ACIE Scottish Conference 2012
Scottish Charity Sector
An Update
August 2012
Adrienne Airlie
Martin Aitken & Co
Glasgow
The Scottish Charity Sector
5%
Income Distribution
of Scottish Charities
More than 84% of all
Scottish Charities
have income below
£100,000 p.a.
Sources:
OSCR Scottish Charities 2008
11%
>£500k
<£500k
14%<
£100k
70%
<£25,000
OSCR
Charity Sector Update
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As at 31/3/2011 23,288 Charities
70% of Charities < £25,000 income*
84% of Charities < £100,000 income*
5.6% of Charities > £500,000 income*
5.6% of Charities = 93.7% of total sector income*
4.7% of Charities > £500k = 90% (excl cross border)*
*Source - OSCR “Scottish Charities 2008”
The Scottish Charity Sector Key players
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OSCR
Scottish Government
SORP Committee
 ASB/CC/OSCR
HMRC
Accounting Standards Board (ASB)
Charity Commission
Other Professional bodies
Trustees/Beneficiaries/Fundraisers
General Public
Agenda 2012

Basic Refresher
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Thresholds, Income & Expense recognition
Scottish Government
 Public services Reform (Scotland) Act 2010
 The Charities Accounts (Scotland) Amendment Regulations
2010
 Charity Reorganisation ( Workshop 2A)
 SCIOs
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The Scottish Charitable Incorporated Organisations
2011
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General Regulations & Dissolution Regulations 2011
OSCR processes – “SCIO’s a guide”
HMRC
 Gift Aid
 Fit & Proper/ Finance Act 2010
 VAT
Agenda 2012 (cont)
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Charitable Trading & VAT issues
Current/ future issues
 Disclosure
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Governance
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SORP Concessions
Support costs
Internal controls
Risk Management
Board structure/ succession planning/skills
ASB/ Future of the SORP
Scotland Office consultation on law reform for Unincorporated
Associations
Charity Accounts Unincorporated
From 1 April 2011
Small
Up to £250,000
SORP*
Accruals or
R&P
Large
Up to
£500,000
SORP*
Accruals
Audit
Over
£500,000
Full SORP
Accruals
* Concessions exist in the SORP for charities under Audit
threshold of £500,000
“Audit” & Governing Documents
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Constitution, Trust Deed, Memo & Articles
Reference to “audit”
Consider change to “the accounts should be
subject to external scrutiny in line with the
relevant requirements of legislation” *
Check permitted, funders, notify OSCR within
3 months.
*OSCR reporter June 2012
The Charities Accounts (Scotland)
Regulations 2006 – Company Thresholds
From 1 April 2011
Company Gross
Income
Company Gross
Assets
Company
Requirements –
External Scrutiny
< £500,000
< £3.26m
Independent
Examination
> £500,000
> £3.26m
Audit
The Legislation – From 1 April 2011
Company
The Companies
Act 2006
Trust/
Unincorporated
SCIO
The Scottish Charitable Incorporated
Organisations Regulations 2011
& The Scottish Charitable Incorporated
Organisations (Removal from the
Register and Dissolution) Regulations
2011
The Charities Accounts (Scotland) Regulations 2006
& The Charities Accounts (Scotland) Amendment Regulations 2010
Charities and Trustee Investment (Scotland) Act 2005
& Public services Reform (Scotland) Act 2010
Statement of Recommended Practice –
Accounting by Charities 2005
Flowcharts – Accounts Preparation
Decision Tree
Is the charity a company?
YES
NO
Does the charity have a gross income of
£250,000 or more?
YES
Prepare true and fair
accounts in
accordance with the
Charities SORP.
NO
Does the charity’s constitution (or other
founding documents) or any enactment
say it should produce true and fair
accounts or have the trustees decided
that it should?
YES
NO
Prepare accounts on a receipts and payments basis in accordance with
regulation 9 of the 2006 accounting regulations (as amended).
External Scrutiny Decision Tree For Non
Company Charities
Does the charity’s constitution or any enactment say
that an audit should be undertaken, or have the charity
trustees decided that an audit should be undertaken?
YES
Audit carried out by a registered auditor.
NO
Is the gross income of the charity £500,000 or more?
