Charities Alert

The Charities Act 2022 (the Act) received Royal Assent on 24 February 2022 and brings into force a number of key changes to the Charities Act 2011, aimed at simplifying a number of processes.

The Charity Commission are currently working through implementing the various changes brought about by the legislation, and have set out an indicative timetable here: https://www.gov.uk/guidance/charities-act-2022-implementation-plan

Other provisions of the Act in force from 31 October 2022

• Section 5: Orders under section 73 of the Charities Act 2011
• Section 8: Power of the court and the Commission to make schemes
• Section 32: Trustee of charitable trust: status as trust corporation
• Section 36: Costs incurred in relation to Tribunal proceedings etc
• Part of Section 37: Public notice as regards Commission orders etc.
• Part of Section 40 and Schedule 2: Minor and consequential amendments

Provisions of the Act that came into force on 14 June 2023

• Sections 9-14 and 35a: Permanent endowment
• Sections 17, 19-22: Charity land
• Sections 25-28: Charity names
• Section 38 and 39: Connected persons
• Part of Section 40 and Schedule 2: Minor and consequential amendments

Provisions of the Act expected to come into force on 7 March 2024

• Section 1-3: Charity constitutions
• Sections 18* and 23: Charity land
• Section 24 and Schedule 1: Amendments of the Universities and College Estates Act 1925**
• Section 29: Powers relating to appointments of trustees
• Section 31: Remuneration etc of charity trustees etc
• Sections 33, 34 and 35(b): Charity mergers
• Section 37: For remaining purposes
• Section 40 and Schedule 2: For remaining purposes

* Section 18(1) (in part), (2)(a), (2)(c) and (3)(a) will come into force on 7 March 2024. Due to the provisions being linked to section 24 and Schedule 1, section 18(1) (for remaining purposes), (2)(b) and (3)(b) will come into force on 19 May 2025.

** Section 24 and Schedule 1 will come into force on 19 May 2025.

Provisions of the Act expected to come into force later in 2024

Sections 15 and 16: Ex gratia payments

The key provisions of the Act that have been implemented to date are set out below, and further information can be found here: https://www.gov.uk/guidance/charities-act-2022-guidance-for-charities

Making changes to governing documents

The Act introduces a new statutory power to allows trusts and unincorporated associations to make changes to their governing documents.

Charities will still however need to get the Commission’s authority to make certain ‘regulated alterations’ in the same way as companies and Charitable Incorporated Organisations (CIO).

Other related changes include:

how unincorporated charities must pass trustee and (where they have members) member resolutions when using the new power

that the Commission will apply the same legal test when deciding whether to give authority to charitable companies, CIOs, and unincorporated charities changing their charitable purposes

a power for the Commission to give public notice to, or to direct charities to give notice to, regulated alterations they make

The Commission have updated CC36 to reflect these changes, which can be found here: https://www.gov.uk/government/publications/changing-your-charitys-governing-document-cc36

Selling, leasing or otherwise disposing of charity land

The following provisions are now in force:

provisions relating to disposals by liquidators, provisional liquidators, receivers, mortgagees or administrators

provisions relating to the taking out of mortgages by liquidators, provisional liquidators, receivers, mortgagees or administrators

changes about what must be included in statements and certificates for both disposals and mortgages

The Commission have updated CC28 to reflect these changes, which can be found here: https://www.gov.uk/government/publications/sales-leases-transfers-or-mortgages-what-trustees-need-to-know-about-disposing-of-charity-land-cc28

Charity mergers

For certain mergers, new rules are now in force that will allow most gifts to charities that merge to take effect as gifts to the charity they have merged with.

Updated guidance on charity mergers can be found here: https://www.gov.uk/government/publications/making-mergers-work-helping-you-succeed/how-to-merge-charities

Failed appeals

The Act introduces new rules granting the power for trustees to apply cy-près, allowing charities more flexibility in response to a charity appeal that has failed, allowing donations to be applied for another charitable purposes rather than having to be returned to donors under certain conditions: 

• The donation is a single gift of £120 or less; and the Trustees reasonably believe that during the financial year the total amount received from the donor for the specific charitable purpose is £120 or less (unless the donor states in writing that the gift must be returned if the charitable purposes fail); or
• The donor, after all agreed actions have been taken, cannot be identified or found; or
• The donor cannot be identified (for example cash collections)

The Charity Commission published guidance in relation to failed appeals on 31 October 2022, which can be found here: https://www.gov.uk/government/publications/charity-fundraising-appeals-for-specific-purposes

The Charity Commission has also updated its guidance CC20 ‘Charity fundraising: a guide to trustee duties’ to reflect these changes.

The Fundraising Regulator has also published guidance, further details of which are provided below.

Payments to Trustees for providing goods to the charity

The Charities Act 2011 provided a statutory power for charities, in certain circumstances, to pay trustees for providing a service to a charity beyond usual trustee duties.

The Act extends this power to allow, in certain circumstances for payments to trustees for providing goods to the charity.

Updated guidance can be found here: https://www.gov.uk/guidance/payments-to-charity-trustees-what-the-rules-are

The Charity Commission has also updated its guidance CC29 ‘Conflicts of interest: a guide for charity trustees’ and CC11 ‘Trustee expenses and payments’ to reflect these changes.

Power to amend Royal Charters

Royal Charter charities are able to use a new statutory power to change sections in their Royal Charter which they cannot currently change, if that change is approved by the Privy Council.

