bovington - charity seminar 2016

PowerPoint Presentation

Charity SeminarThe Tank Museum - Bovington24th May 2016

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Chairmans WelcomeNick Love

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Housekeeping

pkf-francisclark.co.uk

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Merger with PKF Francis Clark1 April 2016 merger with PKF Francis Clark PKF Francis Clark58 PartnersOver 580 staff8 offices Taunton, Exeter, Salisbury, Poole, New Milton, Torquay, Plymouth and Truro


Why merge? PCW

PKF Francis Clark officesCulture & TeamFoundationsSpecialismsCorporate FinanceFinancial PlanningTax ConsultancyPayroll Geography


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International NetworkPreviously Leading Edge AllianceChanged to PKF networkInternational network of independent firmsOver 450 offices, across 150 countries


Programme

Financial Reporting Update Nick LoveVAT Update Simon AnslowInvestments David CliftonFinancial Controls Nick LoveBREAKLegal Update Geoff Trobridge and Victoria JonesTax Update Erin DavisCyber Fraud Stewart KingLUNCH


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Financial Reporting UpdateNick Love

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Introduction

Not another SORP 2015 talk! A brief recapSome thoughts on transition to SORP 2015Other matters, including re trading subsidiaries and company secretarial and other filing matterspkf-francisclark.co.uk

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SORP 2015 brief reminders

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BackgroundDates periods beginning on or after 1 January 2015Depending on the size of the charity you may have a choice:FRS 102 SORP all canFRSSE SORP can if under small companies thresholdThen within each SORP, the larger charities will have a separate list of additional requirementsLarger charities are those with income over 500k not the new audit threshold of 1m


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Two SORPS please - summing upChoice of two SORPs consult to agree which one to choseIn very, very simple terms for many charities, I think the additional burden of FRS102 SORP will be:cash-flow statementkey management personnel disclosures will need considerationand so they will go for FRS 102 to avoid changing againA chance to improve your trustees reportNumber of presentational changes and anyone with longer term financial assets or liabilities will need to think through


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SOFA other changes In addition to format changes, which are welcomed, the followingComparatives for all columns practical issues to resolveIncome recognition probable rather than virtually certain SORP Module 5 covers and for some care will be neededExceptional items now material items and clarity on where to put them in the SOFAGovernance costs no longer on the face but form part of support costs and spread as appropriate across categories


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Balance Sheet

Financial Instrumentsrare for complex instruments (e.g. derivatives linked to loans, incl swaps, caps and collars)But care re long term debtors and creditors and the time value of moneyAnd care with lease incentives Holiday pay accrualStocks of donated goods fair value unless cannot be established reliably some common sense to apply here Defined benefit scheme actuarial assumptions


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Disclosures in the notes

Salary bandings all charities now, small and large, numbers earning > 60k in bands of 10kTrustees and staff remunerationIncreased disclosure, more transparency, public interestSome scope for what is disclosed but FRS102 SORP users must disclose remuneration of key management personnel Module 9


SORP 2015 transition

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Transition practical mattersRewrite prior year (say March 15) accounts under SORP 2015Transition balance sheet (say March 14) must:Recognise assets & liabilities required by SORP 2015Not recognise assets or liabilities where SORP 2015 doesnt permitReclassify items if a different category under SORP 2015Apply SORP 2015 in measuring all recognised assets & liabilitiesAdjustments to the transition balance sheet as a result of changes in accounting policy will be recognised directly in fund balances (reserves)


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Transition practical mattersAdjust transition date balance sheet as though always under new SORP 2015 but 4 mandatory exemptions where retrospective application is forbidden:Derecognition of Financial Assets and LiabilitiesAccounting Estimates this is the most relevant one to most entities Discontinued operationsMinority interestsAnd 20 optional choices, including connected to:Fair value/Revaluation as deemed costLease incentives


Accounting estimate example legal provision in accounts at March 14 for 200k. In March 15 provision increased to 250k. In October 15 the claims were settled for 600k. You must not go back and put the 600k provision in at March 14Re 20 optionals explain no time to go through all 20 those above

Fair value/revaluation can adopt pre transition revaluation as deemed costLease incentives for leases commencing pre transition treatment of lease incentives can be under old GAAP

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Use table to track restatementsDisclosures:Reconciliation of balance sheets at transition and last year

Restatement of last years SOFANotes explaining the adjustments

Transition practical matters


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Reconciliation of funds (equity) at transition dateReconciliation of funds at comparative datesReconciliation of SOFA for comparative yearCash flow statements (unless using FRSSE)Transition disclosures required


Other matters

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ICAEW TECH 16/14 updated Feb 16Debt exists to charity account for in bothHow do you tidy up?Offset against existing loan from charityDividend up (but unlikely to have reserves for this)Capital reduction, converting shares into distributable reservesWaiver out of future distributable profitsTax Credit in company is not taxableUnlikely that HMRC will seek tax on past transactions What about future taxable profits?

