ilminster - charity seminar 2016

Charity SeminarDillington House - Ilminster 22nd June 2016

Chairman’s WelcomeMartin Lock

pkf-francisclark.co.uk

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Housekeeping


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What’s new in PKF Francis Clark?

• 1 April 2016 – merger with Princecroft Willis

• PKF Francis Clark

• 58 Partners

• Over 580 staff

• 8 offices – Taunton, Exeter, Salisbury, Poole, New Milton, Torquay, Plymouth and Truro


PKF Francis Clark

PKF Francis Clark offices

https://www.google.co.uk/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjjkvvLys_MAhXC1RoKHQAhCIcQjRwIBw&url=https://www.linkedin.com/company/francis-clark-chartered-accountants&psig=AFQjCNFW6WfD0zu-KviYUE2JF1IU3cZoKQ&ust=1462972282204840


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International Network

• Previously Leading Edge Alliance

• Changed to PKF network

• International network of independent firms

• Over 450 offices, across 150 countries

Programme

Financial Reporting Update – Martin Lock

VAT Update – Julie Towers

Investments – Ian Townsend

Financial Controls – Nick Farrant

BREAK

Legal Update – James Evans

Tax Update – Heather Britton

Cyber Fraud – Stewart King

LUNCH


Financial Reporting Update

Martin Lock

Introduction

• Not another SORP 2015 talk! A brief recap

• Some thoughts on transition to SORP 2015

• Other matters, including re trading subsidiaries and company secretarial and other filing matters


SORP 2015 brief reminders


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Background

• Dates – periods beginning on or after 1 January 2015

• Depending on the size of the charity you may have a choice:

• FRS 102 SORP – all can

• FRSSE SORP – can if under small companies threshold

• Then within each SORP, the ‘larger’ charities will have a separate list of additional requirements

• Larger charities are those with income over £500k not the new audit threshold of £1m


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Two SORPS please - summing up

• Choice of two SORPs – consult to agree which one to chose

• In very, very simple terms for many charities, I think the additional burden of FRS102 SORP will be:• cash-flow statement

• key management personnel disclosures will need consideration

• and so they will go for FRS 102 to avoid changing again

• A chance to improve your trustees’ report

• Number of presentational changes and anyone with longer term financial assets or liabilities will need to think through


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SOFA – other changes

• In addition to format changes, which are welcomed, the following

• Comparatives for all columns – practical issues to resolve

• Income recognition – ‘probable’ rather than ‘virtually certain’ – SORP Module 5 covers and for some care will be needed

• Exceptional items now ‘material items’ and clarity on where to put them in the SOFA

• Governance costs – no longer on the face but form part of support costs and spread as appropriate across categories


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Balance Sheet

• Financial Instruments• rare for complex instruments (e.g. derivatives linked to loans, incl

swaps, caps and collars)

• But care re long term debtors and creditors and the time value of money

• And care with lease incentives

• Holiday pay accrual

• Stocks of donated goods – fair value unless cannot be established reliably – some common sense to apply here

• Defined benefit scheme actuarial assumptions


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Disclosures in the notes

• Salary bandings – all charities now, small and large, numbers earning > £60k in bands of £10k

• Trustees and staff remuneration

• Increased disclosure, more transparency, public interest

• Some scope for what is disclosed but FRS102 SORP users must disclose remuneration of ‘key management personnel’ – Module 9

SORP 2015 transition


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Transition – practical matters

• Rewrite prior year (say March 15) accounts under SORP 2015

• Transition balance sheet (say March 14) must:• Recognise assets & liabilities required by SORP 2015

• Not recognise assets or liabilities where SORP 2015 doesn’t permit

• Reclassify items if a different category under SORP 2015

• Apply SORP 2015 in measuring all recognised assets & liabilities

• Adjustments to the transition balance sheet as a result of changes in accounting policy will be recognised directly in fund balances (‘reserves’)


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• Adjust transition date balance sheet as though always under new SORP 2015 but 4 mandatory exemptions where retrospective application is forbidden:1. Derecognition of Financial Assets and Liabilities

2. Accounting Estimates – this is the most relevant one to most entities

3. Discontinued operations

4. Minority interests

• And 20 optional choices, including connected to:• Fair value/Revaluation as deemed cost

