Introduction

The Charity Commission announced on the 3 January that they will be changing the annual return for charities. This will apply to charities where their financial year ends on or after 1 January 2018.

The new annual return will focus on gathering financial and regulatory information.  Charities will have to use the new Update Charity Details service to amend registered details as these will no longer be a part of the annual return.

These changes are aimed at promoting transparency and accountability. David Holdsworth, Deputy CEO of Charity Commission, states: “We know the public care deeply about transparency in this area, and it is vital that charities, and the Commission as regulator, respond constructively to these expectations. I am confident our decision in this area strikes the right balance between transparency and protecting the personal data of individual staff members in charities.”

This follows from a consultation exercise last year, to which many charities, sector bodies and umbrella bodies responded. There were some questions proposed in the consultation that will not be progressed. However, despite concerns raised about the additional regulatory burden, they are proceeding with eight new areas where questions will be asked. These are set out below in more detail.

Charities should check how this might affect them as you may be required to amend your information management to ensure you have the data you need to respond.  

Most of the data will also be made public on the charity’s registration page on the Charity Commission website.

This article is based on the Charity Commissions consultation response which can be found here https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/671362/AR18_Consultation_response.pdf  They are still testing the new return so the exact text of the questions are not yet up on their website at the time of writing.

    1. Fundraising 
Charities will be asked if they work with commercial participators or professional fundraisers. In each case if they answer yes, they will be asked if they have a written agreement in place. 

The Charity Commission have taken note of the lack of clarity around the terms commercial participators and professional fundraisers. They will look into publishing further accompanying links and guidance with the definitions to facilitate charities’ reporting obligations.

This information will be on the public register.

BWB Comment:
Charities should note that it is a legal requirement to have a written agreement in place with commercial participators and professional fundraisers (as defined in the Charities Acts). This question is therefore framed to flag non-compliance. BWB can assist with drafting model agreements for charities to use in these circumstances.

    2. Government Funding
Charities are advised to keep a record of the number and total value of a) contracts and b) grants from central or local government. The Charity Commission will provide further guidance on the definitions of local and central government, and how grants and contracts across multiple years should be treated. This information will be published on the charity’s public register page. 

The Charity Commission’s aim behind this question is to identify those charities that may be solely or primarily reliant on public sources of funding. Their research indicates that the charities that are solely reliant on public sources of funding are more likely to be in financial distress.

BWB Comment:
It should be noted that it is not unlawful for charities to be solely or primarily reliant of public sources of funding. Trustees need to be mindful of solvency and reserves and consider diversifying income streams, if possible and appropriate.

    3. Overseas Income
The annual return will now have questions about overseas income from specific sources.  For two categories there are thresholds. The thresholds were introduced following consultation feedback that this was too much of a regulatory burden. This information will not be published on the charity’s public register page.

Note also that these reporting requirements will be voluntary for annual returns 2018; however, they will become mandatory for annual returns in 2019 onwards. This is to allow charities enough time to implement changes in information gathering and management.

    i.   Countries
Charities will be required to select the countries from which they receive income. For each country you will have to specify the source and the amount subject to the thresholds below.
  ii.    Sources
Charities will be required to report income from:
  a)   Overseas governments or quasi government bodies
  b)   Overseas charities, NGOs/ non-governmental organisations and NPOs/ non-profit organisations
  c)   Other overseas institutions outside the UK (i.e. other than charities, NGOs and NPOs)
  d)   Individual donors resident overseas and
  e)   Unknown/don’t know

Categories c) and d) are subject to thresholds below.

  iii.   Thresholds for c) and d)
The reporting responsibilities will depend on the size of the charity and the payment amount, as there are different thresholds in place for different sized charities.

Smaller charities (those with an income of £25,000 or less) will only be asked to report payments from individual donors or institutions outside the UK (other than charities NGOs and NPOs) if those payments are 80% or more of the charity’s gross income for the financial year.

Larger charities (those with an income of more than £25,000) will “only be asked to give the total value of all of the individual payments from individual donors or institutions (other than charities, NGOs and NPOs) outside the UK, which are more than £25,000”.

The Charity Commission say in their response that charities are not required to provide a level of detail for this question which will identify individual donors or private institutions.

