In the current situation it will be the charity sector that will be called on to support people impacted by coronavirus, increasing demand on services at a time when income will be reducing. There will be increased pressure on Trustees and Management teams to make difficult decisions.
The government has said that it will
support charities affected and announced a £750m package in April. Further
details of this can be found here and include:
- £360 million direct from government
departments to those working directly on areas affected by the Covid-19
- £370 million for small and medium sized
charities, including through a grant to the National Lottery Community Fund.
commitment from the Government to match donations to the National Emergencies
Trust as part of the BBC’s Big Night In fundraiser – pledging a minimum of £20 million
have been comments made that the sum of £750m is small compared with the
estimated funding losses of over £4bn charities could expect over the 3-month
period since the pandemic started.
is difficult to determine the sufficiency of the funding, but it is clear that
charities will need to also consider the more general government schemes that
have been put in place for all organisations. Some of these are set out below.
The government announced that the scheme would benefit “Tens of thousands” of charities. This suggests that the support will be focussed on small charities, as the sums involved are unlikely to make any significant difference to medium or large-sized charities. The timescales for distribution of funds will also be critical as well as the ease of application processes.
Charity Commission guidance
The Charity Commission recently
issued some guidance for charity
trustees in dealing with meetings and compliance matters.
The guidance indicates:
- Practical considerations: AGMs and other trustees and similar
meetings can be postponed. Digital rather than physical meetings are fine to
do, even if not specifically empowered by the provisions of a charity’s
constitution. For all such matters it is essential that trustees are actively
involved in the decision, and that this is adequately documented internally.
government’s Coronavirus Job Retention Scheme applies to charities.
effort should be made to file annual reports on time, but the Charity
Commission has promised to be pragmatic in dealing with cases where this
is not possible, and charities should contact the Charity Commission if
there will be an issue. The number is (0300 066 9197).
- Charity reserves and their use – clarifies what free
reserves are, and limitations related to restricted funds.
reserves can be utilised at this time if appropriate but consider this
prudently. Keep in mind overall financial resilience.
- Reporting: Reporting requirements remain in place, including the reporting of serious incidents. Trustees need to use and document their judgement when deciding if an incident is of sufficient importance to report.
- Safeguarding – remains an important responsibility at this time, hence must consider the vulnerable even at this difficult time.
Companies House filing deadline
- Companies House have announced a 3 month extension to accounts filing
- This is not automatic and requires companies to apply
- As noted below, the Charity Commission have also stated that they would also be sympathetic and would consider filing extensions on a case by case basis.
Charity Commission Annual Return filing deadline
The Charity Commission will be flexible and supportive during the Coronavirus pandemic, hence charities can apply for an extension to the filing deadline for Annual Returns.
Reporting Covid-19 in your Financial
Statements – A useful aide-memoire for charities
The Charity SORP Committee has issued advice on the
financial reporting implications that may arise from the measures being put in
place to manage the impact of the COVID-19 virus.
The advice relates to Financial
Statements that have yet to be approved. The advice looks at the considerations
to be taken into account when producing the Trustees report and Financial
Statements and also considers post balance sheet event reporting. So, if you’re
preparing accounts to the 31 March or you have yet to approve your accounts for
an earlier period the Trustees should consider the impact.
A summary of the main considerations to
undertake is set out below. In each of these five aspects of financial
reporting the impact of Covid-19 should be considered:
Trustees Annual Report
- Impact on the current and future activities and operation of the charity
- Implication for the charity’s finances and fundraising
- Effect on financial sustainability and going concern, including material uncertainties
- Consideration of the charity’s reserves, their nature and adequacy, including possible need to designate funds for future Covid-19 response.
- How future aims and activities may be affected.
- Effect on key assumptions and estimates, including judgemental matters and areas of future uncertainty.
- Consideration of the going concern basis of preparation of the financial statements – use normal considerations hence existing Financial Reporting Council guidance is applicable and could be helpful.
- Assessment of possible material uncertainties, adequacy of disclosures under these circumstances, or where conclusion is the charity is not a going concern, usual consideration of break-up basis approach.
- Must always reflect on financial statements needing to provide a true and fair view.
- Covid-19 potential is pervasive to all aspects of financial reporting – income, expenditure, assets, liabilities and funds.
- Covid-19 crisis may be a post balance sheet event – hence consider if adjusting or non-adjusting.
