Don Bawtree: The further failures of the Garden Bridge Trust

Also: HMRC guidance on trading profits; and guidance on relationships between charities and non-charities

Don Bawtree
Don Bawtree

Amid concerns that some relationships between charities and non-charities have damaged public confidence in charity, the Charity Commission has published new guidance. This represents a huge improvement on its earlier consultation version, which was suitably ravaged. That feedback has resulted in a considerably enhanced and more positive document, which nonetheless conveys the warnings that the regulator is clearly anxious to communicate.

It sets out six principles for all trustees: recognise the risks; do not further non-charitable purposes; operate independently; avoid unauthorised personal benefit and address conflicts of interest; maintain your charity’s separate identity; and protect your charity.

It is accompanied by an infographic and is a document that many charities will find helpful before sharing resources or money with organisations that are not charities, whether in the UK or overseas.

Garden Bridge Trust

While other commentators get excited about the use of public funds through this charity, the Charity Commission’s recent report also has some strong words on the quality of the accounts and annual report. First, that the 2017 accounts were filed 143 days late, apparently "following professional advice that it was not appropriate for the trustees to sign off audited accounts at that stage". The commission quite rightly, and rather archly, pointed out that the trustees were thereby "in default of reporting requirements and were therefore failing in their legal duties".

The regulator's further point is one that has been made before: that it does not consider "mere compliance with the statement of recommended practice to be sufficient" in such circumstances to deliver an appropriate level of transparency and accountability. Surely this must be right: there might not be a legal duty of charity transparency, but it must be good for the health of the sector. It will be interesting to see if deliberate late accounting is added to the auditors’ whistleblowing duties.

Relief for Distressed Children and Young People

In a case report on this charity, just published by the Charity Commission, the regulator draws attention to a point often overlooked by charities. It says that charities’ various tax reliefs and benefits can be wholly or partially restricted in law. In this case a potential tax liability arose because either (i) a sale of commercial property constituted taxable trading, or (ii) the profits – or gains – from the property transactions were subject to tax as a result of the trustees’ misapplication of the charity’s funds in Iraq for non-charitable purposes. Trustees are reminded that tax can arise not just as a result of how the money is generated, but also as a result of how it is spent.

Trading and tax

Perhaps coincidentally, the Charity Commission has reissued one of its more useful publications: Trustees Trading and Tax: how charities may lawfully trade (CC35). It is subtitled Find out when and how charities can engage in trading to raise funds and how to apply income on trading profits. The last phrase underlines the lessons learned in the case cited above. The main reason for the update – one presumes, as it is not explicit – is to update the thresholds for non-charitable trading.

However, I discovered that although the online version is updated, it is incorrect, and the old CC35 printable version has not been changed at all. Correcting the online table – replicated in HM Revenue & Customs guidance – shows how the small trading tax exemption limits are now applied:

Charity’s gross annual income        Maximum permitted small trading turnover 
Less than £32,000                           £8,000
£32,001 to £320,000                       25 per cent of total annual turnover
More than £320,000                        £80,000

Gift Aid declarations

HMRC has previously suggested that Gift Aid declarations should include forenames of donors, rather than just initials, in order to meet the requirement for the charity to demonstrate that the donor has been identified. Originally that proposal would have been effective from April. Although the proposal has been dropped, HMRC is encouraging charities to provide them with full forenames wherever possible so that it can trace donors and ensure there is enough "tax to cover".

Charities should review what information they hold and include this detail in their Gift Aid claims – and try to collect this information in future.

Don Bawtree is lead partner for charities at accountants BDO LLP

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