Trading subsidiaries and illegal distributions


Explain in outline why illegal distributions have occurred, largely because the sub has had amounts (permanently) disallowed for tax e.g. entertaining, depreciation on non qualifying assetsIn charity: Dr Interco creditor, Cr donations receivable almost certainly not a PYA. In sub: Dr Interco debtor, Cr Gift Aid donations payableTidy up - Various ways of settling this debt need to take tax adviceTax HMRC will not be able to reopen years outside tax enquiry window (what is this?)Future when taxable profits exceed book profits might be ability to apply a loan waiver route or capital reductions, but might have to accept payment of some tax

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Late filing of accounts at Charity CommissionFrom 30 June 2016, company Annual Return being replaced by the Confirmation StatementCheckUpdateConfirmPayPeople with Significant Control (PSC) all companies. For charitable companies:New register needed usually will be members of the companyBut there might be e.g. a benefactor who pulls the stringsReport when confirmation Statement doneFiling


Late filing higher profile recently with some naming and shaming. Sure that none here are guilty but worth flaggingConfirmation statement following are explanatory CH wordsFrom 30 June the annual return is being replaced by the confirmation statement. At least once every year you'll need to review the information we hold about your company and confirm it's correct or that you're updating it at the time you make the statement. You'll be able to do this online. To complete your confirmation statement you'll need to: check the information we hold on your registered office, directors and location of registers. If any of these need changing update these by filing the right form update your shareholder information, statement of capital and your standard industry classification (SIC codes). This can be done as part of making your confirmation statement check and confirm your record is up to date pay the fee As part of your first confirmation statement you must also provide the information contained in your register of people with significant control (PSC). If your company information changes at a later date, you can make a confirmation statement to update your record and confirm it's correct. You can confirm your record is up to date as many times as you need to. You'll only be charged once each year. Read the additional guidance on our website to make sure you're fully aware of these changes and understand what you need to do from April 2016.

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VAT UpdateSimon Anslow

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Agenda

VAT and charitiesWhats new?Frequently Asked Questions


The first point is a reminder of VAT for charities

Whats new covers a couple of topical issues

FAQs takes a look at actual queries that we have received over the last year or so. I.e. real live examples

There will be points that are relevant for charities that are not registered for VAT25

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Charities are subject to VAT in the same way as commercial businessesHowever certain special rules for charitiesZero-rating and exemption for some categories of incomeZero-rating for some items of expenditureVAT refunds for certain categories

VAT and Charities


Charities, CICs (Community Interest Company), CIOs (Charitable Incorporated Organisation) are subject to VAT in the same way as commercial entities

The special rules for charities do not include CICs but a CIO is a charity

VAT refunds relates to certain museums, academies/hospices/air ambulance charities26

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Extension of VAT refund scheme for museums and galleriesOpen at least 30 hours a weekFree entryVisitors do not have to make an appointment to visitArts Council accredited

Whats New?


The VAT refund scheme for museums and galleries currently covers certain named museums (s33A)

From 16 March 2016 the scheme will be extended to cover the listed points

Museums have to apply to HMRC if they think they meet the criteria

Detail for taxpayers in Notice 998 this has not been updated yet

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Sveda caseEuropean Court held that VAT recoverable on construction of grant funded recreational trail. Sveda had a mixture of business and non-business activities Public had free access to the trail which linked to a shop and cafThe shop and cafs existence were dependent on the trail so there was a direct and immediate link to the taxable activities.Case referred back to the national court in Lithuania to considerReview capital expenditure in case protective claims can be made

Whats New?


Sveda is not a charity but this case could have relevance for charities

A Lithuanian case that was referred to the CJEU

HMRC has not made any comment except that they think the facts are specific to Sveda

There are short articles in Tax Journal dated 4/12/16 and 31/10/16

Advise clients that could be in the same position to take advice on whether they should make a claim, this will be probably be challenged by HMRC

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Question Hospice client asked for advice following the changes in 2015 on VAT recovery and partial exemption/non-business splitAdvice provided on the operation of the new rules and recovery of VAT on non-business expenditureMethod of calculating non-business split reviewed to provide a more favourable recovery of VATDetailed review of income from exempt fund-raising activities showed that donations were incorrectly being included with the exempt fund-raising income leading to over-restriction of input VAT

Frequently Asked Questions


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Question charity running a group of care homes and welfare related activities asked for recommendations on maximising VAT recovery. One company in the group was already registered for VATConsider joint contracts of employmentSuggested use of a VAT group to avoid VAT on internal management charges between the companies VAT registered company to ensure that VAT bad debt relief claimed where appropriateEnsure that zero-rating certificates provided for expenditure on buildings e.g. ramps, WCs, lifts



This client had a holding company, a company that provided transport (zero and standard) and about 3 companies providing welfare services

The transport company was registered for VAT

The company was starting to provide management services

One of the unregistered companies was looking to provide management services and/or staff to the other companies

DO NOT USE THE WORD HANDICAPPED!! USE DISABLED INSTEAD in context of zero-rating re ramps etc

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Question Nursing home charity queried whether it was correct that agencies add VAT on the total amount charged for temporary staff or whether VAT should just be charged on the agents commission. As the nursing home is not registered for VAT, the VAT charged represents an additional costThere have been 2 contradicting cases on seemingly similar factsReed Employment (2011) held VAT only chargeable on Reeds commission. HMRC said the facts only relevant to ReedAdecco (2016) held VAT should be accounted for on the full fee including the element relating to staff wagesAdecco decision likely to be appealed to a higher courtRecommended the charity should consider submitting a protective claim for the last 4 yearsFrequently Asked Questions


Adecco was FTT

Nb Dont forget at the moment there is still the concession relating to the supply of nurses31

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Question Charity running an agricultural show queried whether VAT should be charged on the pitch fee Provision of a specific space for a stand is land-related and exempt as long as the charity has not made an option to tax on the land/buildingProvision with a space for a stand together with services is not land-related and subject to VAT at the standard rateThis is an area that HMRC has been looking at closely over the last 2 years, in some cases they are taking the view that the provision of space for a trade stand could not be a mere supply of land as the event organiser is usually providing marketing, organisation and expertiseThis is an area to watch



