DCH 311 Baker Tilly
Evidence Submitted by
Baker Tilly
To The Joint Committee on the Draft Charity
Bill
Background
Baker Tilly is a large national accountancy practice,
ranked 7th in the country. Our charity work is undertaken
throughout the country.
We provide audit and advisory services to over
1,000 charities and educational establishments ranging from large
national charities and charitable trusts to religious orders,
independent schools and colleges of further education.
We are the largest provider of services to the
Top 3,000 Charities (Source: CaritasData Top 3000, 2004 Edition)
and to colleges of further education. We are one of the top three
firms advising independent schools.
General Comments
Baker Tilly welcomes the publication of the draft
Charity Bill and supports its recommendations.
Our comments are based on the experience of our
clients, and detailed illustrations of the matters we have highlighted
can be provided if required.
Trading
Baker Tilly supports the further consideration
of trading by charities since this is an area of charity operations
that causes our clients considerable administrative and operational
difficulties.
Firstly, it is important to note that the issue
of concern relates to commercial or non-primary purpose trading.
Many charities undertake primary purpose trading, being trading
activities within their charitable objects.
The provisions in Finance Act 2000 enabling small-scale
non-primary purpose trading by charities up to income levels of
£50,000 for larger charities have been widely used and have
been most helpful to the sector. This has enabled relatively small-scale
trading to be undertaken in a straight-forward and efficient manner.
We are not aware of any specific concerns that this regulatory
relaxation has caused.
Where commercial trading undertaken by a subsidiary
trading company is more substantial there is wide spread mis-understanding
that this will always be tax efficient. Generally, trading subsidiaries
avoid corporation tax being incurred on their profits by making
gift aid donations of these profits to the charity parent. Where
working capital or other financing needs of the trade are met
by a loan the subsidiary will incur a tax charge since to repay
the loan will involve the retention of profits by the subsidiary.
We also note that some charities undertake their
charitable activities through trading subsidiaries, occasionally
due to concerns that these may have minor non-primary purpose
elements.
Operating a trading company places a considerable
administration burden on charities along with the associated costs.
However, for more substantial or higher risk trading it is likely
that charities will consider this necessary in order to provide
protection to charity property.
We also note that corporate sponsorship often
forms a considerable part of current non-primary purpose trading
activity. Often this form of support is essentially a corporate
donation, which will have no impact on competition with local
businesses.
A further consideration made by charities in seeking
to undertake trading activities is that these may represent business
activities for VAT purposes. This may give scope to recover some
irrecoverable VAT incurred by the charity.
Group Accounts
Thresholds for annual audits included in the draft
Bill include both entity and group account tests. Although unincorporated
charities with subsidiary undertakings prepare group accounts
as required by accounting standards and the Charities Statement
of Recommended Practice (SORP), there is no provision under the
Charities Act 1993 and accounting and reporting regulations for
such accounts to be prepared. Legislation only recognises entity
accounts for the charity alone, although the Charity Commission
normally accepts the submission of group accounts by exception.
In practice we note that charities do not prepare
separate entity and group accounts but take advantage of the provisions
set out in the Charities SORP not to do so.
We would support changes that remove these anomalies.
Baker Tilly
15 July 2004
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