OTHER CHAPTERS
I. SETTING UP AN ORGANISATION
Ch.1: Trusts & unincorporated associations
Ch.2: Companies & other incorporated structures
Ch.3: Charitable status, charity law & regulation
Ch.4: The objects clause
Ch.5: The governing document
Ch.6: Setting up an organisation
Ch.7: Registering as a charity
Ch.8: The organisation's name
Ch.9: Branches, subsidiaries, partnerships & mergers
II. GOVERNANCE & MEMBERSHIP
Ch.10: Members of the organisation
Ch.11: Members of the governing body
Ch.12: Officers, committees & sub-committees
Ch.13: Duties & powers of the governing body
Ch.14: Restrictions on expenses, remuneration & benefits
III. RUNNING AN ORGANISATION
Ch.15: The registered office and other premises
Ch.16: Paperwork requirements
Ch.17: Meetings & decision making
Ch.18: Legal agreements
Ch.19: Organisational & personal liability
Ch.20: Insurance
Ch.21: Financial difficulties & winding up
IV. EMPLOYEES, WORKERS, VOLUNTEERS & OTHER STAFF
Ch.22: Employees and other workers
Ch.23: Rights, duties & the contract of employment
Ch.24: Model contract of employment
Ch.25: Equal opportunities in employment
Ch.26: Taking on new employees
Ch.27: Pay & pensions
Ch.28: Working time & leave
Ch.29: Disciplinary matters, grievances & whistleblowing
Ch.30: Termination of employment
Ch.31: Redundancy
Ch.32: Employer-employee relations
Ch.33: Employment claims & settlement
Ch.34: Self-employed workers & other contractors
Ch.35: Volunteers
V. SERVICES & ACTIVITIES
Ch.36: Health & safety
Ch.37: Equal opportunities in provision of goods & services
Ch.38: Confidentiality, privacy, data protection & freedom of information
Ch.39: Intellectual property
Ch.40: Publications & publicity
Ch.41: Campaigning & political activities
Ch.42: Public gatherings & entertainment
Ch.43: Food & drink
VI. FUNDING & FUNDRAISING
Ch.44: Funding & fundraising: General rules
Ch.45: Fundraising activities
Ch.46: Tax-effective giving
Ch.47: Trading companies
Ch.48: Contracts & service agreements
VII. FINANCE
Ch.49: Financial procedures & records
Ch.51: Auditors
Ch.52: Corporation tax, income tax & capital gains tax
Ch.53: Value added tax
Ch.54: Investment & reserves
Ch.55: Borrowing
VIII. PROPERTY
Ch.56: Land ownership & tenure
Ch.57: Acquiring & disposing of property
Ch.58: Business leases
Ch.59: Property management & the environment
IX. BACKGROUND TO THE LAW
Ch.60: How the law works
Ch.61: Dispute resolution & litigation
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UPDATED INFORMATION FOR CHAPTER 50:
VOLUNTARY SECTOR LEGAL HANDBOOK
This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.
These websites for each chapter update
the 2nd edition of The Voluntary Sector Legal Handbook by Sandy Adirondack and James Sinclair Taylor (Directory of Social Change, 2001). The websites are not intended as a comprehensive update and should not be treated as such.
To order a copy of The Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking
. It costs £50 for voluntary organisations or £80 for others, plus 10% p&p. We expect the third edition to be published in 2007.
The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.
Chapter 50
ANNUAL ACCOUNTS, REPORTS AND RETURNS
THE CHARITIES ACT 2006
Updated 8/12/06.
The Office of the Third Sector announced on 5 December 2006 the proposed timetable for implementation of the Charities Act 2006. The Act, which received royal assent on 8 November 2006, will come into effect in stages over the next two years, with the first commencement order expected in early 2007, the second in the second half of 2007, and the third in early 2008.
The Act (in pdf format) is at www.opsi.gov.uk/acts/acts2006/ukpga_20060050_en.pdf, and in html format at www.opsi.gov.uk/acts/acts2006/20060050.htm.