A grey area

Provision of stand only = land related supply

Provision of a space for a stand together with services this is not seen as a land-related supply and the normal B2B rules will apply. If the customer belongs in the UK, VAT should be charged. If the customer is in business and belongs in another EU country, no UK VAT and the customer should account for VAT in their country using the reverse charge procedure. Our client should show the customers VAT number on the invoice and complete an EC Sales List entry;If the customer belongs outside the EU, the place of supply is where the customer belongs with no UK VATThese rules are seen to apply where the following types of service are provided:Design and erection of a temporary standSecurityPowerTelecommunicationsHire of machineryPublicityOver the last couple of years HMRC does seem to be taking the view that it is very unlikely that the provision of a trade stand at an exhibition could ever be just the mere supply of land and that it is much more likely that in all instances there will be a supply falling within 2 above as the provision of a stand includes the provision by the supplier of their marketing, organisation and expertise. There have over the last couple of years several tribunal cases on this matter, but unhelpfully the decisions have gone both ways.Cases International antiques and collectors fairs taxable supply supply of services (not land)Zomboroy-Moldovan land related supplies exempt unless OTT

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Question from a charity providing sailing as a means of promoting mental health. Question 1 Can VAT incurred before the date of registration be recovered if the charity registered for VATGoods VAT can be recovered on goods purchased in the 4 years prior to the date of registration. Goods must still be held at the date of registrationServices VAT incurred in the 6 months prior to the date of registrationThe goods and services must be used for taxable activities



Question 1 can include reference to goods and HMRCs arguments about depreciated value etc

Goods and services must not be consumed

BUT watch recovery of pre-reg input VAT if asset in CGS

Question 2First bullet Item 2(f) group 12 schedule 8

Second bullet items 4 or 5; note 3e and f; note 4f Group 15 Schedule 8

DONT FORGET TO SAY DISABLED NOT HANDICAPPED

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Question from a charity providing sailing as a means of promoting mental health. Question 2 Can the charity purchase any vehicles free of VAT? Charities providing care or medical or surgical treatment can provide zero-rating certificate on the purchase of vehicles adapted to carry a disabled person in a wheelchairZero-rating also applies to vehicles with more than 6 but less than 51 seats for charities providing care to blind, deaf, mentally ill or terminally sick persons.



Question 1 can include reference to goods and HMRCs arguments about depreciated value etc

Goods and services must not be consumed

BUT watch recovery of pre-reg input VAT if asset in CGS

Question 2First bullet Item 2(f) group 12 schedule 8

Second bullet items 4 or 5; note 3e and f; note 4f Group 15 Schedule 8

DONT FORGET TO SAY DISABLED NOT HANDICAPPED

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Question a charity which provides education for special needs students was planning a new building and asked whether the construction costs of the new residential accommodation and classrooms could be zero-rated for VAT purposesResidential accommodation zero-rating is available for the construction of residential accommodation to be used by students/pupils. The charity must provide a certificate of zero-rating to confirm that it will use the buildings for the relevant purpose Classrooms This area is more complicated. Zero-rating is available for the construction of buildings to be used by a charity for relevant charitable purpose, this means for a non-business activity. If a charity makes a charge for the provision of services (education) this is seen as a business activity. In this case we were able to agree with HMRC that the education activities were funded by grants only therefore a zero-rating certificate could be providedFrequently Asked Questions


The charity in this case was not an academy so s33B did not apply

Residential accommodation could mention that could qualify for zero-rating as dwelling and then no need for certificate

Issue with non-student use in the holidays could prevent zero-rating unless units qualify as dwellings35

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Question a charity had undertaken a re-branding exercise and asked whether the zero-rating for advertising would cover the costs of rebrandingThe zero-rating for charity advertising only applies to advertising on a third partys medium. These costs would not therefore qualify for zero-rating as they did not constitute advertising as suchFrequently Asked Questions


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InvestmentsDavid Clifton

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AgendaThe requirement for an Investment Policy StatementThe need for financial adviceFinding income (and investment returns generally) at this timefcfp.co.uk

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Investment Policy Statement

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The needCharity commission wish to know if you have oneHelpful process to define your investment objectives and provides a framework for future investment decisionsLegal requirement under Trustee Act 2000 if Trustees delegate their asset management function (eg to Discretionary Fund Manager). Trustees annual report should outline any investment policies adopted


Annual return to Charity Commission has a tickbox question asking if you have an Investment Policy StatementAn agency agreement must confirm compliance with the Investment policy Statement.

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Vary in layout, length etc - no set structure except it must be in writingCannot be delegated to Investment Manager, though can be discussed with themCharity Investors Group published a guide with template statementsIf using an Investment Manager; it must include their responsibility and remit, together with the principles they must follow. Statements


Charity Investors Group guide is still available and has six template examples for different types of charities.The template combines Management, Reporting and Monitoring and I would question whether for some charities Management needs to be a separate section (or omitted where there is no external Investment Manager).41

Investment Policy StatementIt will often include:Scope of investment powersInvestment objectivesAttitude to riskFinancial risks facing charityTiming and liquidity needsAny ethical concernsBenchmarks and targets

Content


It will also need introductory info ion the charity and, at the end, the date of approval and planned frequency of review.Some larger charities may find it helpful to establish internal investment sub-committees of trustees and officers to advise the trustee board on the more detailed aspects of its investment policy (within a defined remit).An IFA can also advise the Board, or such a sub committee, on formulating the statement42

Need for financial advice

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Need for financial adviceTrustees duty of careAlways responsible for:Setting & regularly reviewing the investment policyDeciding who manages investments - & termsReviewing suitability and performance of Investment Managers (and ending appointments)Trustees are not liable for the acts (or omissions) of an Investment Manager unless they have failed to comply with this duty of care.


