Don Bawtree: Good news on audit requirements

For many, this deregulation will be welcome, writes our finance expert

Don Bawtree
Don Bawtree

Changes to the threshold for financial reporting by charities are due to come into effect on 31 March. Charities or charity groups whose income does not exceed £1m can now avoid the cost of a full audit – a doubling of the previous limit. The same changes added two new organisations to the list of those whose members are qualified to be independent examiners: the Institute of Financial Accountants and the Certified Public Accountants Association. The threshold change needs to be read with caution. For instance, the rules for charities based in Scotland and Northern Ireland have not changed, and individual charities may have specific requirements in their own constitutions. For many, however, this deregulation will be welcome. It also means that requirements of the new Statements of Recommended Practice relating to larger charities will no longer apply to charities that are affected by this change, because the Sorp defines "large" by reference to the audit thresholds.

New draft regulations have also been issued by the Department for Business, Innovation & Skills, reducing the accounts burden for commercial companies. Charities are still subject to their own regimes, but this is relevant because on the back of BIS's draft regulations the Financial Reporting Council issued Financial Reporting Exposure Draft 59, which proposed to withdraw the Financial Reporting Standard for Smaller Entities for accounting periods beginning on or after 1 January 2016. The FRSSE is the basis for the Sorp issued for the first time last year for smaller charities specifically, but under FRED 59 it would no longer be available for reporting periods beginning on or after 1 January 2016.

Losing business rate relief has long been a concern for charities, and it was intensified by the proposals last year to restrict it in Wales. So it is alarming that Pembrokeshire County Council is now consulting on whether or not the discretionary element (worth 20 per cent of the total relief) should be withdrawn from charity shops run by national charities. The consultation asks whether it should be given only to local charities, soliciting views on what "local" means. This seems to be an ongoing risk factor that charities need to monitor in their financial plans.

- Rates are just one of a series of tax reliefs that charities enjoy, but generally there are no special reliefs that relate to employment. Charities might want to check that they are fully compliant with national minimum wage rules after 70 employers - including one charity - that failed to pay their workers the national minimum wage were named and shamed by the government website. Many of these were small organisations, but between these 70 employers they owed workers a total of more than £157,000 in NMW arrears, and have incurred financial penalties totalling more than £70,000. A further 90 care companies are also being investigated by officers after allegations were raised by whistleblowers. This might sound like the actions of unscrupulous paymasters, but can just as easily result from mistakes or carelessness.

- Trustees sometimes think that no one is interested in their affairs and might not take financial regulation too seriously as a result. Here is another salutary reminder that you can never be too careful. The Hull Daily Mail reported that John Baker and his daughter Amy ran a sandwich shop in Hull for many years, but told tax inspectors it did not start trading until 2010. It turned out that HM Revenue & Customs staff had been buying lunch there since before that date. The two have been given jail sentences for tax fraud.

Don Bawtree is lead partner for charities at accountants BDO LLP

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