Explanatory notes to the Act are at www.opsi.gov.uk/acts/en2006/2006en50.htm.
The Charity Commission's guide to the main provisions is at www.charitycommission.gov.uk/spr/ca2006prov.asp.
For the Office of the Third Sector's implementation timetable click here (the address is too long to show on screen).
The summary below lists some of the changes that may affect small and medium charities, with the expected implementation dates. It is not full summary of the Act and does not cover all provisions.
SORP 2005
Updated 2/1/06. This information updates s.50.2.2 and subsequent sections in The Voluntary Sector Legal Handbook 2nd edition.
The revised Statement of Recommended Practice: Accounting and reporting for charities (SORP 2005) was issued on 4 March 2005 and is in effect for financial periods beginning on or after 1 April 2005. The SORP and related guidance are at www.charitycommission.gov.uk/investigations/sorp/default.asp.
Only charities with income or expenditure over £100,000, or those under this level which prepare accrual accounts, have to comply with SORP. There are exemptions from some of the rules for charities under the audit threshold (currently £250,000 income or expenditure). These exemptions are listed in appendix 5 of the SORP.
The main change is an increased emphasis on the charity's objectives and activities. The trustees' annual report has to report on activities and performance against the charity's objectives, and the statement of financial activities (SoFA) must give greater emphasis to the charity's activities, services, programmes and projects. The SORP contains new accounting guidance on matters such as when transactions are recognised, programme-related investment and disclosure of grants made to institutions, and reflects new financial reporting standards on issues such as accounting for retirement benefits (FRS17), financial derivatives and their disclosure (FRS13), dealing with recalculations of gift aid from trading subsidiaries after the end of the financial year (FRS21), and consolidated group accounts (FRS2).
The new SORP includes tables and pro formas to help prepare the accounts, and includes new terminology and definitions--including "governance costs" instead of management and administration costs, "heritage assets" instead of historic and inalienable assets), and "donated services and facilities" instead of intangible assets.
The SoFA (statement of financial activities) involves an analysis of resources expended based on three areas of activity: charitable, generating funds and governance. Incoming resources are analysed as funds from charitable activity or generated funds. Support costs will no longer be shown as a separate category, but will be allocated to the activity that they support. Information about volunteers should be shown in the annual report, rather than in the SoFA.
Annual reports must include new disclosures, including the name of the chief executive or senior staff, induction and training provided for new trustees, details of any social or programme related investments, principal funding sources, and details of social, environmental or ethical concerns taken into account in investment policy. SORP recommends that the report is in seven sections: reference and administrative details; structure, governance and management; objectives and activities; achievements and performance; financial review; and plans for future periods.
Kingston Smith accountants have produced what they call a tool kit for reporting achievements and performance. This is basically a strategic planning and reporting guide and demystifies this aspect of SORP reporting. For the guide click here (the web address is too long to show on screen) or go to www.kingstonsmith.co.uk then click on sectors and charities.
Although the SORP is a statement of recommended practice, it is given force of law by the Charities (Accounts and Reports) Regulations 2005 which are at www.opsi.gov.uk/si/si2005/20050572.htm.
CHARITY ACCOUNTING
Updated 15/9/02; links updated 22/12/05. This information updates ss.50.2.2 in The Voluntary Sector Legal Handbook 2nd edition.
The revised Statement of Recommended Practice (SORP 2000), Accounting and Reporting by Charities, is mandatory for accounting periods beginning on or after 1 January 2001. Most of the changes relate to information that must be included in annual reports, and clarification of guidance on accounting for separate funds, income and outgoing resources, and the treatment of some specialised transactions.
Some of the new rules are:
- where gross income is more than £250,000, the trustees' report must include a statement that the trustees have considered the main risks to the charity and have put in place controls to mitigate these;
- charities with both income and expenditure under £250,000 (increased from £100,000) can give expenditure in "natural" categories, such as salaries and premises costs, rather than allocating the expenditure to charitable or other activities;
- the report must include statements on the charity's reserves policy and, where appropriate, grantmaking and investment policies;
- where similar fundraising activities are carried out by both the charity and its trading subsidiary, these must be consolidated (combined together) in the accounts.
