 Trading
Do charities trade? Yes they do – even if there is also a separate trading subsidiary company. Providing services under contracts, running lotteries, and selling tickets or sponsorship for fundraising events can be classed as trading income.

If these activities are an integrated part of a charity’s objectives (or “primary purpose” as it is known), carried out by the beneficiary, and within certain turnover limits, then the income should be tax free.

Wholly-owned trading subsidiaries are common and allow charities to separate trading activities from their core activities, whilst enjoying the relief available arising from the gifting of the subsidiary’s profits to the charity.

3 Gift Aid
Making a qualifying donation under gift aid provides benefits to both the individual and the charity – the individual obtains basic rate tax relief on the donation at source and the charity reclaims 25% of the gift from HM Revenue & Customs.
The charity must obtain a declaration from the individual confirming certain facts in order to claim the gift aid relief.

The donation must also meet specific criteria – including being from an individual who cannot receive any benefit, in excess of certain limits, from making the donation.

Special conditions on reclaiming gift aid apply to those charities that generate funds through auctions, membership subscriptions, fundraising events, and admissions to view property.

New simplified procedures, the Gift Aid Small Donations Scheme, came into effect from April 2013, enabling charities to reclaim gift aid on donations of £20 or less, up to an annual maximum of £5,000 per charity, without obtaining individual declarations (with the aim of reducing some of the administrative burden). To qualify, a charity must have existed for at least two years and made a successful gift aid claim within two of the previous four tax years.

4 Corporate Donations
Whereas gift aid provides relief to both donor and charity, there is no direct relief available for the charity when receiving donations from companies. However, the company is able treat a donation as deductible against its own taxable profits.

This also applies to the trading subsidiaries of charities – gifting the profits to the charity eliminates the subsidiary’s tax charge on its trading profits (although such a donation cannot create a loss to offset against non-trading profits). The donation must be physically paid over within nine months after the end of the accounting period to which it relates.

The charity must use the donation towards its charitable purposes.

Summary

UK tax legislation is complex and ever-changing. Navigating this maze can be a confusing, and even overwhelming, experience. In the second part of this blog, I look at 5 further taxes and reliefs available for charities.

Please do get in contact if I can assist your organisation make the most of the reliefs available whilst remaining fully compliant.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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2 Better Than 1? Introduction Of A Separate FRSSE SORP For Charities

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 3rd April 2014

Categories:

Charities & Social Businesses

The Charity Commission and Office of the Scottish Charity Regulator (“OSCR”) have just announced that the final version of the new Charities Statement of Recommended Practice (“SORP”) has been passed to the Financial Reporting Council (“the FRC”) for their review and approval. The FRC are expected to approve the new SORP for issue by the end of June 2014, with it coming into effect for accounting periods commencing on or after 1 January 2015.

The release of the new SORP comes after many months of public consultation, followed by review and revision (as required or deemed appropriate) by the SORP Committee.

Well I say SORP, because in fact it has been announced that there will be two new SORPs: one for those charities who are required or who chose to prepare the accounts under full UK accounting standards (the new FRS 102), and one for those entities who are eligible to report under the Financial Reporting Standard For Small Entities (“FRSSE”).

So why have two SORPs been prepared?

Well, one of the questions posed as part of the consultation process sought views as to whether the new SORP should support the FRSSE. This issue seemed to raise more debate than perhaps was expected and in fact many respondents took this question one step further and commented on whether the SORP should require charities to follow full UK accounting standards (FRS 102) only.

The arguments in favour of taking this approach and disapplying the FRSSE centre around the fact that this would provide more consistent reporting in the sector, since everyone would be signing from the same hymn sheet, as it were. In addition, a charity must follow FRS 102 on matters where the FRSSE is silent (which could lead to charities reporting under two different accounting frameworks). Furthermore, the SORP would only need to consider and reflect requirements and terminology of FRS 102, thereby making the SORP shorter and easier to follow.

However, the consultation responses also revealed strong support for retention of the FRSSE. Supporting the FRSSE is consistent with the overall “think small” approach of the new SORP, and many respondents commented on the exposure draft of the new SORP placing undue emphasis on FRS 102.

Another key issue is the long-term future of the FRSSE – a new EU Accounting Directive is expected in the near future. This is likely to require further changes to the FRSSE, which would require further amendments to the SORP.

Therefore, the decision has been taken to publish two SORPs. This approach answers those consultation responses that the SORP was too focused on FRS 102, as well as providing the following benefits:

- Avoids disruption to FRS 102 users as they will not be affected by further revisions to the SORP;

- Simplification of each SORP as each will use the terminology relevant to the accounting framework being reflected; and

- Allows each SORP to focus on the specific accounting treatments set out by each accounting framework.

