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Charities Update – What’s New “What you need to know about Charities now – 2019” Adrienne Airlie, Director, Gavin Curr, Associate Director and Iain Johnston, VAT Specialist

21 February 2019


Introductions

Adrienne Airlie

Senior Charity Director

Gavin Curr

Associate Director Iain Johnston

VAT Specialist


Accounting, tax, corporate finance

and business advisers.

Key markets

Food, Drink & Hospitality, Manufacturing &

Engineering, Medical & Dental, Residential

& Commercial Property, Construction,

Professional Services, Charity & NFP and

Private Clients.

Who we work with

Start-up, early growth stage,

expanding/maturing, business owners

looking to exit & private investors.

Advice & services

Accounting, tax, corporate finance,

business advisory, financial services.

Cloud & digital accounting.

Founded in 1897 & based in Glasgow

Grown organically and through strategic

acquisitions and mergers.

Tax Investment, allowances,

reliefs & compliance

Corporate Finance

Financial Management

& Control

Virtual Finance Director


Our Charity Expertise

• Charity experience beyond audit: governance, risk

management, financial systems (cloud & desktop),

capital expenditure, corporation tax, tax reliefs and

exemptions, payroll and providing VAT Vigilance and

timely advice.

• Advising on the charity SORP and impacts on the

financial statements, grants, restricted and unrestricted

funds.

• Advising on issues such as reserve policies, property

valuations and OSCR reporting and Governance.

• Experience of using cloud accounting to facilitate

effective reporting within charities.


Agenda

1. Charity governance

2. Charity pensions update

• LGPS & MEDB

3. Accounting, auditing and independent examination update

4. Benefits of Cloud Accounting

5. Making Tax Digital

6. VAT Update

7. Q&A


Charity Governance

Adrienne Airlie, Senior Charity Director, Martin Aitken & Co

21 February 2019


Charity Governance

Organisational Purpose

Leadership

Integrity

Decision-making ,risk & control

Board Effectiveness

Diversity

Openness & Accountability


Charity Governance - Finance

‘Public money: directly or indirectly

Classic’ financial controls

Management of Risk

The Committee Structure

The “Financial” Trustee

Beyond the money: reputational risk


Financial Controls & Risk

Management

Strategy

Budget and Business Plan

Internal Controls

Audit (assurance mapping)/ IE

Risk

• Reputational

• Financial

• Strategic


Committee Structure

Board (“Trustees”)

Finance/Audit/Remuneration

Meeting Quarterly

Principles:

• Regular meetings

• Finance, risk, KPIs

• Communication/ Knowledge


Objectivity

• Decision Making

• Trustee challenge

• Skills mix

• Dominant founding trustees / Chair/ CE

• Lack of information

• What and How?


Charity Pension Update

Adrienne Airlie, Senior Charity Director, Martin Aitken & Co

21 February 2019


Agenda

• Recent changes

• Multi-employer defined benefit schemes

• LGPS

• Auto-enrolment


Multi-employer Defined Benefit

Schemes

• Many charities participate in these arrangements via LGPS

and/or multi-employer schemes

• Charities have built considerable on-going deficits and material

exit / cessation deficits

• Many face rising contribution costs

• Structure of these schemes makes managing these deficits

more problematic than in stand-alone or segmented schemes –

can’t close to future accrual without triggering a cessation debt

• Low gilt yields = high cessation debt

• Unaffordable contributions or unaffordable exit debt !


Recent developments

Campaigning for many years

• Increasing recognition of the problem

Recent changes – MEDBS

Introduction of ‘Deferred Debt Arrangement’ (DDA) – April 2018

• Providing arrangement does not adversely affect security of

members benefits

• Contributions can be on an ‘on-going’ basis

Recent changes – LGPS

• Return of ‘surplus’ regulation in England/Wales & Scotland

• ‘Introduction of ‘Suspension’ agreement in Scotland from June 2018 -

similar to DDA


In practice - LGPS

• Organisations need to understand

• Their admission terms

• Calculation of their exit debt

• Ownership of any legacy liabilities

• Affordability

• What flexibility will Funds offer - Wide range of

practice

• Need a strategy to manage


Auto-enrolment

Re-enrolled every 3 years

Update to contribution levels

Date Employer minimum

contribution

Total minimum

contribution

Employer’s staging date to

05/04/18

1% 2% (including 1% staff

contribution)

06/04/18 – 05/04/19 2% 5% (including 3% staff

contribution)

06/04/19 onwards 3% 8% (including 5% staff

contribution)


Accounting, Auditing and Independent Examination update

Gavin Curr, Associate Director, Martin Aitken & Co Ltd

21 February 2019


Topics

1. FRS102 SORP - Update Bulletins

2. Audit related matters

3. FRC - proposed revision to ISA (UK) 540

4. Matters of Material Significance & Notifiable Events

5. Future developments


Update Bulletin 2

FRS 102 SORP Bulletin 2 arrived 5/10/18

• Most changes will apply for periods commencing on or after 1 January 2019

• Amendments being implemented following triannual review of FRS 102

• Amendments include a number of “clarifications”

• No early adoption permitted for Scottish Charities for category 2 and 3 amendments

• The Charities SORP (FRS102) - SORP + Update Bulletin 1 + Update Bulletin 2


Update Bulletin 2

The purpose of Update Bulletin 2 is to provide:

1. Clarifying amendments (category 1) (to ensure consistency with

the original intention of FRS 102)

2. Amendments arising from changes to FRS 102 (categories 2

and 3)

Category 1 - Clarifying amendments

1. Comparative information

2. Removal of the undue cost and effort exemption

3. Post year-end payments by subsidiaries to their charitable

parents that qualify for gift aid.