Updated guidance can be found here: https://www.gov.uk/guidance/royal-charter-charities

Selling, leasing or otherwise disposing of charity land

Charities must comply with certain legal requirements before they dispose of charity land. Disposal can include selling, transferring or leasing charity land. The Act simplifies some of these legal requirements. The changes include:

• widening the category of designated advisers who can provide charities with advice on certain disposals
• confirming that a trustee, officer or employee can provide advice on a disposal if they meet the relevant requirements
• giving trustees discretion to decide how to advertise a proposed disposal of charity land
• removing the requirement for charities to get Commission authority to grant a residential lease to a charity employee for a short periodic or fixed term tenancy

Updated guidance can be found here: https://www.gov.uk/government/publications/sales-leases-transfers-or-mortgages-what-trustees-need-to-know-about-disposing-of-charity-land-cc28.

Using permanent endowment

The Act introduces new statutory powers to enable:

• charities to spend, in certain circumstances, from a ‘smaller value’ permanent endowment fund of £25,000 or less without Commission authority
• certain charities to borrow up to 25% of the value of their permanent endowment fund without Commission authority

Charities that cannot use the statutory powers will require Charity Commission authority.

In addition, a new statutory power enables charities that have opted into a total return approach to investment to use permanent endowment to make social investments with a negative or uncertain financial return, provided any losses are offset by other gains.

Updated guidance can be found here: https://www.gov.uk/guidance/permanent-endowment-rules-for-charitieshttps://www.gov.uk/government/publications/total-return-investment-for-permanently-endowed-charities

The Scottish Parliament have laid legislation impacting the Charities (Regulation and Administration) (Scotland) Act 2023, taking effect from 1 April 2024.

The Act is intended to strengthen and update current law by increasing the powers available to the Office of the Scottish Charity Regulator (‘OSCR’) and provide consistency with certain elements of charity regulation in England, Wales and Ireland.

The key changes include: 

• OSCR will refuse an application to be registered as a charity from organisations that have no or a negligible connection to Scotland 
• a widening of OSCR’s inquiry powers, including: 
  • power to direct charities to particular actions 
  • power to appoint interim trustees 
  • power to inquire former charities and former trustees 
  • changes to OSCR’s powers to require charities and others to provide information 
• OSCR will have the power to remove charities from the Register that have failed to submit timely accounts and failed to engage with OSCR about putting this breach of trustee duties right

Additional changes expected on 1 October 2024, including the generation of a record of all individuals barred from acting as trustees.

Further details on the changes can be found on the OSCR website here: https://www.oscr.org.uk/news/what-do-the-changes-to-scottish-charity-law-mean-for-you/

The Register of persons with a controlled interest in land (RCI) is a new public register managed by the Registers of Scotland (ROS) and aims to improve transparency of land ownership in Scotland.

If a charity is an unincorporated association or trust and land or property is held on its behalf by the committee or trustees, the charity may be required to register its land or property on the RCI.

For guidance on whether registration on land held for Trusts or Unincorporated Associations is required follow OSCR guidance: https://kb.ros.gov.uk/rci/categories-of-ownership-or-tenancy

CC14 has been updated, it is now called Investing Charity Money, and takes account of the High Court Judgement on the Butler Sloss case.

CC14 states that all charities should have a written investment policy if their governing document requires they have one or if the charity is a trust, and where it gives an investment manager powers to make decisions on its behalf. It includes:

• Examples of various issues which may be relevant for trustees to consider when making investment decisions, such as the potential for an investment to conflict with the purposes of the charity, or the reputational impact of an investment decision.
• Steps trustees ‘must’ take to be compliant with the law and those trustees ‘should’ do as best practice but not legally required.
• Explanations on acting in the best interests of a charity, ensuring that above all else any decision furthers its purposes.
• Guidance on social investment and no longer uses terminology that could get in the way of trustees’ understanding, such as ‘ethical investment’, ‘mixed motive investment’ and ‘programme related investment’. It should be noted that whilst the guidance has simplified the terminology, this distinction is still important from a financial reporting perspective, as the Charity SORP requires different accounting treatment for mixed motive and programme related investments.

It also provides example approaches to financial returns including avoiding those investments which can reduce support for a charity and harm its reputation, and is more specific on ESG factors:

• aiming only for the best financial return you can achieve, within the level of risk that you have decided is acceptable for your charity
• alongside the financial return you are aiming for, avoiding investments that conflict with your charity’s purposes.
• alongside the financial return you are aiming for, avoiding investments that could reduce support for your charity or harm its reputation, particularly amongst its supporters or beneficiaries.
• alongside the financial return you are aiming for, avoiding or making investments in companies because of their practice on environmental, social and governance (ESG) factors
• alongside the financial return you are aiming for, using your shareholder vote, or other opportunities that come with your investment, to influence practice at companies that your charity is invested in.

The revised guidance can be found here: Investing charity money: guidance for trustees (CC14) - GOV.UK (www.gov.uk)

Crowe are pleased to have been involved in a research project looking at the essential attributes that charity Chairs of the future will need to embrace. This research explored the topic through roundtable discussions and in-depth interviews, with the final thought leadership report published in June 2024.

The research aimed to:

• Contribute ideas that will help to shape the future development and recruitment of charity Chairs.
• Enhance the future sustainability of the charity sector by highlighting longer term considerations for Board discussion.
• Provide fresh thinking to positively influence regulation and best practice guidance for the sector.
• Emphasise the value of good charity governance and the need for it to continually evolve to remain relevant.