As noted above, there is the issue regarding what happens where a charity undertakes transactions that are not addressed by the FRSSE. In such instances, charities can retain existing accounting policies, provided they meet accepted practice, but are encourage to adopt current practice as reflected by the SORP. For sector specific transactions, the new FRSSE SORP will require charities to adopt current practice (i.e. to follow the SORP), in order to promote best practice throughout the sector.

The introduction of a FRSSE SORP also reflects the fact that around 98% of charities by income are eligible to adopt the FRSSE (although it should be noted that the Charity Commission and SORP Committee, in their report to the FRC recommending the SORP for approval, comment that the majority of charities preparing accruals accounts do not actually adopt the FRSSE – indeed, Goodman Jones have run recent seminars on the new SORP and found that none of the charities in attendance are currently adopting the FRSSE). The reasons why so few charities chose to adopt the FRSSE are unknown, but it will be interesting to see whether this changes following the changes being introduced by FRS 102.

It could be argued that having two SORPs is not consistent with the FRC’s policy of cutting clutter. However, I believe that this approach should aid users of the SORPs as it will remove the need to review and filter out those sections that do not apply to the accounting framework they are adopting – making the SORPs easier to follow, which hopefully will lead to improved reporting.

As ever, the devil will be in detail…

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Charity CEO Pay – Problem or Political Posturing?

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 12th August 2013

Categories:

Charities & Social Businesses

The issue of charity pay has once again hit the headlines. However, this time it is not the issue of paying trustees that has raised its head above the parapet, but the level of pay given to charity CEOs. So is there an issue with charity CEO pay, or is this politically motivated?

This issue relates to an article in The Daily Telegraph that the number of chief executives, of charities making up the Disasters’ Emergency Committee, who receive six-figure salaries has increased by nearly 60% in the last three years. But the specifics have been overshadowed by the reaction to comments in the article made by William Shawcross, the chairman of the Charity Commission, who said that:

“It is not for the Commission to tell charities how much they should pay their executives. That is a matter for their trustees. However, in these difficult times, when many charities are experiencing shortfalls, trustees should consider whether very high salaries are really appropriate, and fair to both the donors and the taxpayers who fund charities. Disproportionate salaries risk bringing organisations and the wider charitable world into disrepute.”

Naturally, his comments have been seized upon and generated much debate, as well as some consternation. Sir Stephen Bubb, the chief executive of the charity leaders’ organisation ACEVO, called his comments “deeply unhelpful”, saying that CEO pay is “simply not an issue for donors. Donors are more concerned about the outcomes, the performance, and the efficiency of these organisations.”

Following the article and the various comments above, the issue has become politically marred, with Sir Bubb attacking right wing politicians saying they “hate effective charities” and dislike those “effective in raising concerns of the world’s poor”, whilst Priti Patel Conservative MP said that Sir Bubb had let his “left wing political views cloud his judgement.”

To me, the reactions are motivated by political stance rather than by the issue. The angle of the research and article, together with the various comments in response, naturally influenced by a person’s attitude and viewpoint, have allowed the comments of William Shawcross to be misinterpreted and the key issue in question to be overlooked, perhaps almost forgotten.

So is William Shawcross correct? Yes he is. Salaries must be appropriate and fair. And you know what? They are. Charity CEOs are responsible for over £61.1 billion of income per annum. They oversee the vast, varied and valuable services charities provide.

They are charged with generating funds, ensuring these are spent on achieving the charity’s aims, and for safeguarding the assets of the charity.

They must have and demonstrate great leadership, organisation, and skill. They bear enormous responsibility.

All of the above are key factors in determining remuneration levels. Salaries are, and should be, commensurate with the charity’s aims and activities, the duties of CEO, and with the level of income and expenditure.

There has been much debate in the sector in the last 12 months or so regarding the professionalism of the sector. It is a unique and wonderful sector, and during the recent times of austerity charities and their CEOs have had to draw on their vast experience and ability to ensure funding is obtained to carry out activities (and as I have previously discussed, income has continued to grow year on year).

Ultimately, as with anything in life, you get what you pay for. The sector needs to attract the top talent. One way of doing this is through remuneration. They should not compete with the private sector. But they do not try to.

It’s too easy to knock people, sectors, and organisations. And it’s all too easy to give an opinion from the side-lines and get a headline in a newspaper. Rather than deter people from coming to the sector, we should be doing the opposite – encouraging skilled and inspirational people to the sector and providing them with the opportunities to demonstrate their ability. The very things that charities themselves do for the wider world.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

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