YES
NO
Does the charity have assets (before deduction of
liabilities) of more than £3,260,000?
YES
NO
Is the gross income of the charity between £250,000
and £499,999?
YES
NO
Does the charity prepare true and fair accounts?
NO
Independent examination by someone with the requisite
skills under regulation 11(1) of the 2006 accounting
regulations (as amended).
YES
Independent examination by a member
of a professional accounting body or a
full member of the Association of Charity
Independent Examiners or another
person eligible for appointment under
regulation 11(2) of the 2006 accounting
regulations (as amended).
External Scrutiny Decision Tree For
Charitable Companies
Do the charity’s founding documents or any enactment say an audit
should be undertaken, or have the charity trustees decided that an
audit should be undertaken?
YES
NO
Does the charity qualify as small under the Companies Act 2006?
NO
YES
Is the gross income of the charity £500,000 or more?
YES
NO
Does the charity have gross assets (before deduction of liabilities)
of more than £3,260,000?
NO
Independent examination by a member of a professional accounting
body or a full member of the Association of Charity Independent
Examiners or another person eligible for appointment under
regulation 11(2) of the 2006 accounting regulations (as amended).
YES
Audit carried out by a
registered auditor.
Income Recognition
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Standard SOFA Headings
Incoming resources from generated funds
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Voluntary income
Activities for generating funds
Investment income
Incoming resources from charitable activities
Other incoming resources
Income Recognition
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Income – FRS 5 detailed explanations
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Conditions
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Entitlement
Certainty
Measurement
Certain & controllable
Lack of related expenditure is not a reason for deferral
Grant /Performance Related / Service Contract?
Income – example of timing of
recognition
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Big Lottery award – £150,000 Received 1/3/11 - 50% part
funding of outreach worker & office costs p.a.
Case 1 - Outreach worker & office exist
√ Entitlement
√ Certainty
√ Measurement
Action - Recognise as a restricted fund in total y/e 31/3/11
Accounts
Case 2 - No Worker & no office in place yet
× Entitlement
√ Certainty
√ Measurement
Action - Defer Income into y/e 31/3/11, until conditions met
Income identification
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Important to identify type of income:
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Grant : for a project/purpose, no performance
criteria but return of surplus
Performance : donor measured performance
criteria and return of surplus
Contract : donor specified services, no return of
surplus
Income – long term funding examples
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Incoming resources
Year end 31 March, 2011
Receipt / approval 1 March, 2011
2 Year project
Costs
Year 1
Year 2
Year 3
£10,000
£50,000
£60,000
Example: Long term funding
Grant
Incoming resources
2011
£
150,000
2012
£
2013
£
0
Costs
Provision
Net incoming resources
10,000
50,000
140,000
(50,000)
Funds
140,000
90,000
Liability
0
60,000
30,000
(90,000)
£
150,000
120,000
30,000
0
30,000
*2013 requires an additional provision for repayment of surplus,
eliminating the £30,000 net income (or renegotiate terms).
Example: Long term funding
Performance related
Incoming resources
Costs
Net incoming resources
2011
£
10,000
2012
£
50,000
2013
£
60,000
£
120,000
10,000
50,000
60,000
120,000
0
0
0
0
140,000
90,000
30,000
Funds
Liability
Example: Long term funding
Contract
2011
£
6,250
2012
£
75,000
2013
£
68,750
£
150,000
Costs
10,000
50,000
60,000
120,000
Net incoming resources
(3,750)
25,000
8,750
30,000
Funds
(3,750)
21,250
30,000
Incoming resources
Liability
Memo: Income recognised pro-rata. 2011 = 1/24 months,
2012 = 12/24 months, 2013 =11/24 months
Expenditure
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Remember:
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Analyse based on objectives and mirror the
related income
Support costs are included under Costs of
Voluntary and Costs of charitable activity
Governance costs are purely constitutional and
non-activity based
Expenditure recognition
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FRS 12 “Present obligation (legal or
constructive) from a past event”
If avoidable by future actions then no
expense
Circumstances giving rise to cost must exist
at balance sheet date
Use of Designated Funds
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As expenditure has these restrictions…
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Important for charities to consider pre year end,
designating funds for future projects
Have it minuted in the last Trustees’/Board
meeting of the year
Ring fence an element of unrestricted funds:
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To remove apparent surplus funds
To demonstrate pro-active funds management
Designated Funds/Income
Recognition
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Legacy: Charity informed 1/5/11 of death on 1/3/11 and assets in
estate cover legacies and bequests.