The purposes of these questions are apparently to give the Charity Commission a better understanding of the income sources of the charity sector, whilst enabling them to monitor the risks of overseas funding sources. The Charity Commission would also like to monitor the possibility of loss of funding for charities that are reliant on European and/or EU funding following Brexit.

BWB Comment:
This is one of the questions where it could be a real headache to gather information – especially for larger charities. The consultation response document isn’t completely clear how the final questions will be framed and charities affected by this will need to check the final wording to ensure they are gathering exactly the right information.

You should bear in mind that the Commission’s existing regime for reporting serious incidents requires charities to report to the Commission if they receive sums over £25,000 from unknown, unverified or suspicious sources.

    4. Employees’ salaries
Charities will be asked about the number of employees with total employee benefits of over £60,000.  There are income bands going up to “£500k and over”. You will have to specify the number of employees in each band. Details of the different bands are in the response document linked to above.  There will be guidance on what is included in the definition of employee benefits e.g. bonuses, pension contributions etc.

Charities will also be asked for the total employee benefits of the highest paid employee. This information will not be published but the numbers of staff receiving remuneration in excess of £60,000 will be published in income bands.

    5. Payments to trustees
Charities will be asked:
        i) During the financial period for this annual return, were any of the trustees paid:
                     a) for being a trustee
                     b) for providing any professional advice
                     c) in receipt of other benefits e.g. renting property from the charity below market value?
        (The term “benefit” will be defined to include a direct or indirect benefit of any nature.)

        ii) During the financial period for this annual return, were any employees formerly trustees of the charity?

This information will be published on the charity’s public register page.

BWB Comment:
This question reflects the serious way in which the Charity Commission treat unauthorised benefits to trustees. You must ensure any benefit is authorised by the charity’s constitution or by the Charity Commission.

Particular care is needed if your charity is considering employing an ex trustee – this is an area where we recommend seeking advice.

    6. Expenditure in countries outside England and Wales
There are additional questions that develop existing questions relating to whether the charity operates overseas, the countries it operates in and the total expenditure by country.

You will also be asked whether the charity transferred money outside of the regulated banking system, followed by methods of transfer money and the value of the transfers. You will also be asked whether there are monitoring controls in place for the overseas expenditure. Lastly, the charity will be asked if the trustees are satisfied that the charity’s risk management policy and procedures adequately address the risks to the charity arising from its activities and/or where it operates.

The Charity Commission will provide guidance on the descriptions of money transfer processes and the specific part of the money transfer that the Charity Commission is concerned with.

This information will not be published on the charity’s public register page.

Note also that the response indicates that questions relating to methods of transferring money outside the regulated banking system, and about monitoring controls and risk management, will be voluntary for annual return 2018. They will be mandatory for the annual return 2019 onwards.

BWB Comment:
Charities should be aware that, whilst it is not illegal to transfer money outside the regulated banking system, the Charity Commission expects trustees to use regulated banking services where they are available – see chapter 4 of their compliance toolkit.

    7. Trading Subsidiaries
You will be asked if any of the charity trustees are also directors of any of the charity’s subsidiaries. The Charity Commission acknowledges that similar information may be obtained from Companies House; however, the information is not in the form which will enable them to identify risks affecting the sector. This information will be published on the charity’s public register page. 

BWB Comment:
The Charity Commission say they will be asking this question to check for issues including unmanaged conflicts of interest. If the charity is investing in its trading subsidiary, there usually needs to be enough unconflicted trustees to consider and if appropriate approve the decision (ie trustees who are not also directors of the trading subsidiary).

    8. Safeguarding
Charities will be required to provide information on DBS checks, where charities have trustees, staff or volunteers who work directly with vulnerable beneficiaries. Charities are only required to do so if they do not provide it to another regulator (other than the Disclosure and Barring Service). The Charity Commission will not be making this information public at present, but may reconsider after its implementation.

BWB Comment:
Safeguarding continues to be an area of concern for the Charity Commission.  This will enable it to check that charities are complying with their legal duties.

 


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Thea Longley

Partner

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Beatrice Leong

Paralegal

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Posted on 05/01/2018 in Legal Updates

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