Memorandum from Kingston Smith (DCH 117)
INTRODUCTION
Kingston Smith is a medium sized firm of Chartered
Accountants and one of the leading firms advising the charity
sector with over 450 not-for-profit organisations as clients.
We welcome the draft Bill and have not commented
on those clauses where we are broadly in agreement. We have restricted
our comments to those clauses where we believe alteration or greater
clarification should be made.
For reference we have used the clause numbers
in the draft Bill.
Clause 3—Public Benefit Test
Whereas we accept in principle that the Public
Benefit Test should be made, and that the Charity Commission is
probably the best organisation to set such criteria, we are concerned
that even with the advent of the new Appeals Tribunal, case law
will be virtually non existent and that in effect the Charity
Commission's criteria will become prima facie law without legislation.
Clause 5—The Commission's Objective and
General Functions and Duties
We question how the "social and economic
impacts" envisaged in Objective 3, particularly the economic
impact of a charity, are to be measured. How will the assessment
fit in with the public benefit test described in Clause 3 above?
Clause 7—Registration of Charities
We welcome the provision for the generality
of charities to register at any gross income level, with compulsory
registration set at £5,000. However, we consider that, in
principle, exempt and excepted charities should also be registered
with the same registration threshold as for other charities. It
is illogical and confusing for charities to have different registration
thresholds. Whilst we understand the resourcing issues in connection
with the registration of exempt and excepted charities we do believe
that a timetable should be set with the ultimate objective of
making the threshold for compulsory registration the same for
all charities.
Clause 22—Annual Audit or Examination of
Accounts of Unincorporated Charities
We support the raising of the threshold at which
an audit is required to gross incoming resources in excess of
£500,000. We also support the requirement not to consider
in future the income of the charity in the preceding two years
before the year in question. However, we are unclear as to the
thinking behind removing any references to the expenditure of
a charity. For example, a charity could raise substantial sums
in year one and require an audit whereas during the following
years when the monies are spent no audit would be required. We
believe that this is an anomaly bearing in mind that charitable
expenditure is equally as important as charitable income.
Clause 44—Merger of Charities
Whereas we support the draft legislation as
it stands we believe that this deals more with the easier administration
after a merger has occurred rather than promoting and facilitating
mergers in the first place.
Clause 35—Fundraising
Whereas we support the inclusion of reserve
powers for the Secretary of State in the draft Bill we believe
that self regulation is the way forward for the sector. However,
we would like to see the publication of the criteria against which
the Home Secretary intends to measure the success of a self regulatory
scheme as we would not wish to see this set out in the statutory
guidance.
Clause 37—Public Charitable Collections
We believe that considerable further debate
in the sector is required before legislation covering public charitable
collections can be finalised. However, there appears to be two
specific omissions from the draft Bill:
— Clause 40 deals with certificates
of fitness but there is no definition of "fitness" in
the legislation.
— If local authorities can refuse licences
to collect on grounds of capacity, to ensure a fair playing field
from one local authority to another a clear definition of capacity
needs to be stated.
OTHER MATTERS
The Standard Information Return
Although the Standard Information Return (SIR)
does not require primary legislation to be introduced and therefore
the draft Bill is silent on the point, we have seen the draft
being developed by the Charity Commission and it gives us concern.
It appears that the SIR will be unaudited and could detract from
the Annual Report and Accounts prepared by charities in accordance
with the SORP. Most, if not all, of the information will be contained
in the Trustees' Annual Report and Financial Statements which
documents are covered directly or indirectly by the charity's
audit, whereas the SIR will receive no independent scrutiny. We
believe that the SIR will become simply a process document and
will not achieve the desired transparency or enhancement of public
confidence, which was the principal aim of the document in the
first place.
Group Accounts
There is no requirement in the draft Bill for
group accounts. The Charities SORP allows but does not require
group accounts. We consider that this omission could be exploited,
for example in order to keep an entity's entitlement to audit
exemption or to conceal the nature and extent of the entity's
operation. We therefore recommend that charities be required to
prepare group accounts in the same way as companies under the
1985 Companies Act.
Taxation
This to a degree follows on from the public
benefit test. If a charity were to lose it charitable status,
we are concerned as to the stance that the Inland Revenue would
take in regard to retrospective payment of tax. Strictly speaking,
we understand that, after removal of charitable status, the Inland
Revenue could seek payment of tax for at least the last six years.
This would seem to be very detrimental to the organisations in
question and could well cause them to go into liquidation. We
do not believe that this would be the right course of action and
we would seek some indication from the Revenue as to how they
would treat such situations.
June 2004
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