Charity Connect – December 2014

December 10, 2014

Donations from a company to its parent charity

ICAEW has issued a technical release on gift aid donations from a trading subsidiary to its parent charity. It has been common practice for companies that are wholly-owned trading subsidiaries of charities to donate taxable profits to the parent charity and thus shield profits from corporation tax. For tax purposes, HMRC have been satisfied that these payments were valid charges against profit, enabling taxable profits to be reduced to nil. The status of the payments under Company Law, however, has been less clear.

ICAEW therefore sought Counsel’s opinion on the matter and the legal advice given suggested that, to the extent that any payment exceeded profits available for distribution, the payment was unlawful. This is contrary to the view given by the Charity Commission in guidance note CC35, which was withdrawn when ICAEW published the technical release. HMRC and the charity regulators have yet to offer any view on the conclusions of the technical release.

Assuming the view stands, in accounting terms, ICAEW suggests parent charities should now recognise the liability to repay the unlawful distribution received from its trading subsidiary and trading subsidiaries should recognise the corresponding debtor. This will be calculated on the basis of unlawful distributions arising in the last 6 financial years. The accounting adjustments made should be recognised in the current financial year and not as a prior year adjustment as the distributions would not have been considered unlawful at the time they were made.

Employee holiday pay claims

Recent Employment Appeal Tribunal Decisions from the Court of Justice of the European Union could have a significant impact on the way holiday pay should be calculated. The cases concerned the conflict between the EU Working Time Directive and the UK Working Time Regulations 1998. In these cases, employees were required to work overtime if requested by their employers. While overtime payments are the most common example, other amounts which are intrinsically linked to the tasks performed by an employee, such as commission, incentive bonus payments or stand-by and emergency call-out payments, should also be included in the calculation of holiday pay. Organisations whose employees receive payments beyond basic pay during their employment but only receive basic pay when on holiday could be affected. On a more positive note for employers, the Tribunal decided that the ability of employees to make back-claims for underpaid holiday pay was severely limited by how the three-month time limit for making a claim operates. However, the Unions representing employees can still appeal this part of the judgement. Given the possibility of the judgements being overturned, it could be argued that an employer need not do not anything at present: a more prudent approach might be for employers to consider existing pay arrangements to see the potential financial implications of the decisions.

Shared parental leave

From 1 December 2014, new rules came into force giving families greater flexibility in deciding who will take time off work to look after their new baby. Mothers of babies due on or after 5 April 2015 will be able to choose to share up to 50 weeks of maternity leave and 37 weeks of pay with their partner. Perhaps the most unexpected aspect of the shared parental leave regime is that employees can each take at least three separate blocks of leave returning to work in between each block if they so desire. While this offers great flexibility to families it could be difficult for organisations to manage. Organisations may wish to review their approach to enhanced maternity pay (if offered), update their policies to accommodate shared parental leave and educate staff to ensure shared parental leave requests are handled appropriately and do not give rise to sex discrimination claims.

Flexible working arrangements

Previously, the right to request flexible working was restricted to parents and carers.  However, from 30 June 2014, this right extends to all employees (with 26 weeks’ service with their employer).  Employers are not required to meet all requests but must ensure that they deal with requests in a ‘reasonable manner’.  This may be a big change for employers, particularly those in the not-for-profit sector.

Forthcoming events

The Information Commissioner’s Office is organising data protection workshops for small and medium sized businesses and charities in Scotland on 18 February 2015 in Edinburgh.