The research highlighted a number of key findings, including challenges from a lack of diversity within charities (including trustees, staff and volunteers), and the need to recruit individuals who represent the charity’s beneficiaries.

Recommendations raised within the report include developing a leadership development programme for current Chairs, succession planning and a need to promote the role as one of ambition and aspiration.

The full report can be found here: The future charity chair | Bayes Business School (city.ac.uk)

The Charity Commission has published the latest annual report into public trust in charities, the report shows that although public trust has risen the increase is small though the situation appears more stable than previous years.

There is still a divide in the perception of charities when it comes to size, with smaller charities faring better than larger organisations. The research includes interviews with members of the public from various demographics and reveals that half of the population are aware of the Charity Commission.

The full report can be found here: Public trust in charities 2023 - GOV.UK (www.gov.uk)

The Department for Work and Pensions published its revised DB Funding and Investment Strategy Regulations in January 2024 and will apply to actuarial valuations of defined benefit pension schemes from 22 September 2024. The Regulations are closely tied to the Pensions Regulator's new DB Funding Code of Practice.

The Pensions Regulator (TPR) is analysing responses to its second consultation on the new Defined Benefit (DB) funding code of practice. The new Code includes a requirement for a ‘funding and investment strategy’ (FIS) where trustees will be required to articulate their approach and decisions on funding and investments. Trustees must prepare a written statement of strategy which records the FIS and supplementary details, is signed on the trustees’ behalf by their chairperson, and submitted to TPR with each triennial valuation.

Under the proposals, TPR sets out a “twin-track” model where trustees will be able to choose either a prescriptive “Fast Track” option or a more flexible “Bespoke” approach to completing and submitting an actuarial valuation for TPRs assessment. The proposed requirements for the fast track route include a number of areas such as suitable long-term objectives for schemes to achieve low dependency by the time a scheme is significantly mature (measured as 12-year duration) and discount rates of gilts plus 0.5% p.a. The fast track does not explicitly take account of covenant strength. TPR plans to consult separately on proposed changes to covenant guidance.

The revised Code is expected to be published in the Summer.

https://www.thepensionsregulator.gov.uk/en/document-library/consultations/draft-defined-benefit-funding-code-of-practice-and-regulatory-approach-consultation

On 18 September 2023 the Charity Commission published guidance for charities on their use of social media, following a consultation carried out earlier in 2023.

A knowledge gap was identified through the Charity Commission’s casework where trustees were not always aware of the risks that may arise from the use of social media, meaning that some do not have sufficient oversight of their charity’s activity, leaving them and their charity vulnerable.

The aim of the guidance is to help trustees improve their understanding in this area, and to encourage charities to adopt a policy on social media as a way to set their charity’s approach. The guidance does not introduce new trustee duties but seeks to make clear how existing duties are relevant to a charity’s use of social media.

The guidance sets out that social media use can raise issues and risks for charities, relating to problematic content:

• posted or shared by the charity on its own social media channels
• posted by the public or third parties on a charity’s social media channel
• posted on a personal social media account that can be reasonably associated with the charity

The new guidance is clear that charities using social media should have a social media policy in place, explaining how it will help deliver the charity’s purpose, include guidelines for expected conduct and should ensure the policy is followed.

The guidance contains a checklist to help trustees and senior employees have informed conversations on what the right policy for them looks like.

https://www.gov.uk/government/publications/charities-and-social-media/charities-and-social-media

On 2 April 2024 the Charity Commission published a blog explaining that charities may need to consider having an internal artificial intelligence (AI) policy, and that Trustees should be aware of the risks and opportunities arising from AI whether they are currently using AI or planning to do so.

The Commission is not anticipating issuing specific guidance but encourages trustees to apply existing guidance to new technologies as they emerge.

The key consideration is that AI should be used responsibly in a way that furthers the charity’s purposes. Before utilising AI, consider the advantages and risks – and how these will be managed – in the context of the trustee’s duties and charity’s objectives.

That could involve looking at what gaps can be filled, or insights generated by an AI tool, what skills are needed to use these tools to the charity’s advantage and if people within the charity’s trustees, staff or volunteers have those skills. This could also consider how staff or volunteers may already be using AI.

As the use of AI develops and more applications become available, the Commission recommends charities consider whether having an internal AI policy would be beneficial so it is clear how and when it can be used in governance, by employees in their work, or in delivering services to beneficiaries.

However, Trustees remain responsible for decision making and it is vital processes are not delegated to AI alone as there are risks inherent to the way AI is built, operates, and continues to learn. Trustees and others in charities must ensure that human oversight is in place to prevent material errors, and a human touch is key to the way many charities operate and interact with their beneficiaries.

Trustees should consider external risks and reputational damage arising from the misuse and recircularization of AI, such as fake news or deep fakes.

Whilst this evolving technology may seem daunting to many, there are more opportunities for charities to engage with the technology now it is more widely available.

The full blog can be obtained here: https://charitycommission.blog.gov.uk/2024/04/02/charities-and-artificial-intelligence/

In March 2023 the government opened a consultation exercise to review the legislation governing holiday entitlement and holiday pay, which had over time become complex, and in some cases, difficult for employers to follow.

The consultation exercise ended on 7 July 2023, and the government’s response was published on 8 November 2023. The response indicates that the following actions will be taken: 

• Introduce an accrual method for calculating holiday
• Entitlement will be calculated as 12.07% of hours worked in a pay period for irregular hours and part year workers. All other workers will accrue leave at 1/12th of their entitlement on the first day of each month during their first year of employment. 
• Sanction rolled-up holiday pay (RHP)
• Legislation will be introduced to allow RHP for irregular hours workers and part-year workers only. 
• Introduce a definition of irregular hour workers & part-year workers
• Legislation will be updated to define what is meant by irregular hours workers and part-year workers.