Charity Accounts Assist is a new section of the Charity Commission's website, to help trustees and advisors. It is at www.charitycommission.gov.uk/investigations/accassist.asp.
The Charity Commission's booklet CC62 Charities SORP 2000: What has changed is at
www.charitycommission.gov.uk/publications/cc62.asp
and the regulations are at
www.opsi.gov.uk/si/si2000/20002868.htm.
For those new to charity accounting, CC61 Charity accounts 2001: The framework is at www.charitycommission.gov.uk/publications/cc61.asp.
The revised SORP itself is also on the Charity Commission website but is very long.
On 14 June 2002 the Charity Commission published an exposure draft (consultation document) for further changes to SORP, following new accounting standards issued by the Accounting Standards Board. In particular the exposure draft explains the accounting implications of the FRS17 rules on accounting for occupational pension funds. The consultation period ended 16 September 2002. The draft is at www.charitycommission.gov.uk/enhancingcharities/frs17bulletin.asp.
Charities Act 2006: Not yet in effect
UNINCORPORATED CHARITIES GROUP ACCOUNTS
Updated 18/3/07. This information updates s.50.2.7 in The Voluntary Sector Legal Handbook 2nd edition.
When the relevant provisions of the Charities Act 2006 come into force (expected second half of 2007), a parent unincorporated charity will have to prepare group accounts for itself and its subsidiary charities, rather than just for the individual charities in the group.
These provisions are in s.30 & schedule 6 of the Charities Act 2006, which insert new s.49A and schedule 5A to the Charities Act 1993. For links to the Acts and guidance, see The Charities Act 2006.
SORP UPDATE
Added 10/1/03; links updated 22/12/05. This information adds to ss.27.9.3 and 50.2.10.6 in The Voluntary Sector Legal Handbook 2nd edition.
The Charity Commission published on 10 January 2003 a SORP update bulletin setting out, in particular, how charities with defined benefit pension schemes should deal with their pension costs and surpluses in their accounts (the FRS 17 rules). Although the new rules do not have to be fully adopted until financial years starting on or after 1 January 2005, they can be adopted before this on a voluntary basis.
The SORP update bulletin does not appear to be on the Charity Commission website any more, but the earlier exposure draft, on which it was based, is still on the website at
www.charitycommission.gov.uk/enhancingcharities/frs17add.asp. Information about SORP 2005 is at www.charitycommission.gov.uk/investigations/sorp/default.asp#2.
Charities Act 2006
AUDIT OR INDEPENDENT EXAMINATION OF UNINCORPORATED CHARITIES
Updated 19/2/07. This information updates s.50.2.12 and subsequent sections in The Voluntary Sector Legal Handbook 2nd edition.
For financial years starting on or after 27 February 2007, level of expenditure is no longer a factor in determining whether an unincorporated charity must have a full audit, nor is level of income or expenditure in the preceding two years. An audit is required if the charity's annual income is £500,000 or more (increased from the previous threshold of £250,000), or if its annual income is more than £100,000 and it has total assets valued at more than £2.8 million.
An unincorporated charity with income over £10,000 and up to £500,000 must have either an independent examination or a full audit. Level of expenditure is no longer a factor in determining whether a charity needs an independent examination. Independent examiners for charities above the previous £250,000 threshold but below the new £500,000 threshold must have a professional qualification or be a fellow of the Association of Charity Independent Examiners.
These provisions are in s.28 of the Charities Act 2006, which amends s.43 of the Charities Act 1993. For links to the Acts and guidance, see The Charities Act 2006.
Charities Act 2006: Not yet in effect
WHISTLEBLOWING BY AUDITORS AND INDEPENDENT EXAMINERS
Updated 5/12/06. This information updates ss.50.2.12, 50.3.4 & 51.1.3 in The Voluntary Sector Legal Handbook 2nd edition.
