Charitable status ... or a traditional charity?

Becoming a charity has clear benefits, according to recently registered social enterprise Green-Works, but you must be prepared to change the way you do your accounts. Shayla Walmsley reports.

Tax breaks, subsidised building rates and, in many cases, an end to VAT. What's not to like? The advantages of registering an organisation as a charity are clear enough. And the process is less onerous than you might think, if the case of recently registered charity Green-Works is anything to go by.

Green-Works had already established itself over four years as a successful social enterprise, distributing revamped office furniture sourced from large companies and ministries to schools, start-ups and community groups at very low cost. Realising that it could benefit from charitable status because it operates for the public benefit, it decided to apply.

Once the decision had been made, the actual process of registration involved minimal paperwork. The Charity Commission approved the application within a matter of weeks. And because Green-Works is already a social enterprise, it could register as a charity without substantial changes to its constitution as a limited company. The only formal requirement was a slight amendment to the wording of its mission statement, which now includes a reference to public benefit.

Dual status as a social enterprise and a registered charity has given Green-Works an intangible but nevertheless significant advantage: empathy with its client groups. "Our main customers are non-profits, charities and community groups," says chief executive Colin Crooks. "Dual status has made us feel we can identify with them all the more."

If the logistical changes Green-Works needed to make to register as a charity were relatively straightforward, becoming a charity did entail a different approach to accounting. Green-Works finance manager Alan Giess, who has more than 10 years of experience in charity accounting, configured the existing accounting software to cater for the fund accounting and additional reporting requirements it all entailed.

Registered charities must set up separate funds based on regulations, restrictions and limitations. As a result, Green-Works now places its income in various separately accountable funds - either restricted, designated or unrestricted. By law, each of these funds carries its own revenue, expense, income and balance-sheet report.

As well as restructuring its accounting software to accommodate these funds, the organisation had to take into consideration the reporting requirements set out in the Statement of Recommended Practice, or Sorp, issued by the Charity Commission. First introduced in 1995, Sorp was updated in 2000 and again this year.

Charity financial reporting is complex enough, and the enterprise's rapid growth hasn't made accounting any easier. Green-Works set up two new warehouse franchises this year - an expansion that has prompted it to upgrade its accounting software. It expects to turn around 12,000 tonnes of office furniture - three times last year's figure - but it also sees business in the 500,000 tonnes of office waste generated by UK offices each year.

Its consultancy, which offers cost-cutting waste-minimisation programmes, waste-awareness training and recycling equipment, is also a growing revenue stream for the organisation. Now the charity is evaluating more sophisticated systems that will handle the enlarged organisation, but which will also offer improved management and statistical capability.

"Much is said about the goal for charities of operating as self-sustaining businesses," says Julian Blake of law firm Bates, Wells & Braithwaite.

"Green-Works established itself as a successful example of such an enterprise before recognising that it could also benefit from charitable status.

"In fact, it's a model example of a charitable social enterprise, and similar organisations might benefit from an early consideration of the possibility of charitable registration."

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