Charity. How transparent is your senior executive pay? Use your Trustees report to promote your charity. Gift Aid and subsidiaries

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1 Charity How transparent is your senior executive pay? Use your Trustees report to promote your charity Gift Aid and subsidiaries Changes to the annual return for charities 2015 Filing accounts with the Charity Commission Need new trustees with financial skills? Charities and tax - a potentially costly affair Charity register statistics Audit threshold Future events The Kreston Reeves newsletter designed to help keep you up to date with developments affecting the Charity sector April 2015

2 How transparent is your senior executive pay? The disclosure of the remuneration and benefits of key management has become a hot topic in recent months. The new SORP goes some way to encourage transparency of senior executives pay in the following provision: All charities must disclose the total amount of any employee benefits received by trustees and its key management personnel for their services to the charity. The trustees of charities, particularly larger charities (charities subject to charity audit), should give consideration to the information needs of their funders and other stakeholders in making their accounting disclosures. For example, it may be helpful to provide details of the remuneration and other benefits received by the charity s Chief Executive Officer or highest paid staff member, or alternatively a charity may choose to disclose the amount of remuneration and other benefits paid to its key management personnel on an individual basis. Also, the trustees annual report section states that within the structure, governance and management part of the report there should be an explanation of the arrangements for setting the pay and remuneration of the charity s key management personnel and any benchmarks, parameters or criteria used in setting their pay. These new SORP requirements fall some way short of the NCVO s recommendation in their report published in April 2014 on the inquiry into charity senior executive pay, which recommends that charities report actual remuneration paid to highest-paid staff as well as stating their roles and names. Clearly this recommendation has faced some strong objection from those in senior positions within charities. Is it right that senior executives of charities should be treated differently to those in a private trading company? Would this act as a deterrent to those considering working within a charity? Susan Robinson Partner and Head of Charities and Not for Profit With charity financial statements readily available to the public it is understandable that some senior executives may be against having their salary published for all to see. The argument that high salaries in charities are reducing the amount that can be spent on the charity s objects is a strong one, but this could easily be said for other areas of charity expenditure. Is the charity paying too much for its marketing campaigns? Or perhaps they are overspending on the maintenance of their premises? Across all areas the charity s trustees and management should be ensuring the charity gets value for money. To achieve this, charities must have robust procurement and remuneration policies and should regularly review and update these. For larger charities, it may even be considered necessary to establish a Remuneration Committee to challenge and justify salary levels. Please contact your usual Kreston Reeves contact if you wish to discuss this matter further or charities@krestonreeves.com

3 Use your Trustees report to promote your charity Re: Charity Reach April 2015 The Trustees Annual Report (TAR) should be a coherent document that meets the requirements of law and regulation and provides a fair review of the charity s structure, aims, objectives, activities and performance. The report is used by different people for different reasons. The main users of the TAR will be: The public and beneficiaries Donors and funders Trustees and management Charity Commission The TAR is your chance to sell your charity to the outside world. Here are 10 tips to improve your report: 1. Style avoid jargon, be concise, apply good narrative reporting and let it flow. Ensure the content links to the charity s financial information. 2. Order ensure the TAR is set out in a logical order that gives suitable weighting of importance to each section. The most important sections are objectives and activities and less important areas are legal and administration details. The new SORP does propose a new order for the TAR, which is more logical than its predecessor. 3. Structure the TAR is a long and unwieldy report so it is important to adhere to the SORP headings. Narrative should flow easily in each section. 4. Honesty ensure you refer to last year s objectives and assess how the charity has performed. Reflect and explain clearly the performance and any indicators that may have impacted the result. Do not be afraid to report failures these can be turned into positives by the subsequent actions of the charity. 5. Performance ensure key performance indicators are properly explained. Where practical, benchmark your performance against other similar charities. For example, look at the percentage of donated income that has been spent on charitable activities. 6. Impact reporting output (things that result from activities) leads to outcome (changes, benefits and learning) which leads to impact (long term, broad effects). 7. Long term linked to the above point, you should set goals and link these to future plans. Consider total reserves and combine the above with risk management to assess the overall long term strategy and targets. 8. Reserves - clarify why a certain level of funds are held within reserves. If reserves are too high, some individuals will not donate. If reserves are too low, this may result in a lack of trust from a potential donor. Consider different types of reserves such as a Fixed Asset Reserve, Redundancy Reserve and Repairs Reserve. But, above all, clearly demonstrate the purpose of all your reserves. 9. Executive pay consider a more detailed report on executive pay that goes further than the SORP requirements. The new SORP does have fuller disclosure requirements but the more clear and transparent your report, the more useful it will be to a reader of the accounts. 10. Plan ahead agree the format, collate the information, write the report, and review the report. There are many matters to address in a TAR. To cover every area, the charity should ensure transparency, whilst exhibiting best practice and inspiring public confidence. The challenge is how to turn all of the information into a coherent, compelling and concise report. The above 10 tips will help you with this challenge.