Case 1 – fixed legacy from estate £50,000
√ Entitlement
√ Certainty
√ Measurement
Action - Recognise as income in total y/e 31/3/11, designate for a
project/purpose?
Case 2 - share in residue (value unknown at signing accounts)
√
Entitlement
√
Certainty
×
Measurement
Action - Defer Income into y/e 31/3/12, once amount established
Public Services Reform (Scotland) Act 2010
Part 9
Amendments to CTI 2005 – operational from 1/8/10
•
•
•
•
•
•
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S30 Variation, revocation & review of directions
S34 (5) OSCR application to Court of Session deemed removal
of trustees
S30 (removal) & S70 (disqualification) non delegated functions
S39/40/42 Reorganisation, wider constitution changes
S70A Appointment of charity trustees
S68A TII excluded as remuneration, only if approved in
constitution & insurance does not cover fines/ penalties
Website references
• S43 Reorganisation restricted funds – OSCR & Charity – Workshop
2A
•
•
The Charities Reorganisation( Scotland) Amendment Regulations 2012
The Charities Restricted Funds Reorganisation( Scotland) Amendment
Regulations 2012
•
Effective 1/11/12
The Charities Accounts (Scotland)
Amendment Regulations 2010
• FY beginning 1/4/2011
• Reg1(2) Gross Income & liability definitions
• Reg1(2) Expendable and permanent
Endowments
• Reg 8 & 9 amended as Accruals threshold
increases from £100k to £250k
• Reg 10 Asset threshold £3.26 million at y/e
• Reg 10 Consolidated accounts need audited
SCIOs – An update
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Bespoke form of incorporation, charities only, based solely under
Scottish charity law
 The Scottish Charitable Incorporated Organisations 2011
 General Regulations 2011/Dissolution Regulations 2011
 S 55(7) CTI if SCIO ceases to be a charity it ceases to be a SCIO
 Benefits of incorporation without complexities of Coy Law
OSCR processes – “SCIO’s a guide”
 New applications & conversions
 Matrix
 Duties & Requirements of a SCIO -v- Non SCIO – excellent
 Practical issues arising – Alan Eccles MMS
General Regs
 Constitution
 Register of members & trustees
 Members Meetings & Responsibilities
 Voting & duty of care
 Property Transfer
Duty to report to OSCR

This relates to the Whistle blowing section of the
CTI Act 2005 at Section 46 and states that an
individual must inform OSCR if, whilst acting in the
capacity of the examiner of a charity he/she
becomes aware of any matter relating to the
activities or affairs of:
The charity or any institution or company connected
to the charity and which the Independent Examiner
has reasonable cause to believe is likely to be of
material significant for the purpose of the exercise
by OSCR of its functions under Section 28, 30 or 31
Continuing Reporting Duties to OSCR
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2 Duties
 Mandatory – Sections 28/30/31 as above
 Discretionary – other areas of OSCR’s work
Discretionary – wide ranging e.g.
 Cumulative impact of not following professional advice
 Large redundancy packages/ non contracted
payments e.g. maternity pay
 Smaller admin or financial issues
 Exp outwith charity’s purpose (cum effect if not
material)
Considerable intelligence value for OSCR, part of its
wider Monitoring & Compliance function
Gift Aid

The Small Charitable Donations Bill was
introduced to Parliament on 21 June. The Bill
will legislate the Gift Aid Small Donations
Scheme (GASDS) which was announced at
Budget 2011 and will be implemented from 6
April 2013.
HMRC – Gift Aid
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Recap
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Reclaim tax from HMRC on gross equivalent of donation
Only claimable on gifts of money from individuals, sole
traders or partnerships
Donor must pay at least as much UK tax as amount being
reclaimed from HMRC
Must keep a record evidencing donation is given under gift
aid showing name, address and details of donation
Need to nominate an authorised official and register with
HMRC to reclaim – use form R68
Time limit of four years for making claim
HMRC – Gift Aid
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Budget changes *
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Small donations scheme – GA on individual donations of
up to £10 to a total of £5,000 without having to collect
declarations
Gift Aid benefit limit increased from £500 to £2,500
End of transitional relief – 3p per £ supplement ended 5
April 2011
Online filing system from 2012/13
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All future repayments made by BACS
*The Small Charitable Donations Bill was introduced to
Parliament on 21 June. Gift Aid Small Donations Scheme
(GASDS) and will be implemented from 6 April 2013.
