Don Bawtree: Tax changes in the new parliament

Plus: the Insolvency Service and Kids Company, and the Charity Commission issues financial prompts and reminders

Don Bawtree
Don Bawtree

Now the election is past, it will be important for charities to keep track of the various tax changes that will inevitably follow. VAT rises will usually be a straight additional cost for most charities. Corporation tax increases make it more important for charities to monitor their trading activities and plan properly.

Changes in income tax bands, rates and allowances will have an effect on the ability of donors to give tax effectively under Gift Aid. Added to this are the various ongoing charity tax reviews that might get swept up in any post-election Budget, so treasurers and finance managers will need to be on their toes for the rest of the year.

One issue that might require less attention is the new museums and galleries tax relief, which was due to come in with a new Finance Act. This relief has been deferred because of the election. Although there has been no policy change, it will be for the incoming government to decide what to recommend to parliament.

Financial management

Trustees were given a sharp shock when the Insolvency Service warned Kids Company’s former board members that it is minded to pursue disqualification proceedings against them. The Insolvency Service has the power to seek bans on directorships for individuals of up to 15 years. This might not matter to some trustees, but is an extremely serious matter for those on boards of family or public companies. It is another reminder of the importance of strong financial governance.

The need for careful financial management is especially sharp where charities are involved in delivering care and social services. This was underlined by recent government figures that showed 75 care home businesses were declared insolvent in 2016, up from 74 in the previous year. In total, at least 421 care home businesses have collapsed since 2010.

Financial pressures do not affect only service providers. All charities with salary bills of more than £3m have to cope with the apprenticeship levy, but they also need to be careful of keeping wages too low. Mencap has recently warned that it faces insolvency if it is forced to pay the full minimum wage to its staff for their time sleeping at the homes of people they support.

Commission news

The most recent edition of Charity Commission news includes lots of financial prompts and reminders, although nothing particularly new. The key messages seem to be: to make sure that you have robust financial management; to use the commission’s guides and checklists to help, though it assumes you have a March financial year-end; not to use cash couriers; to use its new templates for company charity accounts; and to remember that pension auto-enrolment applies even if you have only one employee.

The commission also reminds trustees that their annual reports are where they can demonstrate how effectively money has been used to deliver public benefit, and it points out the main errors identified in its surveys of charity accounts, large and small. For larger charities, a disturbingly high proportion – 25 per cent – were deemed to be unacceptable for these reasons: the accounts as a whole were inconsistent or not transparent: the commission especially mentions the lack of comment on potential insolvency; the accounts did not balance or were incomplete: when other regulators talk about balanced reporting, they mean that the reports should be fair, but in charities the accounts just don’t add up; and a proper independent examination had not been carried out: the commission says the relevant reports "claimed to be independent". 

The most common failing was the annual report not covering the charity’s objectives and/or its charitable activities, and the final reason was that one or more of the annual report, independent scrutiny report and the accounts was missing, apparently due to poor scanning technique.

Don Bawtree is lead partner for charities at accountants BDO LLP

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