• Lease incentives


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• Use table to track restatements

Disclosures:

• Reconciliation of balance sheets at transition and last year

• Restatement of last year’s SOFA

• Notes explaining the adjustments


Financial position 1 April 2014 31 March 2015 Group Charity Group Charity £000 £000 £000 £000 Total reserves under previous SORP Employee leave accrual Lease incentives Total effect of transition to FRS 102 and SORP 2015 Total reserves under SORP 2015


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• Reconciliation of funds (‘equity’) at transition date

• Reconciliation of funds at comparative dates

• Reconciliation of SOFA for comparative year

• Cash flow statements (unless using FRSSE)

Transition – disclosures required

Other matters


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• ICAEW TECH 16/14 updated Feb 16

• Debt exists to charity – account for in both

• How do you tidy up?• Offset against existing loan from charity

• Dividend up (but unlikely to have reserves for this)

• Capital reduction, converting shares into distributable reserves

• Waiver out of future distributable profits

• Tax • Credit in company is not taxable

• Unlikely that HMRC will seek tax on past transactions

• What about future taxable profits?

Trading subsidiaries and illegal distributions


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• Late filing of accounts at Charity Commission

• From 30 June 2016, company Annual Return being replaced by the Confirmation Statement• Check• Update• Confirm• Pay

• People with Significant Control (PSC) – all companies. For charitable companies:• New register needed – usually will be members of the company• But there might be e.g. a benefactor who pulls the strings• Report when confirmation Statement done

Filing

VAT Update

Julie Towers


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Agenda

• VAT and charities

• What’s new?

• Frequently Asked Questions


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• Charities are subject to VAT in the same way as commercial businesses

• However certain special rules for charities

• Zero-rating and exemption for some categories of income

• Zero-rating for some items of expenditure

• VAT refunds for certain categories

VAT and Charities


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• Extension of VAT refund scheme for museums and galleries

• Open at least 30 hours a week

• Free entry

• Visitors do not have to make an appointment to visit

• Arts Council accredited

What’s New?


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• Sveda case• European Court held that VAT recoverable on construction of grant

funded recreational trail. Sveda had a mixture of business and non-business activities

• Public had free access to the trail which linked to a shop and café

• The shop and café’s existence were dependent on the trail so there was ‘a direct and immediate link’ to the taxable activities.

• Case referred back to the national court in Lithuania to consider

• Review capital expenditure in case protective claims can be made

What’s New?


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Question – Hospice client asked for advice following the changes in 2015 on VAT recovery and partial exemption/non-business split

• Advice provided on the operation of the new rules and recovery of VAT on non-business expenditure

• Method of calculating non-business split reviewed to provide a more favourable recovery of VAT

• Detailed review of income from exempt fund-raising activities showed that donations were incorrectly being included with the exempt fund-raising income leading to over-restriction of input VAT

Frequently Asked Questions


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Question – charity running a group of care homes and welfare related activities asked for recommendations on maximising VAT recovery. One company in the group was already registered for VAT

• Consider joint contracts of employment

• Suggested use of a VAT group to avoid VAT on internal management charges between the companies

• VAT registered company to ensure that VAT bad debt relief claimed where appropriate

• Ensure that zero-rating certificates provided for expenditure on buildings e.g. ramps, WCs, lifts



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Question – Nursing home charity queried whether it was correct that agencies add VAT on the total amount charged for temporary staff or whether VAT should just be charged on the agent’s commission. As the nursing home is not registered for VAT, the VAT charged represents an additional cost

• There have been 2 contradicting cases on seemingly similar facts

• Reed Employment (2011) – held VAT only chargeable on Reed’s commission. HMRC said the facts only relevant to Reed

• Adecco (2016) – held VAT should be accounted for on the full fee including the element relating to staff wages

• Adecco decision likely to be appealed to a higher court

• Recommended the charity should consider asking the agency to submit a protective claim for the last 4 years



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Question – Charity running an agricultural show queried whether VAT should be charged on the pitch fee

• Provision of a specific space for a stand is land-related and exempt as long as the charity has not made an option to tax on the land/building

• Provision with a space for a stand together with services is not land-related and subject to VAT at the standard rate

• This is an area that HMRC has been looking at closely over the last 2 years, in some cases they are taking the view that the provision of space for a trade stand could not be a mere supply of land as the event organiser is usually providing marketing, organisation and expertise

• This is an area to watch



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Question from a charity providing sailing as a means of promoting mental health.