HMRC – Gift Aid
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Benefit limits
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25% of donation up to £100
£25 for donations between £100 & £1000
5% of donation above £1000 up to a maximum
benefit of £2,500
Split payments
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Donor aware of value of benefit at time of
donation
Quantifiable market value
HMRC – Gift Aid
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Example calculation
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Dinner ticket costs £100, value of meal provided is £25.
Donor is advised at time of purchasing that value of meal is
£25 and signs a form agreeing to donate proceeds under gift
aid
Benefit is 25% of donation therefore whole amount is
subject to gift aid (note that if meal cost £26 it would not be)
the charity claims back the basic rate tax of 20 per cent from
HMRC on the donation.
So the charity is able to make a repayment claim of £25
(£100 divided by 4)
HMRC will add an additional transitional relief of £3 for
claims up to April 2011, making a total payment of £28.
HMRC – Gift Aid
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Auction items
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Item is commercially available
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e.g. football top signed by player is not commercially available
Donor is aware of price when making a successful bid
Example in notes
VAT
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Donation outside scope of VAT if no significant benefit
Split payments – may be a business supply for VAT
purposes
Fundraising exemption may apply to events/auctions
HMRC – Fit & Proper
Finance Act 2010
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A new definition for tax purposes of charities, CASC’s
etc entitled to UK charity tax reliefs
Satisfy “management condition”
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Applies to Gift Aid from 1/4/2010
Will apply to other reliefs later
“Management condition” - managers must be “Fit &
Proper”
No definition, HMRC guidance
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Charities procedures on appointment
Sham charities & fraudsters
HMRC basic guide & model declaration - attached
HMRC – Fit & Proper
Finance Act 2010 (cont)
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Revised Guidance Feb 2011
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HMRC assumes that all people appointed by charities are fit &
proper unless they hold information otherwise.
Recruitment steps.
If HMRC find a manager is not a fit & proper person charity will not
necessarily lose entitlement to the charity tax reliefs.
Reliefs not withdrawn during an enquiry.
Repayments however may be withheld.
HMRC recommends that all staff complete the fit & proper helpsheet
& sign the declaration. Evidence of charity support.
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Charity Trading
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Incidental trading exemptions
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£5,000
< £25% of total income ( up to £50k max)
Set up a company to avoided tainted
activities & tax arising
Transfer of profit by gift aid – accepted by
HMRC
Segregates income streams although
increases admin costs
VAT issues
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VAT not linked to charity structure
VAT advantages very limited & complex
Taxable supplies, register - £77k
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Direct Input VAT re a non business supply can never be reclaimed – no
de minimus limit
Partial exemption
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Non Business – prov of services at no charge
Outside the scope - grant income
Exempt – Fundraising
De minimus limit, Irrecoverable VAT – non Bus – Blocked
Other input VAT split - Exempt & Taxable, Annual Adjustment
Voluntary VAT registration – do the advantages re input VAT recovery
outweigh the following ?
1. Admin Costs
2. VAT burden to customers / service users
Current Issues
1. SORP – Small Charity concessions
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Appendix 5 – Accounting for smaller charities
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Below Audit threshold ( <£500k )
SOFA – Resource classifications (incoming &
expended) to suit their circumstances
SOFA – Notes restricted as above e.g.
 Support cost/ apportionment/ Income analysis
Notes – Staff emoluments not needed in £10k bands
from £60K upwards
Trustees Annual Report (TAR ) as follows…
Current Issues
1. SORP – Small Charities
TAR Reference & Administrative Details
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[Registered] Name
Other Names used
Registration Number [Charity] [Company]
Principal office address
Registered address [charitable company]
Charity Trustees [up to date of report]
……………………Audit Threshold………..…………………………………………
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Senior Staff
Name & Address of Professional Advisers [Bank]
[Solicitor] [IE] [IFA]
SORP – Small Charities
TAR Structure Governance Management
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Nature of Governing Document and how constituted
Recruitment method for trustees
…………………………………..Audit Threshold…………………………………….
