DCH 176 ACCA Submission
DRAFT CHARITIES BILL
Submission to the Joint Committee on the Draft Charities
Bill
Comments from ACCA
June 2004
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Memorandum of Comments
1. The Association of Chartered Certified Accountants
(ACCA) has many members in England and Wales who are involved
with charities as trustees, auditors, independent examiners, accountants
and advisers. These comments were developed by ACCA's Charities
Panel which is drawn from members who are experienced with working
with charities in these capacities.
2. We agree with most of the proposals in the
draft Bill and consider that it will do much to improve the operations
of charities. Our comments below deal only with those significant
aspects where we disagree with the proposals or consider they
might be improved. The comments are structured according to the
themes set out in the scope of the Committee's inquiry. We have
not answered all of the questions which are set out there, but
concentrated on those where financial considerations are involved.
Public accountability
3. Reporting on a public basis is an important
element of creating public confidence in charities and thereby
encouraging donations of money, time and other resources from
the public. The draft Bill proposes that the reports of charities
are subject to differing levels of external assurance. We set
out below the proposed position for charitable companies (charities
established under the Companies Act) and other charities (including
the new Charitable Incorporated Organisation or CIO).
| Unincorporated charity
| | Charitable company
| |
| Threshold | Level of assurance
| Threshold | Level of assurance
|
| More than £500,000 of income or £2.8m of assets
| Audit | More than £500,000 of income or £2.8m of assets
| Audit |
| £250,000 to £500,000 of income |
Independent examination by qualified accountant
| £90,000 to £500,000 of income |
Accountant's report by qualified accountant |
| £10,000 to £250,000 | Independent examination (no qualification required)
| | |
| Less than £10,000 of income | No independent assurance of any sort
| Less than £90,000 of income | No independent assurance of any sort
|
4. We have a number of comments arising from these.
- We believe the proposals in this regard will be confusing
for the public and unnecessarily complex for charities.
- These thresholds are different again from those required for
registration which increases this problem.
- The regime for charitable companies, as compared to other
charities, is stricter in the £90,000 to £250,000 range,
while it is laxer in the £10,000 to £90,000 range. We
can find no reason for these differences.
- A doubling in the threshold for the audit requirement from
the current £250,000 to £500,000 seems unjustified by
any research evidence.
- Current requirements define thresholds in terms of either
income or expenditure and we consider this is more appropriate
for charities as income levels could vary considerably for smaller
charities if there are exceptional legacies or donations in a
particular year.
- We hope that gross income will be defined clearly and consistently
for its various purposes under the legislation.
PUBLIC CONFIDENCE
5. The registration of previously excepted charities will
help in raising public confidence. It has been anomalous that
for so long certain charities have been excused many of the requirements
of accountability and transparency which have been required and
enforced by the Charity Commission. We note, however, that the
registration threshold for these charities will be set at £100,000
of gross income per year as compared to £5,000 for those
charities that have not been excepted. This seems a huge discrepancy
and is unjustified. We note that the £100,000 was described
by the Government's response to 'Private
action, public benefit' as an initial threshold to allow the Charity
Commission to spread the registration process. If this remains
the intention then the Government should make clear in the Bill
by how much and when it intends to lower the level. This would
give the charities involved an idea of if and when they might
be affected. These charities have already been subject to years
of uncertainty about when their excepted status would be ended.
It would be better if the legislation set out the intended eventual
threshold for registration and allowed by secondary legislation
for this to be reached in stages.
COSTS AND BENEFITS
6. Clause 5 of the proposed Bill gives the Charity Commission
an objective "to enable and encourage charities to maximise
their social and economic impact". This objective might involve
advice and guidance on management issues including cost minimisation
or output maximisation. It might encompass being an advocate for
the sector with government or other interests. These activities
may be inconsistent with the Commission's other regulatory objectives
or raise conflicts of interest. It might involve the Charity Commission
in assessments of the social and economic impact of the sector,
as well as in considerable effort and expense in terms of publications
and publicity of good practice. It would be more straightforward
and cost-effective for the Commission to focus on its regulatory
role and leave others to fulfil the third objective.
TRADING
7. The draft Bill is missing an opportunity to simplify matters
for charities and save them unnecessary administrative and professional
time and costs. It will continue to be possible in most cases
for charities to raise funds via trading activities without paying
any income or corporation tax on the profits generated. There
will continue to be a number of legal and administrative "hoops"
for them to jump through in order to do so, and these take up
time and money - setting up and running separate trading subsidiaries,
dealing with questions of allocation of costs to the different
activities and apportioning income.
8. In its response to the original report the Government stated
that their reasons for ignoring the recommendation to simplify
matters in this regard for charities, related to competition considerations
with commercial businesses engaged in similar activities. This
seems to ignore the other much more significant differences between
commercial and charity enterprises - for example volunteer labour
and donated goods. Any tax advantage enjoyed by charities would
be restricted to rates relief and the VAT advantages that might
be enjoyed by the commercial enterprises compared to the charities
should not be overlooked.
WORKABLE AND BENEFICIAL SPECIFIC PROPOSALS
9. Clause 27 specifies the conditions that must be met before
trustees may be paid. We support these and note that it is becoming
increasingly difficult to obtain the services of trustees without
any form of remuneration. Subsection (7) however excludes employment
contracts and payment as trustees. It is not clear to us why this
exclusion is needed. Is it proposed to leave the restriction on
payment as trustees to the Charity Commission? How does a contract
of employment differ in principle in this regard from any other
contract to supply services?
- Paragraph 1 of Schedule 1 includes requirements about the
membership of the Charity Commission. We consider that if there
are to be statutory provisions in this area that there should
be requirements set out in terms of experience with charities.
Schedule 3 of the Bill includes such in relation to the Charity
Appeal Tribunal (paragraph 1(4) in the proposed Schedule 1B to
the 1993 Act). It also seems inconsistent with the new objectives
of the Commission and the creation of the Tribunal that legal
experience continues to be given such weight in the membership
of the Commission.
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