• Question 1 – Can VAT incurred before the date of registration be recovered if the charity registered for VAT

• Goods – VAT can be recovered on goods purchased in the 4 years prior to the date of registration. Goods must still be held at the date of registration

• Services – VAT incurred in the 6 months prior to the date of registration

• The goods and services must be used for taxable activities



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Question from a charity providing sailing as a means of promoting mental health.

• Question 2 – Can the charity purchase any vehicles free of VAT?

• Charities providing care or medical or surgical treatment can provide zero-rating certificate on the purchase of vehicles adapted to carry a disabled person in a wheelchair

• Zero-rating also applies to vehicles with more than 6 but less than 51 seats for charities providing care to blind, deaf, mentally ill or terminally sick persons.



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Question – a charity which provides education for special needs students was planning a new building and asked whether the construction costs of the new residential accommodation and classrooms could be zero-rated for VAT purposes

• Residential accommodation – zero-rating is available for the construction of residential accommodation to be used by students/pupils. The charity must provide a certificate of zero-rating to confirm that it will use the buildings for the relevant purpose

• Classrooms – This area is more complicated. Zero-rating is available for the construction of buildings to be used by a charity for ‘relevant charitable purpose’, this means for a non-business activity. If a charity makes a charge for the provision of services (education) this is seen as a business activity. In this case we were able to agree with HMRC that the education activities were funded by grants only therefore a zero-rating certificate could be provided



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Question – a charity had undertaken a re-branding exercise and asked whether the zero-rating for advertising would cover the costs of rebranding

• The zero-rating for charity advertising only applies to advertising on a third party’s medium. These costs would not therefore qualify for zero-rating as they did not constitute advertising as such


Investments

Ian Townsend

Agenda

• The requirement for an Investment Policy Statement

• The need for financial advice

• Finding income (and investment returns generally) at this time

fcfp.co.uk

Investment Policy Statement


The need• Charity commission wish to know if you have one

• Helpful process to define your investment objectives and provides a framework for future investment decisions

• Legal requirement under Trustee Act 2000 if Trustees delegate their asset management function (eg to Discretionary Fund Manager).

• Trustees’ annual report should outline any investment policies adopted



• Vary in layout, length etc - no set structure except it must be in writing

• Cannot be delegated to Investment Manager, though can be discussed with them

• Charity Investors’ Group published a guide with template statements

• If using an Investment Manager; it must include their responsibility and remit, together with the principles they must follow.

Statements



It will often include:• Scope of investment powers

• Investment objectives

• Attitude to risk

• Financial risks facing charity

• Timing and liquidity needs

• Any ethical concerns

• Benchmarks and targets

Content


Need for financial advice


Trustees’ duty of care

Always responsible for:

• Setting & regularly reviewing the investment policy

• Deciding who manages investments - & terms

• Reviewing suitability and performance of Investment Managers (and ending appointments)

Trustees are not liable for the acts (or omissions) of an Investment Manager unless they have failed to comply with this duty of care.



Charity commission observation

If trustees can demonstrate that they have considered the relevant issues, taken advice where appropriate and reached a reasonable decision, they are unlikely to be criticised for their decisions, or for adopting a particular policy.



Trustees Act 2000

States that Trustees must obtain and consider proper advice from a person reasonably qualified, by ability in and practical experience of financial etc matters re proposed investment, when:

• Exercising power of investment

• Reviewing the investments

Except where the Trustees reasonably conclude that in all the circumstances it is unnecessary or inappropriate



• Adding expertise to specialisms of Trustee Board

• Helping the Trustees make informed decisions

• Providing objectivity and impartiality

• Can assist with formulating Investment Policy Statement

• Explaining pros and cons of ethical investment

• Reviewing performance

• Maximizing returns

Benefits


Investment returns

Investment returns

• New world of low inflation, interest and returns

• Time to consider exposure to equities?