The Government has laid out revisions in respect of the above as part of The Employment Rights (Amendment, Revocation and Transitional Provision) Regulations 2023, effective from 1 January 2024.

Irregular hours and part-year workers

To the relief of many employers the revised Working Time Regulations (‘WTR’) will include provisions aimed squarely at addressing the flaws laid bare in the Harper Trust v Brazel case in which it was held part year workers on permanent contracts were entitled to a full year’s holiday entitlement, regardless of the number of weeks worked.

For holiday years from 1 April 2024 individuals who work irregular hours or part-year (such as term time or casual workers) will accrue holiday on the last day of each pay period at a rate of 12.07% of the number of hours worked during the pay period. This will ensure that their entitlement will remain in proportion to the hours that have been worked and differs from other employees who receive their full entitlement at the start of a holiday year. It is open to employers to allow the employee to take more holiday than they have accrued – in such cases its essential that employment contracts reserve the right for the employer to deduct over usage from final salaries.

For the same group of workers the revised WTR sees a welcome return of rolled-up holiday pay. Rolled-up holiday pay is where the accrual in a pay period is paid to the employee with their basic salary rather than when they actually take their holiday. The practice was outlawed because in the opinion of the European Court of Justice it discouraged workers from taking time off. However, for many casual work arrangements rolled up holiday pay is the only logical approach and many employers have continued to apply it.

From 1 April 2024 rolled up holiday pay will be permitted on condition that: 

• the individual is a part-year or irregular hours worker 
• the holiday pay is calculated using 12.07% of all pay for work done 
• the holiday pay (12.07%) is paid at the same time as the pay for work done 
• the holiday pay is separately itemised on the payslip.

It’s worth noting that the 12.07% formula does not account for the different holiday pots that we covered at the start of this article and therefore in some cases it could result in higher rates of holiday pay.

It is also the case that an employer has a legal duty to ensure that an individual takes their 5.6 weeks of holiday per year and this duty applies even when they are paid using rolled-up holiday pay and not when they actually take their holiday – which could make it difficult to monitor.

Record Keeping

Following a 2019 decision by the European Court of Justice employers have been required to record the daily hours worked by their employees.

Under the revised WTR employers will be required to keep records that evidence compliance with the 48-hour week, opt-out agreements, length of night work and health assessments for night workers, and therefore an employer is not required to record daily hours if they can evidence compliance by other means.

Key Takeways

The revisions to the WTR should be welcome news for most employers, although in some areas they lack detail – such as a lack of definition around normal earnings for the calculation of holiday pay.

Employers of irregular and part year workers will be eager to adapt their processes to accommodate ‘accrue as you go’ and rolled up holiday pay.

For some employers it will be the much-needed spur to start and correctly calculate holiday pay and for others a need to evaluate the true status of their self-employed contractors.

However, for almost all employers there will be a need to look at policies and procedures to ensure that they align with the new rules on holiday carry over and ensure that ‘use it or lose it’ prompts are timetabled before the end of the holiday year.

The full article can be obtained here: https://www.crowe.com/uk/insights/holiday-entitlements 

The Worker Protection (Amendment of Equality Act 2010) Act 2023 received Royal Assent on 26 October 2023, and came into force on 27 October 2023, and introduces a new duty on employers to take reasonable steps to prevent sexual harassment of their employees in the course of their employment. ‘In the course of their employment’ covers activities outside of the workplace, for example work social events.

This new duty to prevent sexual harassment will be enforceable by an employment tribunal, where it has first upheld a claim for sexual harassment. A tribunal will have the discretion to award a ‘compensation uplift’ by increasing any compensation it awards for sexual harassment by up to 25% where there has been a breach of the employer’s duty in sexual harassment cases.

The Equality and Human Rights Commission’s guidance on sexual harassment and harassment at work contains steps employers should consider taking in order to prevent and deal with harassment at work. These steps include having an effective and well communicated anti-harassment policy in place and maintaining a reporting register of complaints for all forms of harassment.

A copy of the guidance can be found here: https://www.equalityhumanrights.com/sites/default/files/sexual_harassment_and_harassment_at_work.pdf

The Charity Commission guidance on ‘Charities and Terrorism’, first published in December 2012, has been updated in November 2022.

The guidance forms Chapter 1 of the Charity Commissions compliance toolkit, which provides advice and information on key aspects of the UK’s counter-terrorism legislation, highlights how particular provisions are likely to affect charities and their work, explains the various ‘terrorism lists’ that exist and advises trustees what to do if they discover their charity may be working with or connected to people or organisations on terrorism lists.

The updated toolkit signposts to new guidance from the Crown Prosecution Service on proscription offences and terrorist financing offences and cases involving humanitarian, development and peacebuilding work overseas.

The updated toolkit can be found here: https://www.gov.uk/government/publications/charities-and-terrorism

In November 2023 the Fundraising Regulator has published its latest Annual Complaints Report which covers the period 1 April 2022 to 31 March 2023. The report analyses complaints received by the Fundraising Regulator and complaints reported to 58 of the UK’s largest fundraising charities.

The number of complaints to the sample charities rose proportionally for most methods in line with increased fundraising activity – with 13 of the 23 fundraising methods having increased complaint numbers in 2021/22 compared to 2020/21. The overall number of complaints had increased since 2021/22 which is reflective of increases in fundraising activity since the pandemic.

