The Charity Commission and the Office of the Scottish Charity Regulator have announced that the statements of recommended practice will need to be updated because of impending changes to the overarching accounting practice in force across the UK and Ireland. A consultation has been launched to hear charities' views on proposed changes to the Sorp, which will come into force in 2016.
The expected changes mean that the FRSSE Sorp, available to smaller charities, will not apply for financial years beginning on or after 1 January 2016. This leaves just the FRS 102 Sorp, and small amendments will be made to this: for instance, it is proposed that cash-flow statements become mandatory for charities with gross incomes of more than £500,000 a year. The consultation closes on 18 September and full information is available at www.charitysorp.org.
VAT and direct mail
There has been considerable concern and confusion about the correct VAT treatment of direct-mail services in recent months. Last year, HM Revenue & Customs officials confirmed that they considered charities should pay VAT on the printing and distribution of mail packs and sought to implement the new arrangements by 1 October 2014.
After constructive discussions between HMRC and representative bodies for the sector, a broad agreement was reached on the past and future VAT treatment of direct-mail services involving the preparation, printing and strategic distribution of mail packs on behalf of charities and other bodies. HMRC initially agreed to postpone the start date from 1 October 2014 to 1 April 2015, and has since confirmed that it will now extend the transitional period to 31 July 2015. The guidance has now been published by HMRC in VAT Notices 700/24 and 701/10, which clarify a number of technical concerns, although several issues are still outstanding.
Lessons from Fifa
There are always lessons to learn from other sectors, and it is interesting to note some of the comments after the recent dramas surrounding football's governing body, Fifa. Two aspects are particularly interesting. First, there has been renewed focus on the role of the auditor. Robert Appleton, a former Assistant US Attorney and chair of the United Nations anti-corruption taskforce, commented that there were plenty of red flags that should have been highlighted by auditors.
Second, a former Fifa employee and anti-corruption expert, Alexandra Wrage, has been quoted in the press as saying: "If the Internal Revenue Service can show that Fifa has abused its non-profit status through the self-enrichment of its leaders, then it will go as far back as it legally can to claim full back taxes and compound interest."
Charities should give both points some thought. Although auditors are not responsible for detecting fraud, they form one of the sources of assurance for boards and other stakeholders about the probity of a charity. Charities should also remember that abuse of charitable status and incurring non-charitable expenditure, which includes fraudulent payments, leaves the charity and sometimes the trustees open to tax liabilities.
Tax evasion clues
The fact that HMRC is increasingly able to identify such issues was illustrated recently in a report by my employer, the accountancy company BDO. HMRC's Connect system looks for clues that indicate tax evasion by trawling through vast databanks of personal and commercial information.
BDO's report on the revenue's digital evolution found that Connect interrogates more than a billion items of data from 30 sources; the number will increase next year when HMRC gains access to some files held in British overseas territories. HMRC can also patrol the use of online marketplaces and examine entries on Facebook and Twitter as part of its profiling.
Don Bawtree is lead partner for charities at accountants BDO LLP