| 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
- Taxation of charities.
|
| 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 simply 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.
|