Trustees must know, and act within, their charitys powers to invest .As part of their duty of care, the trustees must be satisfied that the overall level of risk they are taking is right for their charity and its beneficiaries (more on this later).

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Need for financial adviceCharity commission observation

If trustees can demonstrate that they have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions, or for adopting a particular policy.


Italics added by us45

Need for financial adviceTrustees Act 2000 States that Trustees must obtain and consider proper advice from a person reasonably qualified, by ability in and practical experience of financial etc matters re proposed investment, when: Exercising power of investmentReviewing the investmentsExcept where the Trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate


Except: Trustee Board may have its own specialists withinAdvice costs in relation to the sums involvedFunds invested for the short and medium term should be relatively risk free as charities will want to avoid sudden drops in capital values which could reduce their available funding. Trustees Act legally applies to charitable trusts but charity commission consider it good practice for incorporated charities as well.

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Need for financial adviceAdding expertise to specialisms of Trustee BoardHelping the Trustees make informed decisionsProviding objectivity and impartialityCan assist with formulating Investment Policy StatementExplaining pros and cons of ethical investmentReviewing performanceMaximizing returns

Benefits


Dont assume that your charity must be ethical it restricts investment universeIFA acting as agent can help to decide on suitable benchmarks and help with analysing past performanceMaximising returns eg COIF deposit rate from CCLA is 0.45% AER at 22/04/16 but CPI 0.5% and

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Investment returns

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Investment returns

New world of low inflation, interest and returnsTime to consider exposure to equities?Volatility continues eg Brexit and growth threatsAlignment of Trustees and Charities:Attitude to riskTimescale for investment Ethical/ mixed motive objectivesmost charities need money; and the more of it there is available, the more the trustees can seek to accomplish


Quote from the Bishop of Oxford 1992 case. Charities invest so that they can further their charitable aims.Trustees should be aware of likely changes in inflation rates, interest rates and exchange rates.Average UK bank base rate since 1900 is 5.4%. Current 0.5% is one-tenth of this.Financial investment is targeting the best financial return within the risk level deemed appropriate. And equity exposure can increase income and returns generally.Volatility brings opportunities for active managers.Setting investment objectives is not about avoiding risk, but about recognising and managing it.Protect the charitys investments from sudden variations in the market by balancing the levels of risk and return in the portfolio.Protecting against market risk:Including Inflation risk Interest rate risk Exchange rate risk Regulatory riskEquity investments should be capable of being for 5 years.People are naturally short-termist and modern communications is increasing this, but the charities timescale will often be longer. The no loss on my watch mind-set also increases the danger of short termism.First ethical fund in 1984 dubbed the Brazil fund as you would have been nuts to invest in it now ethical funds under management total 10.7b.Mixed = financial investment plus Programme Related Investment49

Options

Need for some cash (but real interest return may be negative)Total returns v income + capital gainsMulti asset solutionsCommon Investment FundsDiscretionary Fund Management

Investment returns


Must consider how suitable any investment is for their charity.Cash may need to be managed eg FSCS limit is 75,000 per deposit taker groupCharities that do not have permanent endowment can adopt a total return approach without the commissions consent.The need to diversify investments is a legal requirement.It reduce the risk that the loss from a single investment, or type of investment.Invest any permanently endowed funds in a way that helps them to meet their short and long-term aims. If a charity is permanently endowed, it will need to consider balancing capital growth and income return in order for the charity to meet its aims and its beneficiaries current and future needs.Pooled funds are a more cost effective way than investing directly in individually selected investments. Also provides an extra layer of management.Some investments may be treated as non-qualifying, with tax consequences.A Common Investment Fund is a regulated charity and a pooled fund open only to other charities ensures tax efficiency.Will an investment manager operate in:An advisory capacity - the investment manager will have to contact trustees for confirmation before any transactions are undertakenA discretionary capacity - they are giving the investment managers powers to make decisions about their investments on their behalfCharities that decide to use an investment manager may want to go through a formal tendering process . IFA can help with due diligence to shortlist candidates and arrange the tendering interviews.50

Investment returns

Need for regular (at least annual) reviewsOf investment performance,Investment managers performanceAlso investment policyWith results considered by whole Trustee Board

Reviews


Need for regular review includes if necessary, ending appointments.If funds are underperforming, trustees should seek to understand whether it is for an acceptable reason. If funds are performing significantly above average, trustees should ensure that it is not because the charity is exposed to greater risks than it is prepared to accept.51

Investment returns

Five year performancePast performance is no guide to the futureDate that you compare an index to has a massive bearing on reported performanceBenchmarking vital but care needed


Identify each line starting at bottom and highlighting real loss on bank interest.FTSE100 (most reported index in UK) slightly fallen over year, but what a ride.Improvement since end July 2015 but compare to improvement since end August 2015. Global equites have performed better still over last 5 years.Long term equity exposure (such as through a multi-asset approach) can outperform inflation and deposit rates.FTSE100 + dividends reinvested gave positive return in 95% of 10 year periods ending any month in last 10 years. World Index + divs gave positive returns in 100% of any 12 year period ending in last 35 years. (Barclays)Active management should be able to better the returns from indices.Help is available to navigate the new world of investment.52

No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF. Registered in England No. 05413603.Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

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Disclaimer & copyright

fcpp.co.uk

Financial Control: we're all in this togetherNick Love

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In this sessionTrustee Board effectiveness: top down controlCharity Commission updated guidanceKey controls: what might an audit committee look for?