When the relevant provisions come into effect (expected second half of 2007), auditors and independent examiners of unincorporated charities and charitable companies will be obliged to report significant abuse or breaches of charity law to the Charity Commission. Less significant abuse or breaches may, but do not have to be, reported.
This provision is in ss.29 & 33 of the Charities Act 2006, which add new s.44A & 68A to the Charities Act 1993. For links to the Acts and guidance, see The Charities Act 2006.
GUIDANCE FOR INDEPENDENT EXAMINATION
Added 10/01; links updated 22/12/05. This information updates 50.2.12 in The Voluntary Sector Legal Handbook 2nd edition.
The Charity Commission issued guidance on 31 August 2001 for the independent examination of charity accounts. Charities with income or expenditure over £10,000 may have an independent examination, rather than a full audit, if their annual income is not more than £250,000, and a full audit is not required by their governing document or funders. The new Charity Commission guidance, CC63, replaces CC56 and is available free from 0845 3000 218 or at
www.charitycommission.gov.uk/publications/cc63.asp.
GETTING BEYOND THE NUMBERS:
GUIDANCE FOR CHARITY ANNUAL REPORTS
Added 4/9/03. This information updates s.50.2.13 in The Voluntary Sector Legal Handbook 2nd edition.
In an attempt to heighten the emphasis on charities' performance and accountability, the Charity Commission issued guidance on 20 June 2003 on how the SORP framework should be applied to charity annual reports. The guidance says six key points should be included:
- explanation of the charity's objectives;
- the charity's strategy to achieve the objectives;
- the main activities undertaken to achieve the objectives;
- achievements in relation to the objectives set;
- future plans;
- how all this relates to the accounts.
The guidance is intended for charities with annual income over £250,000. Smaller charities are expected to explain their activities, but may not need as much detail.
Reporting the Activities and Achievements of Charities in Trustees' Annual Reports (CC59) is at www.charitycommission.gov.uk/publications/cc59.asp.
Charities Act 2006
OBLIGATION TO PROVIDE ANNUAL REPORT
TO ANYONE WHO ASKS
Added 10/2/07. This information updates s.50.2.14 in The Voluntary Sector Legal Handbook 2nd edition.
Under s.47 of the Charities Act 1993, all charities—even if not registered with the Charity Commission—had to provide their annual accounts to anyone who asked, and could charge a reasonable fee for this. From 27 February 2007, the trustees' statutory annual report must also be provided.
This provision is in sch.8 para.140 of the Charities Act 2006, which amends s.47 in the Charities Act 1993. For links to the Acts and guidance, see The Charities Act 2006.
Charities Act 2006
CHANGE IN ANNUAL RETURN THRESHOLD
Added 18/3/07. This information updates s.50.2.16 in The Voluntary Sector Legal Handbook 2nd edition.
From 27 February 2007, expenditure will no longer be a factor in determining whether a registered charity has to submit an annual return to the Charity Commission. So charities with annual income under £10,000 but expenditure over this amount will no longer have to submit a return.
This provision is in sch.8 para.141 of the Charities Act 2006, which amends s.48 in the Charities Act 1993. For links to the Acts and guidance, see The Charities Act 2006.
Charities Act 2006: Not yet in effect
FAILURE TO SUBMIT ANNUAL REPORTS OR RETURNS
Added 18/3/07. This information updates s.50.2.16 in The Voluntary Sector Legal Handbook 2nd edition.
From 27 February 2007, it is an offence not to submit charity reports or returns to the Charity Commission if required, and each person who was a trustee immediately before the report or return was due can be fined. It is a defence for the trustee to be able to prove that he or she took reasonable steps to try to ensure the report or return would be submitted in time.
This provision is in sch.8 para.142 of the Charities Act 2006, which amends s.49 in the Charities Act 1993. For links to the Acts and guidance, see The Charities Act 2006.
COMPANIES ACT 2006 CHANGES
For changes relating to company accounts, audit and reports in the Companies Act 2006, see www.sandy-a.co.uk/vslh/02incorp.htm.