4 Gift Aid and subsidiaries Re: Charity Reach April 2015 Re: regulatory reach february 2015 The Charity Commission has withdrawn its guidance in CC35 in relation to the payment of distributable profits from charity trading arms to a parent charity. Trading subsidiary companies of charities are established to carry out trading activities for a profit. These companies may donate some or all of their profits to the parent charity and thus eliminate or reduce their corporation tax liability. If taxable profits exceed distributable profits, the (now withdrawn) guidance stated that the subsidiary company may make a donation that is greater than the distributable profits. However, under the provisions of the Companies Act 2006, the excess amounts paid to the charity may have to be repaid to the subsidiary. What does this mean for your charity? Trustees need to consider whether any donations received may be in excess of the subsidiary s distributable profits in the year that they were given. Affected charities should consider any implications that this has in their own particular circumstances. It is possible that your financial statements will need to be amended to reflect the excess payments and it is likely that the charity will have to repay the excess donations. Directors of the subsidiary trading company may be personally liable for any corporation tax payable but HM Revenue & Customs is considering the matter and will publish its view in due course. The Charity Commission will also provide updated guidance in due course. Zoe O Brien Senior Manager For more information or guidance please speak to your usual Kreston Reeves adviser on or by ing charities@krestonreeves.com. Changes to the annual return for charities 2015 As part of the Charity Commission s continuing effort to strengthen its ability to identify risk and ensure people have access to the information they need to make confident decisions about charities, three new questions will be added to the annual return for financial years ending in 2015: 1) In the reporting period, how much income did you receive from: a. Contracts from central or local Government to deliver services? b. Grants from central Government? 2) Does your charity have a policy on paying its staff? 3) Has your charity reviewed its financial controls during the reporting period? The charity regulator has listened to concerns raised during the consultation process regarding an additional question about charities campaigning expenditure. As a result this question will not appear in the annual return for Despite this concession, the NCVO strongly criticised the plan to return to the proposal in a year s time. Another proposal, to ask charities with incomes of between 10,000 and 500,000 for key financial information, was also opposed by the sector. Having taken this into account, the Commission decided to exclude this question as it would increase the burden on smaller charities. Instead, it will explore whether the information could be gathered through a technological solution, for example the introduction of accounting software. In a statement Paula Sussex, Chief Executive of the Commission, said: The public rightly expects charities to be accountable and transparent. They also expect us to regulate effectively and to use the tools at our disposal to do so. This additional information will help achieve both aims. I hope it will also encourage trustees to monitor their charity s financial controls and carefully consider what they pay their staff. Please let your usual Kreston Reeves contact know if you need any assistance when filing your annual return, alternatively charities@krestonreeves.com or phone us on

