Don Bawtree: Making Tax Digital is coming

Also: new tax changes come into effect; the FRC and the Charity Commission; trustees and conflicts of interest

Don Bawtree
Don Bawtree

April marks the start of a new tax year, with the changes that affect charities all well trailed beforehand. As ever, rises in personal allowances and some inheritance tax thresholds will have an effect on everyone’s positions in relation to tax-effective giving.

While those changes might have a negative effect on income, there are more positive changes that take effect this month, if less dramatic. These include the increase to the small-scale trading exemption and more generous Gift Aid donor benefit rules. Simplified processes for retail Gift Aid also come into force in respect to smaller donations, but these are complicated areas and trustees need to check they can take advantage of these benefits.

Alongside that good news is the hassle of Making Tax Digital. It is worth noting that a new tax year does not trigger MTD, but you must be signed up in time to submit your first mandated return, which means keeping digital records for all of that return period. Many charities will be entitled to deferment, but this needs to be confirmed formally by HM Revenue & Customs, so charities should contact it for a deferment letter if it has not already been received.

Although HMRC’s "soft" approach to compliance has been much bruited, it makes it clear that this extends only to honest mistakes by those who are genuinely trying to get it right, and does not extend to late payments or submissions.

FRC

While there is doubt over the future of the Financial Reporting Council, it is still updating guidance for auditors. Its latest suggestions relate to the auditors’ work on going concern, a topic that interested the parliamentary committee looking at Kids Company. The revised rules would see more challenge to trustees’ views on a charity’s viability, requiring more evidence to back it up, and then a more comprehensive report at the end of the process in the auditor’s report.

These sorts of changes automatically apply to charities subject to the audit regime, while independent examinations would await specific direction from the relevant charity regulator.

The Charity Commission’s strategy

The commission is promoting its new strategy under the main objectives: to hold charities to account, deal with wrongdoing and harm, give charities the tools they need to succeed, inform public choice and keep charity relevant to today’s world.

While there is a clear commitment from the regulator to be more active in terms of both regulatory intervention and in promoting charities generally, there is also a heightened expectation that charities will do more to demonstrate their effectiveness and their public benefit. In the realms of finance, this means transparent reporting and a real commitment to making sure the annual accounts are properly thought about and include the appropriate disclosures, rather than either churning out the same old stuff each year or treating the charity’s only official public document as a glorified PR exercise.

The Suyuti Institute

The Charity Commission has just released a report on its latest inquiry into the Suyuti Institute. Once again, the report underlines the recurring theme that conflict of interest lies at the heart of so many problems in charity governance and performance. The commission says that the founding trustees had transferred liability for repaying the mortgage on a property owned by the wife of one of the trustees. The regulator concludes that these actions were not taken in line with the requirements of charity law and resulted in significant private benefit to one of the trustees.

Any transactions between trustees, connected parties and their charity should automatically trigger heightened attention from colleagues and any independent examiner or auditor, and at the very least would need full explanation in the annual accounts. It is, however, not always straightforward and the definition of exactly who is related to a charity is not simple. The processes to follow in declaring and registering interests could benefit from better, more practical guidance from the regulators.

Don Bawtree is lead partner for charities at accountants BDO LLP

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