Update Bulletin 2

Definition of a deed of covenant

“A deed of covenant is a legally binding agreement that is written down

and agreed between 2 people stating that one person agrees to pay

the other an agreed amount of money without receiving any benefit in

return.”


Deed of Covenant - Example

Donations to parent charities

If a deed of covenant is in place, a trading subsidiary can claim the

deduction against accounting profits and taxable profits for accrued

donations provided they are paid within 9 months.

If no deed of covenant is in place, a trading subsidiary can only

claim the deduction against taxable profits if the accrued donation

is paid over within 9 months. This donation would then be deducted

from accounting profits in the subsequent year.


Update Bulletin 2

Amendments arising from changes to FRS 102 SORP include;

Category 2 – significant amendments

1. Investment properties rented to group entities

2. Removes cost of stocks recognised as an expense disclosure

3. Cash flow statement

4. Transfer of an activity to a subsidiary

Category 3 – less significant amendments

1. Definition of financial institution

2. Financial instruments

3. Assets held at amortised cost

4. Immaterial subsidiaries


Audit criteria & exemption

A Scottish charity must be subject to audit if in any financial year;

• Gross income exceeds £500k, or

• Gross assets at the end of the year exceeds £3.26m or

• Required by the constitution (or other enactment) or

• Required by instruction of the trustees

The recommendation is that charitable companies being audited should always be audited under BOTH company law and Scottish charity law, regardless whether the company law audit exemption could apply

Current news: Revisions to ISA 540 – Accounting Estimates


Matters of Material Significance &

Notifiable Events

OSCR and CC have published a guide for auditors and independent examiners on;

“Matters of material significance reportable to UK charity regulators”

• Matters requiring reporting – auditors and independent examiners

• Notifiable events - trustees

• Process for reporting

• Guidance

• Duty of auditors/independent examiners


Matters of Material Significance &

Notifiable Events

Matters of Material Significance Notifiable Events

Dishonesty and fraud Fraud and theft

Internal controls and governance Substantial financial loss

Money laundering and criminal activity Abuse or mistreatment of vulnerable

beneficiaries

Support of terrorism Lack of a board quorum

Risk to charity beneficiaries Criminal or other regulatory investigation

Breaches of law or the charity’s trusts Significant donations from unknown source

Breach of an charity regulator order Suspicion of assets being used to fund

criminal activity

Conflicts of interest and related party

transactions

Charity trustee operating while disqualified

Modified audit opinion or qualified IE report


Future developments

Governance review by 4 UK regulators

• Charities SORP Committee

• Charities SORP-making process

• Recommendations expected first half of 2019

Second edition of the Charity SORP

• Changes in company and charity law in all 4 jurisdictions

• Expected after the governance review

• No changes anticipated from amendments to FRS 102


Benefits of Cloud Accounting

Gavin Curr, Associate Director, Martin Aitken & Co

21 February 2019


Benefits of cloud accounting

• MTD ready

• Automate bookkeeping

Bank feeds, invoicing scanning, rules,

recurring invoices

• Unlimited access

• Real time information

Dashboard overview, customisable reports

• Clear visibility

• App integration


• Upgrade to Sage MTD compliant software

• Version 24.2 or above

• Speak with provider


Tailoring your cloud accounting system

to suit your requirement: business apps

• 700 + options and growing

• Direct link to accounting software


• Easy automation for collecting,

processing and publishing

receipts and invoices

• Helps you work smarter, faster,

enabling more efficiency and

business time

• Simple three step process: Add

items, review inbox and publish


Making Tax Digital

Iain Johnston, VAT Specialist, Martin Aitken & Co

21 February 2019


What is Making Tax Digital (MTD)?