- Impact on defined benefit pensions schemes could be significant – both valuation of assets and liabilities as well as implication for future funding and hence contribution levels.
and External Scrutiny
- Guidance considers the practical implications for undertaking audits and independent examinations in the current environment.
- Implication for undertaking work in an environment of social distancing, and potential limitation in scope.
- Potential need for the audit opinion or independent examination report to make reference to the impact of Covid-19 – probably in the context of the going concern principle.
- It should be noted that the Financial Reporting Council has published guidance to auditors regarding how they respond to these challenges, and an individualised approach is recommended.
Reporting to Regulators
As previously mentioned, the guidance indicates that charities may need to consider reporting a SIR, but this is not obligatory and depends on trustee judgement regarding the severity of the matter that has occurred.
Covid-19 and community and charity
HMRC have been considering
the situation for Community Amateur Sports Club or charities which run a sports
club/association? There may be some cases where members are still paying subscriptions.
If you are a sports club and you have members who are willing to
keep on providing funds (even though the facility is closed), HMRC have
confirmed that the money provided could now validly be treated as a donation
(and potentially one on which gift aid can therefore be claimed), which can add
up to 25% to the value of the amount received (i.e. donated).
For further information on this please read our update here.
Other Government initiatives
There are a number of other initiatives in place to assist businesses, and the following can also be used for charities:
Coronavirus Business Interruption Loan Scheme (CBILS)
The Coronavirus Business Interruption Loan Scheme (CBILS) aims to support long-term viable businesses who may need to respond to cashflow pressures by seeking additional finance. The loan will be provided by the British Business Bank through participating providers during the Covid-19 outbreak. For specific details about the scheme, including key criteria please see our insight and factsheet here.
Retention Scheme (CJRS)
aim of this scheme is to avoid permanent redundancies by a government grant
scheme to address the cost of temporary lay-offs of staff. For specific details
and guidance please see our update here.
Some aspects of the scheme require HR advice, such as what provisions exist in
employment contracts for temporary layoffs. Currently there is some debate as
to the definition of “public funding” and how this applies to charities.
this scheme may be relevant to some parts of a charity’s operations, for
example in the areas of fundraising or charity retail activities, for many
charities wanting to continue their work with beneficiaries the scheme will not
might be an opportunity for charities to gain additional volunteers from the
commercial sector, although it will be important to consider the benefits of
Business rates holiday
schemes are focussed on the retail, leisure and hospitality industries, so
could be relevant for charity shops, museums and galleries, sports/ leisure
facilities, heritage sites, and theatres/ concert halls. Further information can be found here.
We anticipate that these schemes are not likely to have wide
application for the charity sector. Possible areas to explore may be if the
charity operates shops through a commercial subsidiary or has a commercial
VAT Payment deferral
the high levels of irrecoverable VAT that impacts the sector this could be a
helpful cashflow benefit to some. We would encourage this to therefore be
actively considered. More
detail can be found here.
Time to pay – breathing space
A Time To Pay arrangement is an instalment plan agreed with HMRC that allows businesses to temporarily bridge financial difficulties in paying their tax on time. Further information can be found here.
Finance Group – Insolvency Hotline
During this challenging time, a number of Not for Profit organisations will be carefully considering their financial sustainability. In such instances you will need to consider obtaining professional advice. NCVO and the Charity Finance Group have a helpline or you could ask your independent examiner or auditor if they could recommend someone locally.
The Charity Tax group have also
released guidance on the various measures and support available for the charity
The NCVO have also
released information to help charities covering protection of staff, volunteers
and beneficiaries and contingency planning.
Historic England have also
released information on their grant scheme for heritage organisation. Their
Resilience Grant will be used to support heritage organisations which are
severely affected by the impact of coronavirus (Covid-19) and which require
additional short-term emergency financial support. It will also support
projects and activities that respond to the current crisis and contribute to
recovery in the heritage sector.
Further details on
this grant can be found here.
The Civil Society have also prepared
a list of alternative funding sources.
Advice has also been issued for the general
public to try to ensure that their good intentions in giving to charities to
help in the current crisis sees funds donated to genuine charitable
organisations and not to those seeking to take advantage of the turmoil to
defraud well-meaning givers. Further information on this can be found here.
This is an evolving situation and we
will have more information as time and the situation moves on. MHA Moore
and Smalley has set up a dedicated coronavirus hub to provide information to
our clients as and when it is available, and this will be updated as further
guidance on support for charities is received.
If you would like to discuss anything
further please contact a
member of the charities team at MHA Moore and Smalley.