Trustee Board effectiveness - top down controlCharity Commission guidanceCharities in financial difficulty CC 12Reserves CC1915 questions trustees should askKey controls what an audit committee would look for if you had oneTouch on the role of your auditor

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Trustee Board effectivenessThe right people Understanding board role and responsibilitiesGood chairingClarity of vision and strategic prioritiesAccountability of executiveTrust and good relationsChallenging questionsConfidence to be courageous


The right people round the tableUnderstanding the role and responsibilities of the trustee boardGood chairingDoes the charity have a clear vision and strategic priorities?Do you hold the charity managers to account?Good relationships based on trustCommitted to asking challenging questionsConfident to have courageous conversations

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Managing a charity's finances: planning, managing financial difficulties and insolvency (CC12)

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Important messages for trusteesRecognise when charity is facing financial difficultiesRegular, robust, up to date financial informationUnderstand your incomeUnderstand your spending and whether youre spending too muchRegularly review risk and reserves policiesTake rescue actionUnderstand the implications of winding up the charityImpact of difficulties/winding up on beneficiaries, staff and assets


Financial management and the role of trustees


Guidance out there CC12 cross refersKey elements of financial controlBudgets and cash projectionsEffective internal financial controlsMonitor results against budgetAnalyse sources of income and expenditureRobust risk and reserves policies

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Financial management and the role of trustees


Monitor and review:performance against contracts grant and funding arrangementsConsider one-off and disaster risks insurable?Consider merger opportunitiesUnderstand nature of funds held and how they can be usedUnderstand the balance sheetGoing concern indicators and implications

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InsolvencyUnincorporated charities trustees liable but principles sameDeemed to be unable to pay debts S123 of 1986 ActIn simple terms, will there be enough cash?Establish the full positionCC12 has some guidanceContact your accountant/ auditor


In simple terms, will there be enough cash? Ask:Current assets (+investments) > Current liabilities?Reserves being used?Additional security being sought by lenders?Creditors chasing payment?Using cash from restricted funds?Reliance on loans due for repayment; breaching covenants etc?Adequate financial reporting so that trustees can assess?Significant potential contingent liabilities?

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Charity reserves: building resilience (CC19)

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Charity reserves: building resilience (CC19)No single right answerKey to financial protection but still poorly understoodDevelop reserves policyFully justifies and clearly explainsIdentifies plans for maintenance of essential services for beneficiariesReflects the risks of unplanned closureHelps to address these risks looking after beneficiaries (vulnerable), staff and volunteers Publish reserves policy not boiler platedPublish assessment of risks not boiler plated


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What are reserves?Reserves are that part of a charitys unrestricted funds that is freely available to spend on any of the charitys purposes. This definition excludes restricted income funds and endowment funds, although holding such funds may influence a charitys reserves policy. Reserves will also normally exclude tangible fixed assets such as land, buildings and other assets held for the charitys use. It also excludes amounts designated for essential future spending.Impact of restricted fundsImpact of designated fundsSubsidiaries reserves


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Why is policy important?


Confidence and demonstration of resilienceFunders stewardship, demonstrate need for fundsBeneficiaries and the public capacity to manage riskLenders and creditors assuranceAssist in strategic planningInform the budget and risk management process

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How to develop a reserves policy


All different depending on size, complexity of activities, structure, nature of funds receivedNature of funds unravel what is unrestricted and availableConsider what uncertainties might need coveringConsider future spending plans that might not be fundable from incomeAnnexes to CC19 provide detailed guidance

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Reserves annual reportSORP requiresStatement of policyLevel of reserves and why they are heldDesignated funds amount and purposeDesignated funds likely timing of expenditureInsufficient (or zero) reserves still need to explain whyReserves too highAvoid boiler-plated disclosuresSpend it!Extend charitys objects


Charity governance, finance & resilience: 15 questionsWhat effect is the current economic climate having on our charity and its activities?Are we financially strong enough to continue to provide services for our beneficiaries?Do we know what impact the social and/or economic climate is having on our donors and support for our charity?What is our policy on reserves?Are we satisfied with our banking arrangements and our current and future investment policy?Have we reviewed our contractual commitments?Have we reviewed any contracts to deliver public services?


Charity governance, finance & resilience: 15 questionsIf we have a pension scheme, have we reviewed it recently?How can we make best use of any permanent endowment investments we hold?Are we an effective trustee body?Do we have adequate safeguards in place to prevent fraud?Are we making the best use of the financial benefits we have as a charity?Are we making the best use of our staff and volunteers?Have we considered collaborating with other charities?Are we making the best use we can of our property?


Key controls

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Key controls: what an audit committee would look for..Risk managementWhat could go wrong?How is it managed?Adequately explained?