• Volatility continues eg Brexit and growth threats

• Alignment of Trustees’ and Charities’:• Attitude to risk

• Timescale for investment

• Ethical/ mixed motive objectives

“most charities need money; and the more of it there is available, the more the trustees can seek to accomplish”


Options

• Need for some cash (but real interest return may be negative)• Total returns v income + capital gains• Multi asset solutions• Common Investment Funds• Discretionary Fund Management

Investment returns


Investment returns

• Need for regular (at least annual) reviews

• Of investment performance,

• Investment managers performance

• Also investment policy

• With results considered by whole Trustee Board

Reviews


Investment returns

Five year performance

• Past performance is no guide to the future• Date that you compare an index to has a massive

bearing on reported performance• Benchmarking vital but care needed


No responsibility can be accepted for any action taken as a result of information contained in this presentation. We therefore strongly recommend that no action should be taken before obtaining detailed professional advice.

Past performance is not a guide to future returns and the value of investments and income from them may go down as well as up and an investor may not get back the amount invested.

PKF Francis Clark Financial planning and wealth management is a trading name of Francis Clark Financial Planning Ltd which is authorised and regulated by the Financial Conduct Authority. Registered Office: Sigma House, Oak View Close, Edginswell Park, Torquay TQ2 7FF. Registered in England No. 05413603.Francis Clark Financial Planning Ltd is a member firm of the PKF International Limited network of legally independent firms and does not accept responsibility or liability for the actions or inactions on the part of any other individual member firm or firms.

Exeter | New Forest | Plymouth | Poole | Salisbury | Taunton | Torquay | Truro

Disclaimer & copyright

fcpp.co.uk

Financial Control: we're all in this together

Nick Farrant

In this session…

Trustee Board effectiveness: top down control

Charity Commission updated guidance

Key controls: what might an audit committee look for?


Trustee Board effectiveness

• The right people

• Understanding board role and responsibilities

• Good chairing

• Clarity of vision and strategic priorities

• Accountability of executive

• Trust and good relations

• Challenging questions

• Confidence to be courageouspkf-francisclark.co.uk

Managing a charity's finances: planning, managing financial difficulties and insolvency (CC12)

Important messages for trustees

• Recognise when charity is facing financial difficulties

• Regular, robust, up to date financial information

• Understand your income

• Understand your spending and whether you’re spending too much

• Regularly review risk and reserves policies

• Take rescue action

• Understand the implications of winding up the charity

• Impact of difficulties/winding up on beneficiaries, staff and assets


Financial management and the role of trustees

Budgets and cash flow projections

Effective internal financial controls

Monitor results against budget

Analyse sources of income

Robust risk and reserves policies


Financial management and the role of trustees

Monitor and review

Deal with one-off risks

Merger opportunities

Understand funds

Understand balance sheet

Going concern indicators


Insolvency

• Unincorporated charities – trustees liable but principles same

• Deemed to be unable to pay debts – S123 of 1986 Act

• In simple terms, will there be enough cash?

• Establish the full position

• CC12 has some guidance

• Contact your accountant/ auditor


Charity reserves: building resilience (CC19)

Charity reserves: building resilience (CC19)

• No single right answer

• Key to financial protection but still poorly understood

• Develop reserves policy• Fully justifies and clearly explains

• Identifies plans for maintenance of essential services for beneficiaries

• Reflects the risks of unplanned closure

• Helps to address these risks – looking after beneficiaries (vulnerable), staff and volunteers

• Publish reserves policy – not boiler plated

• Publish assessment of risks – not boiler plated


What are reserves?

Reserves are that part of a charity’s unrestricted funds that is freely available to spend on any of the charity’s purposes. This definition excludes restricted income funds and endowment funds, although holding such funds may influence a charity’s reserves policy. Reserves will also normally exclude tangible fixed assets such as land, buildings and other assets held for the charity’s use. It also excludes amounts designated for essential future spending.

• Impact of restricted funds

• Impact of designated funds

• Subsidiaries’ reserves


Why is policy important?

A policy will

Give confidence to funders

Demonstrate resilience

Explain why funding is required

Provide assurance to creditors

Assist in strategic planning

Inform the budget


How to develop a reserves policy

Nature of funds Uncertainties Future

plans

Explain if “zero level”


Reserves – annual report

• SORP requires• Statement of policy

• Level of reserves and why they are held

• Designated funds – amount and purpose

• Designated funds – likely timing of expenditure

• Insufficient (or zero) reserves – still need to explain why

• Reserves too high• Avoid boiler-plated disclosures

• Spend it!

