Charity Connect – January 2019

Charity small trading tax exemption increase

The Finance Bill 2018-2019 has outlined the government’s intention to increase the charities’ small trading exemption limit from £50,000 to £80,000. These limits apply to trading that does not relate to the charities’ primary purpose. The exemption recognises that in practice charities may engage in some non-primary purpose trading without incurring a tax liability on the profits of that trade.

For charities with turnover below £320,000 the threshold for non-primary purpose trading will remain unchanged at 25% of total income. The changes will have effect from 6 April 2019 for unincorporated charities and from 1 April 2019 for incorporated charities.

Second SORP update released

On 5 October 2018 the Charity SORP making committee published SORP update bulletin 2 which is made up of two different types of amendments; those changes which are clarifying amendments which are applicable from the date of publication, and changes relating to the triennial review of FRS102 which are applicable for periods beginning on or after 1 January 2019.  Changes from the triennial review include the removal of the requirement to hold property rented to other group entities as investment property in the financial statements, the reintroduction of an analysis of net debt table for cash flow statements and a reduction in the financial instruments disclosure

The most significant changes are the clarifying amendments in relation to gift aid payments from a charity subsidiary to it’s parent which now can only be recognised in the financial statements when there is a legal obligation. The update bulletin clarifies that a legal obligation only exists when payment is made or if a legal deed of covenant is in place. This will mean for many charities that a prior year adjustment will require to be made to ensure that the gift aid receipt in the parent charity financial statements and in the subsidiary company financial statements only reflect gift aid payments which have actually been paid in the year rather than those which were previously committed by way of a board minute.

These changes will have no effect on the consolidated group results. The corporation tax treatment within the subsidiary will still allow for tax relief in respect of the gift aid paid post year end so long as it is paid within 9 months of the year-end even though this donation will not be reflected in the financial statements.

Funders trial aligned grant reporting

12 large charities and grant makers, including the Big Lottery Fund and Comic Relief have developed a set of 6 high-level principles for ‘mutually beneficial grant reporting’ which they will trial until summer 2019 and then will review. It is hoped that the report (available here) will move grant reporting from a wholly paper based report written exchange between grantee and funder to achieving a more conversational relationship.

Making Tax Digital for VAT

HMRC has announced that for unincorporated not-for-profit entities and charities in a VAT group the rollout of making tax digital will be postponed until 1 October 2019 but all other VAT registered organisations over the VAT turnover threshold will commence making tax digital on 1 April 2019. Making tax digital requires organisations to use accounting software that can interface electronically with HMRC when submitting VAT returns in order to reduce the risk of manual error which is estimated to cost the exchequer £9 billion a year. Our VAT team have pulled together frequently asked questions available here.

OSCR investments fact sheet

OSCR has published a new fact sheet aimed at charity trustees of charities looking to review their investment policy. It covers:

  • What can and should charity trustees do in relation to investments?;
  • What should you think about before investing?
  • How to write and implement an investment policy; and
  • What to disclose in your trustees report about your investment policy.

Although the fact sheet does not provide any new regulations many trustees may find it helpful guidance on how to communicate and document their current policy. The guidance is available here.

Guide for Trustees

In conjunction with MHA, our national association of UK accountancy firms, we have written together a monthly guide for embracing, managing and mitigating conflict within your charity. Each article covers a different type of conflict that may effect your charity with the overall theme of using conflict as a catalyst for change. The full guide is available here.

Charity Finance Magazine Survey

We would like to thank all our clients who responded to the Charity Finance Magazine audit survey. We were delighted to be voted for the second year running the top firm operating in Scotland for overall client service and in the top four nationally for our charity expertise.