Proportionate


Risk managementBalance is importantFocus on the big things that could go wrongAre the big risks adequately managed?Clear understanding aids clear explanation

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Risks - and controls


Other risks to consider?Long term cash shortageControl procedures not documentedCash theftSpending outside charitable purposeSpending outside restricted purposePoor financial authorisationFraudulent spending by staff/ volunteersStaff expenses fraudPayroll fraud


Other risks to consider?Inappropriate payments to connected partiesOverspent capital projectsLoss of assetsInsufficient insuranceIT and cyber crime


In this sessionTrustee Board effectiveness: top down controlCharity Commission updated guidanceKey controls: what might an audit committee look for?


Trustee Board effectiveness - top down controlCharity Commission guidanceCharities in financial difficulty CC 12Reserves CC1915 questions trustees should askKey controls what an audit committee would look for if you had oneTouch on the role of your auditor

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Break


Charities and Reputational Risk

24th May 2016Geoffrey Trobridge

2014 - 2015A time when the sky was black with chickens coming home to roost

Anon

Why?The Cup TrustAggressive FundraisingKids CompanyCEOs Pay

How much goes to charity?Age Concern & EONPolitical activityCAGE(Joseph Rowntree Foundation)Roddick Foundation

Common threadsGovernance

Roles of Trustees

Financial pressures

Operating on the edge

Decision making

KYC (Know your Charity)

KYB (Know your Beneficiaries)

KYP (Know your Partners)

Be PreparedRisk assessment

Disaster recovery

Serious incident reporting

Geoff Trobridge | PartnerGeoff advises charities, social enterprises, voluntary organisations, clubs and associations on all aspects of charity and company law.

01202 78613807747 [email protected]

Legacies andProbate claims

24th May 2016Victoria Jones

In 2014, legacy income rose to 2.2 billion, despite a 1% decrease in the number of people that died during the same period.

Remember a CharityWhy is legacy income important?

Contested wills/codicils

Claims under the Inheritance (Provision for Family & Dependants) Act 1975

Construction and rectification issues

Problem executors

Caveats

Missing assets

Ex Gratia payment requestsObstacles to securing legacy income

Seek expert advice early on

Consider publicity, but dont let it govern the situation

Consider any court procedures/applications available to you

Work together with other charitable beneficiaries (where appropriate) to save costs and adopt a joint approachResolving problems

Ilott v Mitson

Heather Ilott and her mother, Melita Jackson were estranged for over 20 years

Mrs Illot was excluded from mothers will and issues claim for reasonable financial provision

2007 Mrs Ilott awarded 50,000

2009 - Mrs Ilott and charitable beneficiaries bring cross-appeals against this decision. Charities appeal is upheld and Mrs Ilotts is dismissed and she receives nothingIlott v Mitson2011 - Mrs Ilott brings a further appeal and original 50,000 award is reinstated.

2015 Mrs Ilotts appeal against 50,000 successful and is awarded 164,000 to purchase her home and around 20,000 in cash.

2016 Charitable beneficiaries obtain leave to appeal to Supreme Court

Disinheritance and the law: why you cant leave your money to whoever you please

The Guardian

Who are judges to tell us who we can leave our money to in our wills!

The Daily Mail

Battle of the bequests: animal charities v disinherited relatives

The GuardianHeadlines

Victoria Jones | PartnerVictoria Jones specialises in contested will, trust and probate cases and she represents charities, care homes, families and private clients in contentious estate administration will and trust disputes.

01202 [email protected] co-wrote Remember a Charitys Guide to Professional Advisors for drafting wills which include charitable legacies.Victoria also specialises in cases involving vulnerable adults, the Mental Capacity Act 2005 and Court of Protection cases.

Tax UpdateErin Davis

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Charity tax update

Gift aid declaration updateCharity tax risk areasSubmissions to HMRCInheritance tax


Charity tax risk areas include letting of rooms

IHT includes 36% rate, claims by dependant and deed of variation97

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Gift Aid declarationsNew information requirement from 6 April 2016New model gift aid declarations for single and multiple donationsNow must include tax to cover statement: I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax in the current tax year than the amount of Gift Aid claimed on all my donations it is my responsibility to pay any difference.Model forms at: https://www.gov.uk/guidance/gift-aid-declarations-claiming-tax-back-on-donations#declaration-formatsAre your gift aid forms up-to-date?


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Why are some people not paying tax?Personal allowance now 11,000 per personInterest incomeSavings starting rate of 0% on first 5,000 New personal savings allowance from April 2016

Type of taxpayerExempt interest incomeBasic rate1,000Higher rate500Additional rateNil

Are many pensioners paying tax?


Starting rate applicable where low or no earned income (e.g. < personal allowance)99

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Why are some people not paying tax?New dividend regime from April 2016Effective dividend rates all increasing by 7.5%

First 5,000 of dividend income at 0%Abolishing notional tax credits (10%)

2015/162016/17IncreaseBasic rate0%7.5%+ 7.5%Higher rate25%32.5%+ 7.5%Additional rate/trusts30.6%38.1%+ 7.5%


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Gift aid forms are they taxpayers?New tax rules = many people at the lower income levels will no longer pay taxE.g. Someone with 17,000 income may pay no tax in 2016/17 (pension income 11,000, dividends 5,000 and interest 1,000)More gift aid claims could be made incorrectlyEnsure charity staff understand the rules


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Deduction of interest at sourceFrom April 2016 banks and buildings societies will no longer deduct 20% tax at sourceNo need to claim to receive interest gross or claim tax back


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Charity tax - risk areasIncome and gains not applied for charitable purposes (non-charitable expenditure)Notice to complete a tax return received periodically easy to miss if not annualCharities pay tax profits from developing land or property Trading exemptions not met (e.g. income > 50k and not primary purpose)Consider trading subsidiaryCan pay profits to charity within 9 months