Over the same period, complaints about fundraising methods including door to door fundraising (60), charity bags (57) and addressed mail (51) accounted for the majority of the 270 complaints within the Fundraising Regulator's scope. A common theme was that of misleading information, highlighting the importance of clarity in fundraising materials.

You can see the full report here.

With the UK due to hold a general election by January 2025 at the latest, there presents an opportunity for charities to raise awareness and shape policy decisions.

The majority of charity campaigning does not fall under election law rules, however, care must be taken when campaigning that the charity does not stray into election campaigning and remains independent from party politics.

Various guidance is available from the Charity Commission to charities to assist in assessing the risks to the charity: 

• Campaigning and political activity guidance for charities (CC9) 
• Charities, Elections and Referendums guidance 
• Charities and political donations guidance

The guidance emphasises the need for any campaigning to be carefully considered by the Trustees, particularly in respect to the risks, costs and benefits of any such activity.

Charities will be required to register with the Electoral Commission as non-party campaigners if they spend more than £10,000 on regulated campaign activities and may be required to provide financial returns after the election.

The Electoral Commission has produced guidance to support organisations which can be found here.

The Charity Commission have urged charities to ensure that they have read and understood the Code of Practice for non-party campaigners which has also been produced and can be found here.

Following the recent election date announcement, the Charity Commission for England and Wales has issued further guidance for charities. Lessons Learned is based on cases opened during the 2017 General Election.

The guidance highlights key issues and questions for charities to consider regarding campaigning and political activity during the election period.

The main areas are as follows: 

• Supporting or criticising particular policies 
• Supporting or criticising a political party or a political candidate 
• Political activity and campaigning by a charity trustee or employees 
• Use of charity premises 
• Visits to charities by prospective candidates 
• Mis/disinformation 
• Links with associated non-charitable organisations carrying our political activities and campaigning 
• Political candidates using information on charities in their campaigns

In addition to this recent guidance charities should also consider the previous Charity Commission guidance Charities, Elections and Referendums - GOV.UK (www.gov.uk).

Trustees must ensure that any activities do not cause harm to their charities, and that appropriate decision making processes are followed. For a quick overview Trustees can read the Political activity and campaigning by charities - GOV.UK (www.gov.uk) guidance.

Any employer with 250 or more employees on a specific date each year (the ‘snapshot date’) must report their gender pay gap data. For most entities the snapshot date is the 5 April of each year.

You must report and publish your gender pay gap information within a year of your snapshot date. You must do this for every year that you have 250 or more employees on your snapshot date.

Guidance on what and how to report can be found here: https://www.gov.uk/government/publications/gender-pay-gap-reporting-guidance-for-employers

A new failure to prevent fraud offence has been introduced by the Economic Crime and Transparency Act 2023. It will apply to all large corporate entities, including charitable companies and CIOs.

An offence is committed where an employee or agent commits fraud. The penalty is an unlimited fine for the organisation, and no personal liability will be introduced for trustees or management failure to prevent fraud.

The legislation is far reaching, and where an organisation operates or is based overseas, if an employee commits fraud under UK law or affecting UK victims, the company can be prosecuted.

There is a defence to the failure to prevent economic crimes if the organisation can prove that it had reasonable prevention measures in place, or that it was not reasonable in all the circumstances to expect it to have had any procedures in place.

The offence will come into force when the government publishes statutory guidance on the reasonable procedures organisations should consider putting in place.

Full details of the legislation can be found here.

The National Cyber Security Centre have launched a new free digital service, MyNCSC, which aims to enhance charities’ cyber security approach.

MyNCSC combines Active Cyber Deference (ACD) digital services, offering a unified experience tailored to each user’s needs, including content, vulnerabilities, and alerts.

The MyNCSC platform is a free service for UK registered charities, enabling organisations to access various ACD services, such as: 

• early warning 
• mail check, assessing email security compliance 
• web check, finding and fixing common security vulnerabilities in the charity’s website

There are plans to gradually increase the number of ACD services integrated with MyNCSC.

MyNCSC offers a unified user interface for accessing multiple services promoting collaboration within organisations when managing digital assets and viewing findings.

For further information and guidance on how MyNCSC works, visit: https://www.ncsc.gov.uk/information/myncsc

The Financial Reporting Council (FRC) issued amendments to financial reporting standards on 27 March 2024, the changes are mostly effective for accounting periods beginning or after 1 January 2026. This follows the consultation impact assessment during 2023.

The amendments include: 

• a new model of revenue recognition in FRS 102 and FRS 105 based on the IFRS 15 five-step model for revenue recognition with appropriate simplifications 
• a new model of lease accounting in FRS 102 based on IFRS 16 on-balance sheet model (again with appropriate simplifications) 
• various other incremental improvements and clarifications

The FRC intends to publish new editions of the standards and updated staff factsheets with guidance during 2024.

The SORP committee are reflecting on these amendments and exploring how they will impact the remaining stages of the SORP development process with updates to follow.

The full amendment documents can be obtained here: https://www.frc.org.uk/news-and-events/news/2024/03/frc-revises-uk-and-ireland-accounting-standards/

ICAEW, with input from Crowe, has published guidance exploring ten myths surrounding charities and their operations, with a view to encourage transparent communication in areas where these misconceptions are prevalent. The ten myths considered are: 

• Charities spend too much on fundraising. 
• They should not make a surplus or build up cash reserves. 
• Too much is spent on highly paid executives. 
• Charities should be run and staffed [for free] by volunteers. 
• Too much is spent on overheads. 
• Charities don’t pay taxes, so need less money. 
• Professional qualifications are needed to become a charity trustee. 
• Charities are less vulnerable to fraud than other organisations. 
• Charities should not engage in campaigning and political activity.