5 Re: Charity Reach April 2015 Filing accounts with the Charity Commission It used to be normal for us to file our charity clients accounts but since the advent of the digital age this has become more difficult. Repeated requests by accountants to the Charity Commission have resulted in a new digital service being launched that allows an accountant or other nominated agent to submit accounts on behalf of client charities. Charities must use the change your details service to authorise the accountant or agent. Further information can be found at It remains the case that charities should file their own annual returns with the Commission. Indeed, the additional questions that are now asked on the annual return make it more important than ever that this task is not delegated to your accountant or other agent. Need new trustees with financial skills? Charities need trustees with a wide range of skills, covering the activities and governance of their particular objectives. Many find it difficult to source skilled people with the relevant specialist experience in areas such as business and finance. In order to tackle this issue, the Institute of Chartered Accountants in England and Wales (ICAEW) and the Chartered Accountants Benevolent Association (CABA) have joined forces and launched This website provides a free service that allows charities, schools and social enterprises to post vacancies that can be applied for by ICAEW members and the general public. The ICAEW and CABA launched this initiative with the aim of providing not-for-profit organisations with the ability to contact professionals who are looking to match their business and financial skills to a volunteering opportunity. Charities and tax - a potentially costly affair HM Revenue & Customs has increased its interest in charities over the past couple of years. This may be a relatively simple corporation tax return request or a full enquiry into the affairs of a charity. There is a popular misconception that tax does not apply to charities, but this is not always the case. For instance, some charities may be required to charge VAT on their services or supplies. Some charities trading activities can give rise to a corporation tax liability. So if you receive correspondence from HM Revenue & Customs, please do not automatically throw it in the bin! If you are unsure of the action you should be taking in response to correspondence or a request from HM Revenue & Customs, we recommend contacting your Kreston Reeves adviser to ensure that it is dealt with in the appropriate manner. In the event of an enquiry being opened into your charity s activities, ensure you inform Kreston Reeves as soon as possible to get the correct support when dealing with such queries. Importantly, you should not just wait until HM Revenue & Customs contact you. Trustees should be proactive and should give thought as to whether their charity s income is potentially liable to VAT, for example, or whether it has trading income for tax purposes. In addition, they should consider whether expenditure is wholly and directly attributable to the charity s aims. Risk areas include the provision of refreshments or excursions and overseas trips. If HM Revenue & Customs deem that your expenditure does not meet the wholly and exclusively criteria in relation to your charitable activities, your charitable status for tax purposes could be affected. Kreston Reeves does offer fee insurance to protect against professional fees in what can be lengthy enquiries. Such fee insurance covers VAT, PAYE as well as income tax and corporation tax enquiries. Please let us know if you would like any further information.

6 Re: Charity Reach April 2015 Charity register statistics The Charity Commission regularly issues statistics showing the annual income of the 164,000 charities on its register. The latest figures were issued for September 2014 and show that 75% of charities have income between 0 and 100,000. The revealing statistic is that this 75% of charities account for just 3.4% of total income received by charities. The table is shown below: Annual income bracket No. of charities % Annual income bn 0 to 10,000 67, ,001 to 100,000 55, ,001 to 500,000 20, ,001 to 5,000,000 8, ,000,000 plus 1, Sub-total 154, Not yet known 9, TOTAL 164, The statistics are Crown Copyright and are shown here under the Open Government Licence v3.0. % Audit threshold Following a recent consultation the Government has decided to increase the audit income threshold from 500,000 to 1 million. This change takes effect for accounting periods ending on or after 31 March The income threshold at which charities will need to prepare group accounts has also increased to 1 million. Charities with assets over 3.26 million and income over 250,000 will continue to require an audit. Future events We have arranged to hold another of our popular Trustees Responsibilities seminars in our Canterbury office on Tuesday 12 May 2015 at 4:30pm. The seminar is free to attend and will run for approximately 2 hours. If you have any new trustees we would strongly recommend this seminar to you. Alternatively, if you would like us to present the seminar to your trustee body individually, please let us know. If you would like to book onto the Trustees Responsibilities seminar please contact Clio Davies at events@krestonreeves.com or phone We have not yet finalised dates for our charities update seminar but, as soon as we do, details will be posted on our website. If you are interested in attending, please register your interest by ing charities@krestonreeves.com

7 Re: Charity Reach April 2015 Calling all tweeters! To keep up to date with important developments within the not for profit sector, please follow us on About Kreston Reeves Kreston Reeves is a leading accountancy and financial services firm located across London and the South East of England. We provide a full range of accountancy, business advisory and financial services that help our UK and international clients achieve their personal and business goals, with peace of mind. For more information visit our website: Contact us For further information please contact a member of our team to find out how we can help you on Kreston Reeves LLP (the Firm) is a Limited Liability Partnership registered in England and Wales with registered number OC Registered office: 37 St Margaret s Street, Canterbury, Kent CT1 2TU. Registered to carry on audit work in the UK and Ireland by the Institute of Chartered Accountants in England and Wales. Details about our audit registration can be viewed at for the UK and for Ireland, under reference number C A member of Kreston International A global network of independent accounting firms. Kreston Reeves Financial Planning Limited, which is wholly owned by the Firm, is authorised and regulated by the Financial Conduct Authority. Registered in England and Wales with registered number Registered office: 37 St Margaret s Street, Canterbury, Kent CT1 2TU. Kreston Reeves Corporate Finance LLP is a Limited Liability Partnership registered in England and Wales with registered number OC Registered office: 37 St Margaret s Street, Canterbury, Kent CT1 2TU. Kreston Reeves Corporate Finance LLP is authorised and regulated by the Financial Conduct Authority.