Also consider CIS issues re land103

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Charity tax - risk areasLetting as a tradeWhen does letting of a premises become a trade?Let on a regular basisProvide additional services e.g. conference facilities, IT equipment, support staff, catering, etcOften hard to determine whether trading each case will depend on facts


All rental income from land/buildings received by a charity is exempt from tax provided the profits arising are applied for charitable purposes.However, if services are provided along with the use of the land/buildings (e.g. caretaker, food or laundry) these services in themselves might amount to trading.Letting activity will itself constitute a trade where the owner remains in occupation of the property and provides services over and above those usually provided by a landlord.If additional services are provided then the character of the whole activity would be changed from lettings into a trade it would not simply be that the additional services would become a separate trade.104

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Charity tax - risk areas letting rooms

Examples of servicesRentalIndifferentTrade factorCleaning & preparation of roomsPArrangement of furniturePServices of reception staffPPCloakroom staffPTechnical staffPBasic refreshmentsP


In an exchange of correspondence seen by the author (of Tolleys Charities Manual), a number of issues relating to the letting of rooms by a charity with large premises in Central London have been considered after the Revenue (now HMRC) sought to treat the income from the lettings as a trade. The Revenue made the general point that if additional services were provided then the character of the whole activity would be changed from lettings into a trade it would not simply be that the additional services became a separate trade. Dealing with specific issues in the particular case, comments were made as follows: Cleaning and preparation of rooms does not go substantially beyond the services normally provided by the landlord.

Arrangement of furniture to suit hirer's requirements is a marginal factor. Whilst this might not be expected of a landlord it is not significant to turn the issue either way.

If the services of reception staff are no different from that received by all users of the building that should not be a problem. However, HMRC points out that this is more than a landlord simply letting rooms might expect to provide.

Provision of cloakroom staff would contribute to a conclusion that a trade is being carried on.

The provision of technical staff goes beyond the normal services of a landlord. In the particular case this was an optional extra and could be regarded as a separate trade rather than changing the letting into a trade.

Provision of basic refreshments (tea, coffee etc.) could reasonably be viewed as contributing to the overall trade.

Charities which do let rooms need to be aware of these issues and consider the impact they might have on the HMRC view of their activity.

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Letting as a tradeIf trading consider if covered by trading exemption (often income of 50k covered)Consider running conference facilities through trading subsidiaryIf utilising surplus rooms in a large building to generate additional income does any endowment (e.g. Royal Charter or Act) restrict the use?


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Charity tax do I need to iXBRL tag?Charities liable to Corporation Tax must complete a tax return if:HMRC issue a notice to deliver orThey have income or gains which are not covered by a relief or exemptionTax returns required to be filed online < 12 months of year endAccounts and computations must be filed in iXBRL-formatAccounts in pdf allowed if:Smaller charity under Companies Act 2006 (income < 6.5m)Other unincorporated associations or incorporated if not under Companies Act


Also consider CIS issues re land107

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Inheritance TaxGifts to charity during lifetime are exemptGifts to charity in will are exempt from IHTAn estate will normally pay IHT at 40%If charitable legacies the rate of IHT may be lower:Reduced 36% rate if 10% or more of the net value of the estate is left to charityNet value is after deducting debts & liabilities, reliefs, exemptions and anything below nil rate band (325,000)


After nil rate band of 325,000 per person (up to 650,000 per couple + main residence nil rate band = up to 1m per couple in future)108

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Inheritance Tax reduced rate of 36%Encourage donors to review their willsConsider charitable legacy worded to meet the 10% testCarefully word will to save continual revisionExample at:https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm45008Some beneficiaries may benefit if already charitable donations


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Inheritance Tax deeds of variation - updateAllow a beneficiary to re-direct all or part of an estateFor IHT, a deed made within 2 years of a death is treated as though variation made by deceasedConsultation opened Summer 2015Conclusion in December 2015Ability to use deed of variation will continueNo new restrictionsGovernment will continue to monitor their use


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Deed of variation why used?Source: HM Revenue & Customs Review of Deeds of Variation for Tax Purposes Call for Evidence Summary of Responses December 2015


Other responses included answers:DoV is used to update a will to reflect changes in legislation between drafting and deathInterim will (e.g. before an operation), but did not have time to planNo of different factors, depending on circumstances111

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Inheritance Tax claims by dependantsCases hitting the national headlines e.g. IlotInheritance (Provision for Family and Dependants) Act 1975Consider whether any legacies could be contestedTake care if paying beneficiaries May be treated as non-charitable expenditure & tax payableConsider tax-efficiency of options


Does Ilot case open the flood-gates to potential other dependants who originally thought they would stand no chance in making a claim?

E.g. Heather Ilot her mother left the majority of net estate (486,000) to three animal charities (RSPCA, RSPB and Blue Cross).

Take care re paying beneficiaries if have to sell assets then any capital gains will not be exempt as proceeds not used for charitable purpose.

Check no overlap re solicitor who may be explaining 1975 Act in more detail112

Cyber Fraud & Risks to CharitiesStewart King

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CYBER & FRAUD

I am here representing Alan & Thomas, I am one of the directors with an oversight on things operational so do have significant interest in data security and fraud as a businessman but also as a chartered insurance broker an interest in providing solutions to businesses to deal with the aftermath should an event happen.November 2014

OverviewOne of the biggest risks faced by businesses and organisationsEstimated cost of 21bn per yearFrequent major breaches in the pressLook at Cyber and other types of attackRisk, prevention and mitigationNew costs through EU legislationInsurance options

Impact to OrganisationHuman impact (Staff & Customers)Time DisruptionReputationFinancial LossFuture?