The guidance includes access to a webinar discussing some of the key myths with voices from the sector.

The Guidance can be found here: Dispelling common myths about charities | ICAEW

The Charity Digital Skills annual report has been running since 2017 and tracks the sector during a time of significant change due to the impact of the pandemic. As we continue to navigate the cost of living crisis and the impact on the sector, this report aims to shed some light on how the digital capabilities of charities have evolved and highlighting key trends.

The report highlights that: 

• Three quarters (78%) of charities say that digital is more of a priority for their organisations 
• 1 in 5 charities say their IT provision is poor 
• 8 out of 10 (79%) of charities see improving their website, digital presence or social media as the greatest priority for the next year 
• Improving data security, privacy and GDPR compliance has become more of a priority since 2022. 
• Almost half (46%) of charities say they do not have anyone with digital expertise on their board

The gaps seen in previous years persist, these include funding and leadership. With the rapid growth in AI development charities must ensure that digital skills remain a priority to avoid being left behind.

Digital Skills Report for the Charity Sector - Introduction (charitydigitalskills.co.uk)

The National Cyber Security Centre has published a report outlining the cyber threats currently facing charities of all sizes.

The 2023 DCMS Cyber Security Breaches Survey, which measures the policies and processes organisations have for cyber security, as well as the impact of breaches and attacks, highlighted 24% of UK charities had identified a cyber-attack in the last 12 months, a decrease from 30% in 2022. The drop is driven by smaller organisations – the results for medium and large businesses, and high-income charities, remain at similar levels to last year.

The report notes that the charity sector is particularly vulnerable as they can hold significant amounts of sensitive or valuable data, making them attractive targets, alongside a perception that charities have fewer resources to commit to cyber security.

The report provides details of the commonly perpetrated cyber-attacks, as well as a number of recommendations and links to guidance to assist charities strengthen their defences.

A copy of the report can be obtained here: https://www.gov.uk/government/statistics/cyber-security-breaches-survey-2023/cyber-security-breaches-survey-2023#summary

In March 2024, the Charity Commission published new guidance to help charities when deciding whether to accept, refuse or return a donation.

The guidance explains when donations must be refused or returned and when these might likely need to be refused or returned. The guidance makes clear that trustees should start from a position of accepting donations, but from time to time a charity may face a difficult decision as whether to refuse or return a donation. The guidance sets out an approach for trustees to take on these occasions, advising they: 

• consider the risks involved in refusing or returning the donation, and how likely and serious these are. These include negative financial impact, ability to deliver services and ability to attract donations in future 
• consider the risks involved in accepting or keeping the donation, and how likely and serious these are. These include the likelihood of reduced support or reputational harm, particularly among supporters or beneficiaries 
• determine how any decision aligns with their charity’s purposes 
• determine what steps they can take to mitigate the risks. These include negotiating the terms of a conditional donation with the donor or developing a public explanation for a decision

It explains that if a charity is considering refusing or returning a donation, the charity must have the legal power to refuse or return a donation. In some situations, there are additional legal rules to consider e.g. disposal or land or properties of a special trust.

The charity should also consider whether it needs to make a SIR when it refuses or returns a donation.

Ultimately, as the guidance states: “Deciding whether to accept, refuse or return a donation is likely to involve a careful balancing exercise. There may be no right or wrong answer, but your decision must be rational and reasonable, and supported by clear evidence.”

The full guidance can be obtained here: https://www.gov.uk/guidance/accepting-refusing-and-returning-donations-to-your-charity

UK VAT law allows one-off fundraising events to benefit from applying the VAT exemption to the income generated. It could also zero-rate programmes, children’s clothing, and the sale of donated goods.

The Tribunal decision involving the Yorkshire Agricultural Society (YAS) focused on the conditions imposed when applying the fundraising exemption. VAT law states that a charged event cannot qualify for VAT exemption unless its primary purpose is fundraising. HMRC had taken a rigid approach to interpreting this rule, insisting that there can be no other motive behind the event to qualify for the exemption.

This approach has restricted the application of the fundraising exemption from organisations that they consider ‘run such events anyway’ (and so do not meet this fundraising primary purpose test). The YAS decision was heavily influenced and referred frequently to the Loughborough decision, which HMRC won. However, in YAS the Tribunal did not read Loughborough as determining that fundraising must be the sole or overriding purpose of an event. This appears to have undermined HMRC’s arguments significantly.

YAS run an annual show which has a dual educational and fundraising purpose. HMRC argued that the event income could not be VAT exempt as the primary intention was not fundraising. The Tribunal determined that there can be more than one primary purpose in this instance, without undermining the conditions of the exemption.

The Tribunal also agreed with the Upper Tier Tribunal case involving Loughborough Students’ Union (and others) in another important point around the fundraising event rules. It agreed that the requirement to clearly hold out (advertise) an event as a fundraiser as an exemption condition, was ultra vires of EU VAT Law.

HMRC sought to argue that its assessment was all made within the relevant time limits but lost on these points also. HMRC are out of time if both of the following time limits are exceeded: 

• the VAT period is more than two years old 
• HMRC had the full facts for more than one year.