DEFINITION OF SMALL AND MEDIUM COMPANIES
Updated 23/1/04. This information updates s.50.3.2.3 in The Voluntary Sector Legal Handbook 2nd edition.
From 30 January 2004 the turnover thresholds for small and medium companies (for the purposes of accounting rules and some tax incentives) are changed as follows:
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small company: annual turnover threshold increased from £2.8 million to £5.6 million
-
medium company: annual turnover threshold increased from £11.2 million to £22.8 million.
NON-CHARITABLE COMPANY AUDIT CHANGES
Corrected 9/3/04. This information updates s.50.3.4 in The Voluntary Sector Legal Handbook 2nd edition.
For financial years ending on or after 30 March 2004, the annual turnover threshold for non-charitable companies to be exempt from audit is increased from £1 million to £5.6 million. In addition their gross assets must not be more than £2.8 million. They cannot claim exemption if an audit is required by their articles of association, funders and/or 10% of the company's members.
Charitable companies must have a report by a reporting accountant if their annual turnover is more than £90,000, and have a full audit if their turnover is more than £250,000.
Charities Act 2006 & Companies Act 2006
AUDIT OR INDEPENDENT EXAMINATION OF CHARITABLE COMPANIES
Updated 19/3/07. This information updates s.50.3.4 in The Voluntary Sector Legal Handbook 2nd edition.
Under s.32 of the Charities Act 2006, charitable companies with gross income from £90,000 to £500,000 (increased from £250,000) and assets of not more than £2.8 million (increased from £1.4 million) will be able to have a reporting accountant's report rather than an audit for financial years starting on or after 27 February 2007.
However the Companies Act 2006 will supersede this for financial years starting on or after the relevant implementation date (expected to be 1 October 2007). From then, the reporting accountant provisions will not apply to these charitable companies (Companies Act s.1175). Instead, these companies will be brought under charity law, and regulations will be made under s.77 of the Charities Act to require charitable companies with income from £10,000 to £500,000 to have either an independent examination or full audit. This will end the anomalous situation where unincorporated charities have to have an independent examination at £10,000, but charitable companies do not need a reporting accountant's report until they reached £90,000.
In summary, the audit rules for charitable companies under charity and/or company law are:
- For financial years starting before 27 February 2007: Reporting accountant's report or full audit if income is between £90,000 and £250,000, and assets are not more than £1.4 million; full audit above this.
- For financial years starting between 27 February 2007 and the day before the implementation date, which will probably be 1 October 2007: Reporting accountant's report or full audit if income is between £90,000 and £500,000, and assets are not more than £2.8 million; full audit above this.
- For financial years starting on or after the implementation date: Independent examination if income is between £10,000 and £500,000, and assets are not more than £2.8 million; full audit above this.
Thanks to Gareth Morgan of Kubernesis Partnership for clarifying this for me.
The group turnover threshold will be increased where a charitable company is a parent company or a subsidiary undertaking.
These provisions are in s.32 of the Charities Act 2006, which amends ss.249A & 249B of the Companies Act 1985. For links to the Charities Act and guidance, see The Charities Act 2006.
CHANGES IN COMPANIES HOUSE FEES
Added 26/10/05. This information updates ss.6.3.6, 6.3.7, 8.7.1 and 50.3.8 in The Voluntary Sector Legal Handbook 2nd edition.
From 1 February 2005 the annual fee when filing a company annual return went up from £15 to £30 if it is filed on paper, but is £15 if the return is filed electronically. The fee for registering a company is reduced to £15 if the incorporation is done electronically; paper incorporations remain £20. The fee for same-day incorporation is reduced from £80 to £50 if done on paper, or £30 if done electronically. The fee for same-day change of name is reduced from £80 to £50.
The full list of fees is on the Companies House website at www.companieshouse.gov.uk. The Companies (Fees) Regulations 2004 are at www.opsi.gov.uk/si/si2004/20042621.htm.
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