• HMRC online reporting method / system

upgrade – records maintained “digitally”

with a “digital link” between records and

VR submission

• Aims to reduce tax gap (VAT tax gap

£11.7bn in 2016-17)

• Digital portal / Application Programming

Interface (API)

• Phased implementation (for all taxes) to

2022


Application - size

• VAT registered and UK taxable turnover > VAT

threshold (£85,000pa > taxable supplies)

• General exemption – voluntary VAT registration

• Specific exemptions ‘digitally excluded’

• Religious beliefs (no computers)

• Not reasonably practical for reasons of

disability, age, remoteness of location or

other reasons (HMRC consider each case on

merits)

• VAT helpline for exemptions and appeals

(case by case)


Application - timing

• First period commencing from 1st April

2019

• Deferred businesses 1st October 2019

• Trusts

• VAT Groups

• Government departments, local

authorities and public corporations

• Traders based overseas

• Traders required to make POAs

• Annual accounting scheme clients


MTD for VAT The first VAT return period after 1 April 2019

Return Period Start End Filing Date*

Month 1 April 2019 30 April 2019 7 June 2019

Quarter 1 April 2019 30 June 2019 7 August 2019

Quarter 1 May 2019 31 July 2019 7 September 2019

Quarter 1 June 2019 31 August 2019 7 October 2019

*except large organisations whose filing date is the end of the month after the return period.


Requirements

• Keep digital records – all transactions, timings,

VAT effect

• File VAT returns via API enabled software –

calculations won’t change!


MACO solutions 1. If currently using Sage

• Upgrade to Sage 50 Cloud or Sage Business Cloud

• Monthly subscription

• Promotional discounts

2. Cloud software e.g. Xero, Quickbooks,

• User friendly records / use of apps and automated bank

feeds

• Import historical transactions from SAGE or Quickbooks

using MoveMyBooks

• Monthly subscription

• Promotional discounts

• Conversions, implementations, training


MACO solutions

3. Bespoke software

• Speak to providers – charges?

• Link in with API

4. Spreadsheets

• Use bridging software

• Interim solution

• Eg. IRIS VAT filer, BTC software

• Clearbooks Micro

• Simple online spreadsheet

• Requires an approved HMRC agent (your

accountant) to submit VAT returns.


Recap

• MTD commences 1st April 2019

• VAT registered and above threshold

• Exemptions

• Deferred to 1st October 2019

• Digital records

• API enabled software

• SAGE 50 Cloud

• Cloud based software eg. Xero,

Clearbooks, Kashflow

• Bridging software


VAT Update

Iain Johnston, VAT Specialist, Martin Aitken & Co

21 February 2019


Reduced rating & zero rating

Books/magazines – zero rated

Children’s clothing – zero rated

Rent for buildings used for charitable purposes

(excl office function) – zero rated

Most food (where not heated/prepared/served) –

zero rated

Construction services for disabled people (where

conditions met) – zero rated

Mobility aids for the elderly – reduced rated at 5%


Charity income streams & VAT

Income type Standard

(20%)

Zero (0%) Exempt Outside

Scope

Grants – freely

given

X

Donations – freely

given

X

Contract for

services

X

Vocational

training

X

Café/coffee shop X

Books/magazines X

Sale of donated

goods

X


VAT on property – Option to tax

• Rental and sale of property is by default EXEMPT from VAT – no VAT

charged on sale or rental

• Generally, can’t reclaim VAT on expenses connected with exempt income

• However – possible to exercise “Option to Tax” on property which means

VAT must be charged on any rental or sale of that property, but will allow

reclaim of VAT on expenditure. ONLY commercial property, NOT

residential. Done via Notification Form sent to HMRC

• Applies for 20 years. Need to consider carefully. Impact on eventual

sale/rent marketability? Yes if buyer/renter not VAT reg’d. After 20 years

can be revoked.

• Consider Capital Goods Scheme – change of use / subsequent disposal

without VAT chg’d in 10 yrs could result in clawback


Recent VAT cases of Interest

Greenisland Football Club – TC 06321 (UKFTT – Feb 2018)

New clubhouse zero-rated on basis would be used for charitable

purposes. HMRC challenged that should have been standard rated. FTT

accepted charitable use – factors that supported this included fact the

club was used by many local groups with no preference to the football

club itself; any cash generated was put back into the maintenance, & the

local community benefited from extensive use.



Yorkshire Agricultural Society - TC 06263 (UKFTT – Dec 2017)

YAS ran two events, free to attend, in pursuant to their charitable

objects. Very small income resulted from caterers. YAS claimed this

income meant the events were business rather than charitable and

thus allowed reclaim of VAT on costs. Tribunal found that event free

and designed to educate about agricultural issues, with no economic

objective despite the income, and ruled that an income stream was

not enough to make an event a business one. VAT claim on costs

disallowed.



Loughborough Students Union & others TC 6571 (UKFTT – June

2018)

Student union social events that make a profit, not qualifying as

“fundraising” – event must be not only intended to make a surplus but

“primary purpose is raising of money” and must also be promoted as

fundraising. Thus ticket sales VATable.

Needs to be something distinctive that makes it fundraising – can’t

simply be on basis it may make a profit. Two tests – primary purpose

(to raise funds – not to entertain students, as in this case) and

promotion (all materials to refer to fundraising)


Charities Update – What’s New “What you need to know about Charities now – 2019” Adrienne Airlie, Director, Gavin Curr, Associate Director and Iain Johnston, VAT Specialist

21 February 2019

Thank you for listening.

Any questions, queries or observations?

Charities Update What’s New - maco.co.uk · Charities Update – What’s New “What you need...

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