HMRC argued that they hadn’t been given the full facts until the most recent adviser’s letter, but from the evidence, it was clear this merely re-confirmed the full facts already provided.

Whilst this case does not set a legal precedent as a First-Tier decision, it does rely very heavily on the Upper Tribunal decision in Loughborough, which set a legal precedent. It appears to have pushed back the boundaries of HMRCs restrictive approach to charity events qualifying for the fundraising VAT exemption. HMRC must abide by time limits when assessing taxpayers.

New permanent rates announced in the Spring Budget 2024 will apply from 1 April 2025 for Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibition Tax Relief.

The new rates will be 40% for non-touring productions and 45% for touring productions and all orchestra productions. Previously, the rates were due to taper back to their original levels of 25% and 20% by 2026.

Additionally, Museums and Galleries Tax Relief – which was previously due to expire in 2026 – will have its sunset clause removed so that it is now a permanent relief.

All claims for Theatre Tax Relief, Orchestra Tax Relief and Museums and Galleries Exhibition Tax Relief made on or after 1 April 2024 must be accompanied by an online information form. The form must be submitted before or on the same day as the submission of the company tax return in which the claim is made. The form is available here: https://www.gov.uk/guidance/support-your-claim-for-creative-industry-tax-reliefs

A number of other administrative changes have been made to the creative industry reliefs which include a requirement to disclose connected party transactions with a potential restriction on connected party costs where these have not taken place on an arm’s length basis.

Further details of the administrative changes are available in this policy paper: https://www.gov.uk/government/publications/creative-industry-tax-reliefs-administrative-changes/administrative-changes-to-the-creative-industry-tax-reliefs

Charities in the EU and EEA are no longer eligible for UK charitable tax reliefs and exemptions. A transitional period which was available for charities that were previously claiming these reliefs ended on 1 April 2024.

In February 2024, HMRC published new detailed guidance explaining when they will consider donations made by waiver of a right to a refund or loan repayment to be eligible for Gift Aid. The new guidance replaces previous detailed guidance, which had been largely withdrawn in early 2023.

The new guidance explains HMRC’s evidence requirements which depend on the type of arrangement. For a waiver of a refund, a record of correspondence will generally be sufficient.

For a loan waiver, HMRC will expect to see a legally enforceable document in place.

Importantly, the new guidance states that where a loan waiver is made by a company to a charity, HMRC take the view that for corporation tax purposes, this transaction is governed by the loan relationship rules rather than the rules for charitable donations. Under the loan relationship rules, debt releases made between connected companies are not usually deductible for tax purposes. Charity subsidiaries that donate their taxable profits annually to their parent charities should take note of this in particular.

HMRC’s updated guidance is available here: https://www.gov.uk/government/publications/charities-detailed-guidance-notes/chapter-3-gift-aid#chapter-345-claiming-gift-aid-on-waived-refunds-and-loan-repayments

For VAT accounting periods starting on or after 1 January 2023 there are new penalties for VAT returns that are submitted late and VAT which is paid late, in addition the way interest is charged has also changed. The changes are aimed at simplifying and separating penalties and interest.

The system has changed to a penalty points system, where for each return submitted late, a penalty point is issued. The penalty point threshold is determined by the accounting period, with a higher threshold for more frequent submissions. When the threshold is reached, a penalty of £200 will be issued, with a further £200 penalty for each further late submission.

Penalty points will have a lifetime of two years, after which they will expire. The period is calculated from the month after the month in which the failure occurred, e.g. submission due January 2024, so the penalty point will expire in February 2026.

Once a taxpayer reaches the threshold, all points accrued will be reset to zero when the following conditions are met: 

• a period of compliance 
• the taxpayer has submitted all submissions in the previous two years (even if late). 
• The new late payment penalty will apply in instances where the return is submitted on time but the payment is not. This penalty considers the length of the delay in making payment and the penalty increases over time. 
• As part of the new penalty regime, HMRC has also updated its Late Payment Interest (LPI) rules to bring these in line with other tax regimes.

Full details of the updated regime can be found here: https://www.gov.uk/guidance/penalty-points-and-penalties-if-you-submit-your-vat-return-late

In the recent Budget and fiscal events, the net impact on changes to employment taxes have been relatively low-key.

However, we are seeing three key areas which employers are seeking our assistance with: 

• compliance and de-risking 
• cost reduction 
• driving efficiencies.

Compliance and de-risking

Recently, we have seen HMRC increase their programme of performing checks of employer records. This is unsurprising as a Public Accounts Committee report informs that HMRC recovers £18 in income tax/ National Insurance Contributions (NICs) for every £1 spent on compliance activities. This contrasts with the reported £4 return for every £1 spent on the task force recovering Coronavirus Job Retention Scheme (CJRS) claim error or fraud.

The total tax gap (being the difference between the tax HMRC expects to collect and that actually paid) in 2020/21 was £32 billion, and Income Tax/NICs made up £12.7 billion (39%) of the gap. Therefore, it’s not surprising HMRC target employers for potential income tax and NICs irregularities.

To mitigate the risk of undergoing an invasive HMRC check, employers can initiate a self-review and voluntarily disclose any income tax/ NIC irregularities to HMRC. Voluntary disclosure may be beneficial as it can be viewed as good behaviour by HMRC. Additionally, this can also help protect the employer’s reputation as a “good citizen”, and support ESG considerations.

Cost reduction

The cost-of-living crisis remains a concern for all, including the social purpose and non profit sector.