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Trustee induction and training policy/procedure
Organisation structure and how decisions are made
Relationship with wider networks
Major risks
SORP – Small Charities
TAR Objectives and Activities

Summary of objects in governing document
…………………………………..Audit Threshold…………………………………….
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Aims and differences seek to make
Main objectives in the year
Strategies to achieve these
Details of significant activities
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Tie in with ‘charitable activities’ note
Grant making policies
Programme Related Investment policies
Use of volunteers
SORP – Small Charities
TAR Achievements and Performance
 Main achievements in the year
……………………………………………….. Audit Threshold…………………………………….
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Performance against objectives
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Qualitative
Quantitative
Indicators
Measures
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Charitable activities
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Fundraising performance
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Material expenditure for future years
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Investment performance
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Matters outside charity’s control
SORP – Small Charities
TAR Financial Review
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Reserves policy
Funds in deficit
………………………….Audit Threshold…………………………………….
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Principal funding sources
How expenditure supported key objectives
Investment Policy
SORP – Small Charities
TAR Plans for future periods
…………………….Audit Threshold…………………………………….
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Aims and key objectives
Planned activities
SORP – Small Charities
TAR Funds held as Custodians
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Assets held
Name & objects of charity on whose behalf held
and how this fits in with their objects
Arrangements for safe custody and segregation
Current Issues
2. Internal Controls & Governance
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OSCR guidance – Who’s in Charge 2011
CC 8 – Internal Financial Controls, June 2010
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All sizes of charity covered
Checklist to follow
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All Income areas
Purchases/expenses
Assets & investments
Electronic banking/ tiered authority
Restricted Funding
Great advice source for all advisers/ trustees & directors
CC 10 – Hallmarks of an Effective Charity
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1. Clear about purposes & direction
2. A Strong board
3. Fit for purpose
4. Learning & improving
5. Financially sound & prudent
6. Accountable & transparent
Current Issues
3. Risk Management
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No OSCR guidance
CC26 – Charities & Risk Management
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SORP requirements for Risk Management
Model of risk management
Risks – detailed analysis
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Governance. Operational. Financial. External Compliance –
Annex 1 & 2
Worked examples
Disaster Recovery Planning
Heat Map
Future issues
4. Succession Planning – Board Structures

Skills Audit & matrix for the Board
 Leadership
 Strategic Leadership
 Communication
 Interpersonal skills
 Technical/ Educational skills
 Understanding Finances/ Legal /HR
 Meetings
 Creativity/ Lateral thinking

NCVO Website – Good Practice in Trustee Recruitment
Future issues
5. ASB – Future of UK GAAP Project

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Applies only to True & Fair accounts – accruals
AP ending on or after 1/1/2014
Current format

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Tier 3 - Small entities – FRSSE – no change
Other larger charities will use FRSME and a new
FRSPBE.
Charity SORP will be revised and provide sector
specific guidance.
Future issues
5. ASB – What happens with the SORP?
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SORPs still needed :
 Charities, Education & Housing SORPs
Will be update to reflect changes under IFRS
convergence project
FRSME & FRSPBE will take precedence over SORP
Download and print relevant sections thus assisting
smaller charities - modular
Timescale – target 2015 to align with implementation of
IFRS convergence
Draft modules to be developed, will only be issued for
public consultation when all modules completed – not in
stages.
Current deadline is AP beginning on or after /1/15
Future issues
6. Law Reform, Unincorporated Associations
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Criteria met – SALP, Scottish Association with Legal Personality
Can opt out
SALPS – Limited liability, protects office bearers
Culpable office bearers still liable
Assets & liabilities are transferred to the SALP, not automatic
SALP - > 2 members, official address & mainly operate in Scotland
Minimum specified conditions in constitution
Can lose SALP status.
Issues 
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Automatic Opt in ? Add’n responsibilities ?
SALP wind ups
Cross Border
HMRC interaction with Corporation Tax
ACIE Scottish Conference 2012
Scottish Charity Sector
An Update
Any questions?
ada@maco.co.uk