Memorandum from the Chartered Institute
of Taxation (DCH 254)
INTRODUCTION
1. The Chartered Institute of Taxation welcomes
the opportunity to comment on the Charities Bill that has been
published in draft as Cm 6199 (May 2004). We have, for many years,
in our representations to the Treasury and Inland Revenue, made
the point that organisations have much to offer when legislation
is proposed and the issue of a draft Bill in this manner is most
useful and could be more widely adopted.
2. We are involved with matters within the
ambit of the draft Bill in three separate ways:
— Many of our members act as reporting
accountants or auditors to charities.
— Our members advise charities and
many are trustees of charities.
— The Chartered Institute of Taxation
is, itself, a charity established by Royal Charter.
3. Much of the draft Bill is concerned with
the establishment of the Charity Commissioner for England and
Wales and of the Charity Appeal Tribunal, the extension and formulation
of charitable purposes for which an entity can be registered and
the creation of a new type of legal person for incorporation of
a charity. These are all matters that we welcome. Some individual
members of CIOT may have particular views on specific aspects
of the proposals, but these are not areas on which we feel it
is necessarily appropriate for the Chartered Institute of Taxation
to comment, except for one particular point. The Charitable Incorporated
Organisation (CIO) is likely to be attractive for the incorporation
of a new charity, and some existing charities may wish to transfer
to this new type of entity. However, we would not support any
compulsion to transfer an existing charity to a CIO. We, the Chartered
Institute of Taxation, value the status given by the Royal Charter
by which we are incorporated and which gives our members their
professional designation.
4. In addition to this point, we wish to
comment on five specific matters:
— Confirmation of charitable status.
— The revised regulations for reporting
accountants and auditors.
— Statutory protection for independents
and auditors.
— The new procedures for effectively
winding up a charity.
CONFIRMATION OF
CHARITABLE STATUS
5. Whilst we recognise the desirability
of reducing compliance costs for small charities, we are concerned
that the effect of proposed new section 3A (introduced by clause
8) is that it will not be possible to check whether a small organisation
that holds itself out to be a charity is, in fact, a charity.
The website of the current Charity Commission is most useful for
those who wish to contact charities active in a particular field
or/and geographical area, and is also a simple means by which
a member of the public or a professional adviser can confirm charitable
status. We suggest that further consideration be given to a means
by which brief details of all charities (including, we suggest,
exempt charities) are on a register to which the public has easy
access. The procedure could be an annual return that, for a charity
with income of less than £100,000, is merely re-confirmation
of the field in which the charity operates and the contact details
of its correspondent.
THE REVISED
REGULATIONS FOR
REPORTING ACCOUNTANTS
AND AUDITORS
6. We welcome the provisions of clause 22
in providing an income limit of £500,000, before statute
requires a charity to have an audit. We have never understood
the logic of the current situation, whereby there is a different
limit for an incorporated charity from an unincorporated charity.
7. We understand that the effect of clause
22 is that an incorporated charity with assets exceeding £2.8
million requires an audit, whereas an unincorporated charity with
assets above this limit does not require an audit unless its income
is over £100,000. We do not understand the reason for continuing
a distinction between incorporated and unincorporated charities
in this manner.
8. We welcome the provision in clause 22(6)
whereby the limits can be changed by statutory instrument. We
hope that this will be operated in conjunction with the limits
for audits of companies generally, so that the changes for charities
take place at the same time as those for companies. This will
make it easier for our members who advise both companies and charities.
STATUTORY PROTECTION
FOR AUDITORS
AND INDEPENDENT
EXAMINERS
9. We wholeheartedly welcome the concept
introduced by clause 29, whereby the risk of an action for defamation
or breach of confidence will no longer influence an independent
examiner or auditor in making adverse criticism of the charity
whose accounts he is inspecting.
10. Under clause 23(6), an independent examiner
or auditor may be required to make a report on a non-charitable
company that is the wholly owned subsidiary of a charity. We suggest
that it should be made specific in statute that the statutory
protection given by clause 29 extends also to a report on such
a non-charitable company.
11. We note that clause 29 operates by empowering
the Charity Commission for England and Wales (CCEW) to make an
order. We suggest that provision could usefully be made for a
general order to be issued, under which an independent examiner
or auditor is given this statutory protection for all reports
to CCEW arising from their inspection of a charity's accounts.
PROCEDURE TO
WIND UP
A CHARITY
12. Many of our members are involved with,
or have knowledge of, the very large number of very small charities
that we have in this country, many of them with objects that bear
little relation to the needs of those living in the 21st century.
We welcome the provisions of clauses 30 to 34 that enable such
a charity to be wound up, either by distribution of its capital
or by passing the capital to another charity. Whilst we recognise
that the Charity Commission currently is very helpful in this
regard, the ability of the trustees to act without the need for
prior reference to CCEW is useful, particularly as the cost of
making a prior reference to the Charity Commission is out of proportion
to the small sum that is often held as capital of such a charity.
13. The procedure specified in the draft
Bill appears to us to be appropriate. We hope that CCEW, when
it is established, will issue a simple leaflet explaining to trustees
of small charities how to effect such a winding up of their charity,
if it is felt to be appropriate.
TAXATION
14. We note that the draft Bill does not
deal with taxation matters. There are a number of areas of charity
tax law that, we feel, require substantial recasting. In particular,
the experience of operating TA1988, Sch 20, para 10 (authorisation
of loans by a charity to, inter alia, its wholly owned
trading subsidiary), leads us to question whether this fulfils
the purpose for which it was intended. We would be happy to discuss
this matter further, as appropriate.
15. There are a number of other aspects
of charity taxation, both in relation to the direct taxes and
to VAT, on which we have made comments at various times and which,
we feel, could usefully be addressed.
July 2004
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