The United Grand Lodge of England has argued that its membership income should be VAT-exempt, because its aims are of a philosophical, philanthropic, religious or civic nature.
In 2014, the First-tier Tribunal (Tax) concluded that although the Grand Lodge had some aims of a philosophical, philanthropic and civic nature, it also had other aims (such as promoting its own system of morality and encouraging fellowship) that were of sufficient magnitude to cause it to fall outside the scope of the exemption. It concluded that the Grand Lodge's main purpose was to promote and preserve the practice of Freemasonry.
Now, on appeal, the Upper Tribunal has confirmed that decision, noting that about 75 per cent of the lodge's charitable spending was directed to Freemasons and their dependants and that its encouragement of good citizenship and good deeds was not of a civic nature because it predominantly concerned the relationship between citizens rather than between the citizen and the state. This is a useful case to review for other clubs and associations that wish to qualify for the VAT exemption.
The recent grilling of auditors by the Public Administration and Constitutional Affairs Committee should be mandatory viewing for anyone interested in their charity's public reports: the discussion roamed around areas that are central to most charities and their accountability. Are reserves sufficient? What is the state of the internal controls? Was there evidence of management override? Have all the transactions been disclosed? Do the auditors and trustees understand and have a grip on the organisation? Was there evidence of fraud? Should serious incident reports have been submitted to the Charity Commission? What is the quality of the communication between the auditor and the trustees ?
These area all issues that the auditor and the trustees should be discussing. It was good to see that MPs had such a good grasp of international audit standards.
The recent autumn statement included a number of points of minor interest to charities. As is typically the case, most charities will be unaffected by most issues, but some will be affected by some. Topics to watch include a review of how the Gift Aid Small Donations Scheme is working, the opportunity for sixth-form colleges in England to become academies, allowing them to recover their non-business VAT costs, and the fact that the apprenticeship levy on larger employers will be introduced in April 2017, set at a rate of 0.5 per cent of an employer's paybill, in practice only affecting employers with paybills in excess of £3m. However, there is justified interest in the sector in how this levy will benefit training relevant to charities.
There seems to be some confusion about the new Gift Aid declarations, with HM Revenue & Customs accepting that some charities - namely churches - can take longer to use up old stocks of fundraising material. The key issue seems to be demonstrating that any older Gift Aid documents can be shown to be genuinely old stock, rather than newly printed. This is a welcome degree of flexibility, but the best advice is surely for charities to update their materials as soon as they can.
The regulator has been considering the clarity of accounts, this time the presentation of governance costs. It found that only 4 per cent of charities had reasonable explanations of such costs in their accounts. In some cases there was a mix-up on the annual return, where the number is taken from, but the vast majority were simply wrong. The error was equating "governance" cost with "administration", leading to much higher costs being shown in this category. This is probably a throwback to the 1995 Sorp - which suggests some treasurers and accountants have long memories.
Don Bawtree is lead partner for charities at accountants BDO LLP