An effective salary sacrifice arrangement can help both employees and employers, and potentially ease some of the economic pressures. This is a way to provide attractive, ethical, and environmentally responsible benefits to employees at a time when the need to attract and retain key talent is a high priority for employers.

Salary sacrifice is, in simple terms, an arrangement whereby an employee gives up some of their gross pay in return for a non-cash employer provided benefit. Typically, we see salary workplace pension contributions paid via salary sacrifice.

An effective salary sacrifice means that although the employee’s gross pay is lower, their take-home pay increases through NIC savings and tax savings on some benefits. Employers will also save on NICs.

Driving efficiencies

During the pandemic, there was talk about what the ‘new’ normal would look like.

Employers should now take stock of their employment tax processes and procedures, to check that their current ways of working are effective and efficient. Some areas of focus should include: 

• identify areas of robustness and conversely, where improvements could be made 
• maximise available tax exemptions 
• restructure and streamline current processes 
• tighten controls to reduce errors or fraud 
• underpin with sound governance.

0%, 5%, or 20%? Navigating the VAT rate for the various activities that your organisation is involved in can be challenging.

Can I get zero-rating on a new charity building?

There is often a common misconception that a new building purchased or built by a charity should automatically be zero-rated.

A recent VAT Tribunal case (Paradise Wildlife Park) has reconfirmed the position that for the building to be zero-rated, the building must be used by the charity in one of the following ways: •

otherwise than in the course and further of business •

as a village hall or similarly in providing social or recreational facilities for the local community.

It is important that charities are aware of whether their activities are deemed to be business under the interpretation of VAT law. Only last year, HMRC issued new guidance on what they consider to be in the course and furtherance of business. The tests are easy to meet where the activities undertaken by the charity in the building, are done for free or totally funded by grants and donations.

However, as seen in the Paradise Wildlife Park decision, it is important to note that not charging VAT does not automatically mean that you are not in business.

There is a small 5% threshold for business use in a charitable building but in our experience, many charities acquire or construct a new building which will be used for business purposes exceeding this level and will therefore not qualify for zero-rating.

If the building does qualify for zero-rating, the charity is required to issue a certificate to the supplier of the property who is either selling the building to the charity or constructing it for the charity.

Can I get the reduced rate of 5% on gas and electricity?

A charity can only get the reduced rate of 5% on gas and electricity when it applies to a building that is used by a charity for a ‘qualifying use’.

This means that the reduced rate of 5% is not automatically applied by virtue of charity status.

Although there are various de minimis limits and tests, for the most part the 5% qualifying use applies to gas and electricity used for: 

• buildings used by a charity for a relevant charitable purpose (a non-business use) 
• relevant Residential Properties 
• domestic Properties.

If you have a building that does qualify for the reduced rate and the supplier has been incorrectly charging you VAT at 20%, you can get the VAT incorrectly charged to you amended to the correct 5% for the preceding four years.

Please note there may be buildings owned by a charity which have 'mixed use' of qualifying and non-qualifying areas. These buildings can have the charges apportioned with the 5% VAT levied on the qualifying areas, based upon any fair and reasonable method of calculation. The remaining part will be charged at the full standard rate of 20%.

If more than 60% qualifies at the reduced rate, the entire building can be invoiced at 5% although the charity has a responsibility to review this situation on a regular basis to ensure the apportionments remain consistent and reflective of how the building is being used.

VAT reliefs on building works and disability

This is not an exhaustive list and takes only part of the VAT law, but all charities are entitled to zero rating on ANY of their buildings in relation to the following building works:

Services to facilitate a disabled persons entry to or movement within any building.

The supply to a charity for the service of providing, extending, or adapting a washroom or lavatory to use by disabled persons in a building, or any part of a building, used principally by a charity for charitable purposes.

If you have been incorrectly charged 20% VAT by your supplier for building works that should have been zero-rated, you can go back four years and have the VAT incorrectly charged to you refunded.

Charities are not always able to recover VAT in full on costs, therefore it is important to take advantage of VAT rates below the standard 20%. In all the above scenarios it should be noted that the charity is required to issue a certificate to the supplier in order to get the zero or reduced rate of VAT.

HMRC guidance states that a certificate incorrectly issued could lead to a penalty of up to 100% of the VAT which has not been charged to them. Charities should check their status before claiming the reduced or zero-rates and issuing a certificate to their supplier. If you have been overcharged there is still an opportunity to reclaim the VAT from the supplier.

The First-tier Tribunal judgement of The Towards Zero Foundation (TZF) case, provided many charities with an opportunity to consider whether they have a claim to make for input tax.

The judgement confirmed that where a charity can prove that a non-business activity has a direct and immediate link to a subsequent taxable business supply, some if not all of the VAT incurred on the non-business activity becomes recoverable. VAT incurred in relation to a non-business activity is normally fully non-deductible, however, VAT incurred in relation to a taxable supply is fully recoverable.

The VAT Tribunal heard that TZF tested car’s safety features as a secret buyer, to highlight any issues that car companies need to change. The foundation’s aim is to have no road deaths caused by a lack of safety features in cars.

TZF levied no charge for the secret buyer trial testing making this a non-business activity. Where cars failed the safety standards manufacturers were notified of the areas of concern, and re-testing was then ordered by manufacturers to show where improvements had been made. The manufacturers commissioned TZF to issue a retesting report, this was a business supply for which TZF charged the manufacturer a fee plus VAT.

HMRC argued that as the first part was non-business TZF could not have the input tax incurred on the initial testing back. The Court accepted that there was a business intention throughout the process, despite non-business activity at the outset.