• Extend charity’s objects


Charity governance, finance & resilience: 15 questions

1. What effect is the current economic climate having on our charity and its activities?

2. Are we financially strong enough to continue to provide services for our beneficiaries?

3. Do we know what impact the social and/or economic climate is having on our donors and support for our charity?

4. What is our policy on reserves?

5. Are we satisfied with our banking arrangements and our current and future investment policy?

6. Have we reviewed our contractual commitments?

7. Have we reviewed any contracts to deliver public services?


Charity governance, finance & resilience: 15 questions

8. If we have a pension scheme, have we reviewed it recently?

9. How can we make best use of any permanent endowment investments we hold?

10.Are we an effective trustee body?

11.Do we have adequate safeguards in place to prevent fraud?

12.Are we making the best use of the financial benefits we have as a charity?

13.Are we making the best use of our staff and volunteers?

14.Have we considered collaborating with other charities?

15.Are we making the best use we can of our property?


Key controls

Key controls: what an audit committee would look for..

Risk management

What could go wrong?

How is it managed?

Adequately explained?

Proportionate


Risks - and controls

• Trustees’ knowledge• Challenge figures

Financial problems

not spotted

• Approval process via trustees

Ineffective budgeting

• Cash flow forecasts• Reserves policy

Insufficient liquid

reserves


Other risks to consider?

Long term cash shortage

Control procedures

not documented

Cash theft

Spending outside

charitable purpose

Spending outside

restricted purpose

Poor financial authorisation

Fraudulent spending by

staff/ volunteers

Staff expenses

fraud

Payroll fraud


Other risks to consider?

Inappropriate payments to connected

parties

Overspent capital projects Loss of assets

Insufficient insurance

IT and cyber crime


In this session…

Trustee Board effectiveness: top down control

Charity Commission updated guidance

Key controls: what might an audit committee look for?


Break


LEGAL UPDATEPKF FRANCIS CLARK CHARITY CONFERENCE – 22 JUNE 2016

JAMES EVANS

WHAT WILL WE COVER?

• REPUTATION MANAGEMENT• CHARITY COMMISSION WARNINGS• DATA PROTECTION CHANGES

• FUNDRAISING CHANGES

• PERSONS WITH SIGNIFICANT CONTROL

• LEGACY ISSUES

• NEW CHARITY COMMISSION GUIDANCE

“ The most important thing charity trustees are responsible for is the reputation of their charity, because without a reputation it is nothing.Bernard Jenkin MP, Chair of the Public Administration & Constitutional Affairs Committee (2016)

“ The charity sector “wasn’t strong enough” in response to the media criticism which followed the death of Olive Cooke.Sir Stuart Etherington, Chief Executive of NCVOQuoted by Civil Society

COULD A REPUTATION CRISIS HAPPEN TO YOUR CHARITY?

…Yes

Online trolling

Campaign of harassment

Defamatory posts on

social media

Data Protection

BreachEmployee/ volunteer

arrested for criminal offence

Unfair publicity

Negative feeling

towards your activities

Regulatory Action against

charity

Fundraising Complaints

DO…

• Form a reputation crisis response team

• Take legal advice

• Simulate a crisis, and see how you cope

• Think about pre-emptive action you can take – monitoring, internal training

• Think about responding through other channels, in addition to a right of reply

• Consider SIR to Charity Commission

• Make your response swift, decisive, convincing

DON’T…

• Panic

• Release statements without considering the

legal implications

• Try and sweep a crisis under the carpet

without proper thought

• Think that it won’t happen to your charity –

because at some point, it probably will

CHARITY COMMISSION – OFFICIAL WARNINGS

• New power under the Charities Protection & Social Investment Act 2016

• Likely to come into force in October 2016

• Can issue a warning to a trustee or charity if it considers there has been a breach of trust

or duty or other misconduct or mismanagement

• Commission must take representations into account, but can issue warning without

modifications if it thinks it is desirable to do so – and not appealable!