Cyber Risks

Who would want to compromise you, your organisation or your data?

November 2014

Cyber Risks40% of all cyber-attacks aimed at firms and organisations with fewer than 500 employees Source: National Cyber Security Alliance

We might view our businesses as not being of interest to fraudsters and hackers but SMEs are very much on the radar.Generally we are time poor businesses with limited knowledge and understanding of the risks we face and less likely to spot the signs until it is too late. Big businesses will have significant expertise dealing with these types of threats. Smaller businesses may have less robust securityOpportunistic targetsLess access to forensic to pinpoint weaknessesAccess to legal support to bring actions against peopleand PR experts to deal with the aftermarthICE example November 2014

What are they after.

MoneyBusiness disruptionSensitive or personal informationReputation or brand damageIncreased kudos and notoriety

The average cost of a cyber attackDetection and escalation 14Response 17Notification 6Lost business 34Total direct loss from a data breach per record in the UK - 71Source: 2010 Annual Study: UK & US Cost of a Data Breach by Ponemon

The costs of a cyber attack can be huge. These figures came from a 2010 report, so light years away from current numbers and threats but just 6 years ago it was estimated that the costs of a data breach per record amounted to 71.00 multiply that up by the number of records most businesses hold and you will see some big numbers appearing.Looked at Zurich website yesterday who are a provider of cyber insurance and they are talking an average of over 125.00 and depending on industry rising to 200.00 plus. They see biggest industry under threat is retail at about 35% which is a significant rise in past 5 years, example of Talk Talk.November 2014

How can they get access?

FraudCommon examplesTelephone scamEmail scamTargeted CEO emailInvoice fraudOverpayment

Organisational Approach

Risk ManagementPreventionInsurance

Martyn has talked the risks to look out for and some methods of prevention which has been very useful and practical, there is something additional I would also suggest you take a little time looking into as the UK government is taking these risks very seriously and has done some significant work in this area.They produced a report just under a year ago headed Small business: What you need to know about cyber security. Avery straightforward and usefull guide only 14 pages long but with links to many other resources.November 2014

Risk Management

Prepare, prepare, prepareYou know your organisationWhat is most important to youWhere and how is your data held, servers, pcs, mobiles, usbs?Who has access consider restrictions

PreventionUnderstand the risksTeach and train your staffImprove IT securityEncrypt dataStrengthen passwords Software up to dateAnti virus and malware softwareFirewallsMore controls (dual authorisation)

November 2014

Risk Management and PreventionGovernment Guidance - Cyber Essentials Scheme - 10 step guide

Another initiative which the government have launched is called Cyber Essentials. This is a government backed and industry supported scheme to help businesses protect themselves against the common cyber threats seen online.A business can be assessed against the Cyber Essentials criteria and gain accreditation which will enable the business to display the Cyber Essentials badge as evidence to others looking in that this is taken seriously. Any business supplying to central government now has to have this standard as compulsory. November 2014

EU GDPREU General Data Protection RegulationsComing to UK within next couple of yearsPrescriptive timelines for reporting data breachesSignificant Fines following breach

New legislation we are all going to need to be aware of that will come onto the statute book some time in 2017 and being rolled out initially to large businesses and then down to SME. It is a harmonisation of EU wide regulations. It was been ongoing since 2012. They have recently agreed that fines can be imposed up to 4% of a businesses turnover in the event of a breach.November 2014

Cyber & Crime InsuranceReplacement of lost fundsPublic RelationsCrisis ManagementForensics & Security Specialist Services Rectification CostsLiability to CustomersCosts for Notification

Public Relations - The business impact of bad publicity can be critical so being able to access specialists, funded by the insurer would be significant to managing the messageCrisis management to help you make the right decisions at very difficult timesForensics & Security Specialists - Costs to investigate where any breach has occurred and put in measures to block access or routes into the system. How to restore systems and firewalls to enable the business to get back to normal as quickly as possible.Rectification costs data experts to work through to make sure risks are removed and data recoveredLiability to customers hackers getting into third party systems from data they have secured from the insured and third party bringing claims back onto the businessCosts for notification, to let your customers know that their data might be exposes, the costs for monitoring their credit rating in the event of an issue and data breach.Regulatory finesNovember 2014

Cyber & Crime InsuranceRegulatory Fines ExtortionBusiness InterruptionTelephone Hacking

Extortion Cost incurred to prevent or end a theat to the business through cyber attackBusiness interruption Pays for loss of business following a network breach which take the business down or affects sales and turnover to the business as a direct result of the attack.Telephone hacking Not News of the World but call hacking and redirecting costs from a phone system. CommsNovember 2014

Case StudyScenarioA firm of Accountants lost records of 77,000 former and current employees of one of its clientsOutcomePaid for identity theft protection and credit monitoring for allReimbursed losses60k in notifying individuals

November 2014

Case Study

An employee of a recruitment agency was hired by an identity fraud ring to provide sensitive personal information regarding the agency's clients. Outcome Paid for credit monitoring services for all affected and an IT investigation to assess the extent of the breachOffered PR Support to help mitigate further reputational damage

November 2014

A Local Example

November 2014

QuestionsNick Love

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