Charities update: some recent changes
The charitable sector has undergone a number of changes over the last year, including the introduction of the Charitable Incorporated Organisation (CIO) structure and the implementation of the Gift Aid Small Donations Scheme.
The CIO structure: is it right for you?
Following concerns over the personal financial risks faced by charity trustees, a legal structure has been introduced exclusively for charities. The CIO offers some of the benefits of being a company, whilst removing many of the ‘onerous’ reporting and compliance requirements often imposed on charitable companies.
There are two model constitutions as set out by the Charity Commission:
- The ‘Foundation’ format, where the only voting members are the trustees
- The ‘Association’ format, which has a wider membership, including voting members other than the charity trustees.
Key points to consider
There are both advantages and disadvantages to the CIO structure, so it is important to seek professional advice to ascertain whether it will suit your needs. Consider the following:
- Unlike unincorporated charities, the members and trustees of a CIO will have limited liability for the debts of the CIO
- The CIO structure enables the charity to conduct business in its own name, rather than in the name of the trustees. As an incorporated charity, a CIO may be able to enter into contracts in its own right
- CIOs will only need to register once, with the Charity Commission and not with Companies House. With no dual regulation, the administrative burden will be reduced
- CIOs need to submit an annual report and accounts to the Charity Commission, irrespective of their income level. Unlike charitable companies, they are not required to prepare and (potentially) file a director’s report and annual return at Companies House.
However, the CIO structure may not be beneficial for all charities, and there are a few drawbacks to consider:
- The Charity Commission states that the structure will not be suitable for all types of charity eg. exempt charities
- There is no minimum registration threshold for CIOs, unlike other types of charitable organisations, which only register with the Charity Commission if they have gross annual income of more than £5,000
- It can take a minimum of 40 days for the Charity Commission to respond to a CIO application.
Note that the CIO rules apply to charities in England and Wales. Different legislation applies to charities in Scotland and Northern Ireland.
While many charities may wish to convert to a CIO, the process can be complex and trustees and members should ensure that they fully understand the implications before doing so. Please contact us to discuss whether a CIO is the most appropriate structure for your charity.
Gift Aid Small Donations Scheme
Charities and Community Amateur Sports Clubs (CASCs) may be able to claim top-up payments from HMRC on small cash donations under the Gift Aid Small Donations Scheme (GASDS). For the purposes of the scheme, a small donation is defined as £20 or less.
Introduced from 6 April 2013, the GASDS may allow the charity to recover tax although no Gift Aid declaration has been made. Unlike Gift Aid, the scheme applies regardless of whether the donor is a UK taxpayer, although the donation must be collected in the UK. However, the scheme only applies to donations made in cash, making it particularly pertinent to those who operate collection boxes or bucket collections. Cheques and bank transfers are not eligible under the GASDS.
To qualify for the GASDS, the organisation must:
- Be a charitable trust or a charitable company, recognised by HMRC as a charity for tax purposes or a CASC
- Make claims under Gift Aid
- Have existed for at least the previous two complete tax years (6 April - 5 April)
- Have made a successful Gift Aid claim in at least two out of the previous four tax years, without a gap of two or more tax years between those Gift Aid claims or since the last claim was made
- Not have incurred a penalty on a Gift Aid or GASDS claim made in the current or previous tax year.
Qualifying organisations can claim a top-up payment worth up to £1,250 on the lower of two amounts:
- ten times the amount on which Gift Aid is claimed in respect of qualifying donations made to the charity in the tax year concerned; and
Higher and additional rate taxpayers will not be able to claim tax relief on their donations.
Updated guidance for charity shops
HMRC has amended the guidance for charity shops obtaining Gift Aid on the sale of donated goods. In an effort to simplify the rules, individuals donating goods to charity shops can now make a one-off Gift Aid declaration covering sales of items worth up to £1,000 a year.
Previously, a charity needed to write to a donor to inform them regarding the proceeds from each sale. However, the new process allows donors to authorise gifts of up to £1,000 of sales proceeds (for goods sold by a trading subsidiary of the charity) without the shop needing to contact the supporter.
Where the goods are sold by a charity operating the shop directly, up to £100 of sale proceeds can be authorised for Gift Aid.
HMRC has published a range of template letters for charity shops to use where sale proceeds exceed the relevant amounts. For further information visit: www.hmrc.gov.uk/charities/guidance-notes/chapter3/sectionf.htm#gg
Introduced on 22 April 2013, Charities Online is a new service which allows Gift Aid repayments to be claimed online. The system is designed to speed up and simplify the process of making a repayment claim, saving valuable time for charities and CASCs.
The service has replaced the R68(i) print and post repayment form, which became obsolete on 1 October 2013.
There are now three options for making claims. Option one will be for charities that file Gift Aid claims for fewer than 1,000 donations. Option two is for larger charities that make claims for over 1,000 donors, while option three applies to those few charities that do not have the internet and involves completing a ChR1 paper form.
It is thought that online claims will normally be paid within three working days, compared to the 26 days it previously took after filling in an R68(i) form. Errors in the process will be detected by built-in checks before the form is sent.
Further reforms to make it easier for charities to claim tax relief on digital donations are currently under consultation.
There are many complex accounting and reporting requirements governing charities and not-for-profit organisations. Whatever the nature of your organisation, we can help you to meet its objectives. Please contact us for more information.