• Publication of warning – reputational impact

REPUTATION MANAGEMENT & DATA PROTECTION

• The two are becoming inextricably linked

• EU’s new General Data Protection Regulation – mandatory breach notification

requirements

Data protection

breach

Inevitable publicity

Potential reputational

damage

GENERAL DATA PROTECTION REGULATION

• Applies from 25 May 2018

• No notification requirement at present – most sweep under carpet

• Regulation will make notification of most breaches involving personal information

mandatory

• Means organisations will have to change their approach to data breaches

• Need to handle reputational aspect and ensure every effort is made on data protection

compliance

FUNDRAISING CHANGES

• NEW FUNDRAISING REGULATOR

• Will assume responsibility for charity fundraising in July 2016

• Takes over responsibility for Code of Fundraising Practice

• Will operate Fundraising Preference Service

• Consultation soon on charging structure

FUNDRAISING CHANGES

• New Charity Commission Guidance CC20 https://www.gov.uk/government/publications/charities-and-fundraising-cc20

• Key principles:• Plan effectively• Supervise your fundraisers• Comply with fundraising law• Protect your charity’s reputation and other assets• Follow recognised standards• Be open and accountable

https://www.gov.uk/government/publications/charities-and-fundraising-cc20

https://www.gov.uk/government/publications/charities-and-fundraising-cc20

PERSONS WITH SIGNIFICANT CONTROL

• All companies now required to maintain PSC register from 6 April 2016

• Includes charitable companies and trading subsidiary companies• Individuals holding more than 25% voting rights• Individuals able to hire/fire board• Others who exercise significant influence or control

• Separate requirements for companies owned by another entity, eg parent charity

• Will need to include information on PSCs in annual confirmation statement from 30 June 2016

LEGACIES

Legacy Promotion Legacy Dispute Resolution

Legacy Administration

IncreasedLegacyIncome

LEGACIES

• Development/marketing• Fundraising changes• Changing landscape• Strategy

• Administration• Set KPIs• Be aware of your risk profile/strategy

LEGACIES - UPDATE

• Contentious matters• Donatio Mortis Causa King v The Chiltern Dog Rescue and Others [2015] EWCA Civ 581

• Validity of will and whether executed correctly Re Whelan [2015] EWHC 3301 (Ch);

• Financial provision for family members Ilott v Mitson [2015] EWCA Civ 797; [2016] 1 All E.R. 932; [2015] 2 F.L.R. 1409; [2015] 2 F.C.R. 547; [2015] W.T.L.R. 1399; [2015] Fam. Law 1196

• Construction issues

CHARITY COMMISSION UPDATES

• Consultation on converting charitable companies to CIOs

• New guidance on:• Managing Finances/ financial problems CC12

https://www.gov.uk/government/publications/managing-financial-difficulties-insolvency-in-charities-cc12• Funding non-charities

https://www.gov.uk/guidance/draft-guidance-grant-funding-an-organisation-that-isnt-a-charity• Charity reserves CC19

https://www.gov.uk/government/publications/charities-and-reserves-cc19• Trading subsidiaries CC35

https://www.gov.uk/government/publications/trustees-trading-and-tax-how-charities-may-lawfully-trade-cc35

• Charity Commission charges

https://www.gov.uk/government/publications/managing-financial-difficulties-insolvency-in-charities-cc12

https://www.gov.uk/guidance/draft-guidance-grant-funding-an-organisation-that-isnt-a-charity

https://www.gov.uk/guidance/draft-guidance-grant-funding-an-organisation-that-isnt-a-charity

https://www.gov.uk/government/publications/charities-and-reserves-cc19

https://www.gov.uk/government/publications/charities-and-reserves-cc19



THANK YOUJames EvansDirect Line: 01392 [email protected]

Tax Update

Heather Britton

Charity tax update

• Gift aid declaration update

• Charity tax – risk areas

• Submissions to HMRC

• Inheritance tax



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Gift Aid declarations

New information requirement from 6 April 2016

• New model gift aid declarations for single and multiple donations

• Now must include ‘tax to cover’ statement:

• “ I am a UK taxpayer and understand that if I pay less Income Tax and/or Capital Gains Tax in the current tax year than the amount of Gift Aid claimed on all my donations it is my responsibility to pay any difference.”

• Model forms at: https://www.gov.uk/guidance/gift-aid-declarations-claiming-tax-back-on-donations#declaration-formats

Are your gift aid

forms up-to-date?


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Why are some people not paying tax?

• Personal allowance now £11,000 per person

• Interest income

• Savings starting rate of 0% on first £5,000

• New personal savings allowance from April 2016Type of taxpayer Exempt interest incomeBasic rate £1,000

Higher rate £500

Additional rate Nil

Are many pensioners

paying tax?


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Why are some people not paying tax?

New dividend regime from April 2016

• Effective dividend rates all increasing by 7.5%

• First £5,000 of dividend income at 0%

• Abolishing ‘notional’ tax credits (10%)

2015/16 2016/17 Increase

Basic rate 0% 7.5% + 7.5%Higher rate 25% 32.5% + 7.5%Additional rate/trusts 30.6% 38.1% + 7.5%


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Gift aid forms – are they taxpayers?

• New tax rules = many people at the lower income levels will no longer pay tax

• E.g. Someone with £17,000 income may pay no tax in 2016/17 (pension income £11,000, dividends £5,000 and interest £1,000)

• More gift aid claims could be made incorrectly

• Ensure charity staff understand the rules


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Charity tax - risk areas

• Income and gains not applied for charitable purposes (non-charitable expenditure)

• Notice to complete a tax return received periodically – easy to miss if not annual

• Charities pay tax profits from developing land or property

• Trading exemptions not met (e.g. income > £50k and not primary purpose)

• Consider trading subsidiary

• Can pay profits to charity within 9 months


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Charity tax - risk areas

Letting as a trade

• When does letting of a premises become a trade?

• Let on a regular basis

• Provide additional services e.g. conference facilities, IT equipment, support staff, catering, etc

• Often hard to determine whether trading – each case will depend on facts


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Charity tax - risk areas – letting rooms

Examples of services Rental Indifferent Trade factorCleaning & preparation of rooms PArrangement of furniture PServices of reception staff P PCloakroom staff PTechnical staff PBasic refreshments P


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Letting as a trade

• If trading – consider if covered by trading exemption (often income of £50k covered)

• Consider running conference facilities through trading subsidiary

• If utilising surplus rooms in a large building to generate additional income – does any endowment (e.g. Royal Charter or Act) restrict the use?


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Charity tax – do I need to iXBRL tag?

• Charities liable to Corporation Tax must complete a tax return if:• HMRC issue a ‘notice to deliver’ or

• They have income or gains which are not covered by a relief or exemption

• Tax returns required to be filed online < 12 months of year end

• Accounts and computations must be filed in iXBRL-format• Accounts in pdf allowed if:

• Smaller charity under Companies Act 2006 (income < £6.5m)

• Other unincorporated associations or incorporated if not under Companies Act


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Inheritance Tax

• Gifts to charity during lifetime are exempt

• Gifts to charity in will are exempt from IHT

• An estate will normally pay IHT at 40%

• If charitable legacies the rate of IHT may be lower:

• Reduced 36% rate if 10% or more of the ‘net value’ of the estate is left to charity

• ‘Net value’ is after deducting debts & liabilities, reliefs, exemptions and anything below nil rate band (£325,000)


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Inheritance Tax – reduced rate of 36%

• Encourage donors to review their wills

• Consider charitable legacy worded to meet the 10% test

• Carefully word will to save continual revision

• Example at:

• https://www.gov.uk/hmrc-internal-manuals/inheritance-tax-manual/ihtm45008

• Some beneficiaries may benefit if already charitable donations


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Inheritance Tax – deeds of variation - update

• Allow a beneficiary to re-direct all or part of an estate

• For IHT, a deed made within 2 years of a death is treated as though variation made by deceased

• Consultation opened Summer 2015

• Conclusion in December 2015

• Ability to use deed of variation will continue

• No new restrictions

• Government will continue to monitor their use


.

Deed of variation – why used?

Source: HM Revenue & Customs – Review of Deeds of Variation for Tax Purposes – Call for Evidence – Summary of Responses – December 2015


.

Inheritance Tax – claims by dependants

• Cases hitting the national headlines e.g. Ilot

• Inheritance (Provision for Family and Dependants) Act 1975

• Consider whether any legacies could be contested

• Take care if paying beneficiaries

• May be treated as non-charitable expenditure & tax payable

• Consider tax-efficiency of options

Cyber Fraud & Risks to CharitiesStewart King

CYBER & FRAUD

Overview One of the biggest risks

faced by businesses and organisations

Estimated cost of £21bn per year

Frequent major breaches in the press

Look at Cyber and other types of attack

Risk, prevention and mitigation

New costs through EU legislation

Insurance options

Impact to Organisation Human impact (Staff & Customers) Time Disruption Reputation Financial Loss Future?

Cyber RisksWho would want to compromise you, your organisation or your data?

Cyber Risks

40% of all cyber-attacks aimed at firms and organisations with fewer than 500 employees

Source: National Cyber Security Alliance

What are they after…….

• Money• Business disruption• Sensitive or personal

information• Reputation or brand

damage• Increased kudos and

notoriety

The average cost of a cyber attack Detection and escalation

£14 Response £17 Notification £6 Lost business £34 Total direct loss from a

data breach per record in the UK - £71

Source: 2010 Annual Study: UK & US Cost of a Data Breach by Ponemon

Organisational Approach

Risk Management

Prevention Insurance

Risk Management

Prepare, prepare, prepare You know your

organisation What is most important to

you Where and how is your

data held, servers, pc’s, mobiles, usb’s?

Who has access – consider restrictions

How can they get access?

FraudCommon examples

Email scam Targeted CEO email Invoice fraud Telephone scam Overpayment

Prevention – Email & CEO Email

156 million scam emails per day of which 90% stopped by spam filters so about 16 million get through

50% are opened, 10% of these are clicked and 10% are actioned (80,000 per day)

Be vigilant, hover on links and email addresses to see if genuine

Is content specific or “dear customer” etc Banks would never ask for full security information Are you expecting the email or recognise the sender CEO emails look genuine – review style, double check

with sender Agree internal protocol for payment request, give

confidence to question Dual authorisation for extra security

Prevention – Viruses, Malware & Ransomware

Make sure anti-virus software and malware protection software is up to date

Keep operating system software up to date (Windows updates)

Have a firewall in place Delete suspicious emails and do not click on links Do not download items from websites unless known Separate computer for internet banking? Robust and regular changing of passwords

Prevention – Invoice Fraud & Overpayments

Agree an internal protocol when a request is received for a change of bank account payment

Challenge any request, ask known questions Get verification from known contact at supplier Use a known phone number – not on new invoice Wait until funds have cleared Dual authorisation

Prevention – Telephone Scams Challenge caller with known questions Wait before returning call Check dial tone can be heard Use a different phone Check with know contact on known phone number Dual authorisation

Prevention – Other Measures

Understand the risks Teach and train your staff Improve IT security Encrypt data More controls (dual authorisation)

Risk Management and Prevention Government Guidance - Cyber Essentials Scheme - 10

step guide https://www.gov.uk/government/publications/cyber-securi

ty-what-small-businesses-need-to-know (google: UK Government cyber sme)

http://fundraising.co.uk/2015/06/17/10-ways-to-prevent-fraud-in-charities/

https://www.gov.uk/government/publications/cyber-security-what-small-businesses-need-to-know

https://www.gov.uk/government/publications/cyber-security-what-small-businesses-need-to-know

EU GDPR EU General Data Protection

Regulations Coming to UK within next

couple of years Prescriptive timelines for

reporting data breaches Significant Fines following

breach up to 4% of turnover

Cyber & Crime Insurance Replacement of lost funds Public Relations Crisis Management Forensics & Security Specialist Services Rectification Costs Liability to Customers Costs for Notification

Cyber & Crime Insurance Regulatory Fines Extortion Business Interruption Telephone Hacking

A Local Example…

Case Study Scenario A firm of Accountants lost records of 77,000 former and

current employees of one of its clients Outcome Paid for identity theft protection and credit monitoring

for all Reimbursed losses £60k in notifying individuals

Case Study

An employee of a recruitment agency was hired by an identity fraud ring to provide sensitive personal information regarding the agency's clients.

Outcome Paid for credit monitoring services for all affected and an

IT investigation to assess the extent of the breach Offered PR Support to help mitigate further reputational

damage

Questions

Martin Lock

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