Coronavirus related fraud in the charity sector

The Charity Commission have issued an alert to help charities minimise the risk of falling victim to a recent surge in fraudulent activities. The points to highlight are; fraudulent sales of personal protective equipment have highlighted the need to carry out sufficient due diligence on new suppliers; with more employees working remotely from home and with increased email communication, the need to validate requests to amend bank details is far greater; heightened pressure on fundraising should not excuse instant acceptance of unsolicited goods, services or donations.

The guidance also includes a link to a webinar held in conjunction with the Fraud Advisory Panel to help charities spot Covid -19 related fraud and better protect the charity.

This content was written by our colleagues at MHA MacIntyre Hudson.

VAT recovery and Covid 19 grant income

Receipt of income

The receipt of a grant in whatever form is outside the scope of VAT, as nothing is done in return for the cash received. For the receipt of cash to signify that a supply has taken place, there must be something done in return for the payment received. Any grant funding including the job retention scheme (JRS) would not be included on the VAT return as income within the scope of VAT.

VAT recovery

HMRC do routinely attempt to restrict VAT recovery on costs which relate to the receipt of income which is not within the scope of VAT. It is a basic condition of VAT recovery that VAT can only be treated as input tax if it is a cost component of a taxable supply. This is most commonly an issue in the charity sector in relation to funding from a variety of public sector bodies and from the lottery.

In the private sector, it has recently been an issue in relation to renewable heat incentives and generation tariffs paid for solar panels, neither of which are subject to VAT. HMRC tend to fail if the grant funding received is supportive of the business, rather than an end in itself.

In addition to costs that relate directly to the receipt of grant funding, HMRC may attempt to impose a restriction of VAT recovery on general business costs through a business/non-business (BNB) apportionment, using income from the respective sources. This is similar to the restriction caused for businesses generating exempt income.

Calculating recoverable VAT

We should emphasise that any grant that is not intended to directly fund non-business activities, should be excluded from any business/non-business calculations. You should carefully review any written agreements with HMRC about the calculation of any BNB apportionment of costs just in case there are any unintended consequences.

The government has also promised up to £750m additional support for charities during the crisis, including money from the National Lottery. Whether or not this income should be included in a BNB method will need to be reviewed on a case by case basis. If this grant income is used to directly finance non-business activities, it may need to be included in an income-based apportionment, but each entity will be different. You may wish to seek professional advice to ensure you obtain the best possible outcome.


With the enforced closure of a whole range of retail and leisure outlets, an income based method of VAT recovery may produce a result which is not beneficial for your charity. For example, the closure of charity shops and other trading activities could suppress the VAT recovery percentage whilst lockdown continues.

One solution would be to use last year’s activity levels as a fairer representation of the charity’s mix of activities. Such an approach may ultimately need to be agreed with HMRC, but the government is clearly committed to being as helpful as possible, including supporting the vital work of the not-for-profit sector. Charities should therefore expect a sympathetic hearing from HMRC to any reasonable request.


We would question whether there are any significant external costs related directly to the receipt of this grant income. There is unlikely to be any restriction of VAT on this basis.

We would also resist the business/non-business split on the grounds that the JRS grant funding is clearly supportive and not an end in itself. HM Treasury intends it to be used to keep you afloat through the lockdown, not to help increase the wealth of the charity.

More generally, think about your current basis for VAT recovery. There may be options to improve the position.

For further information about this service, please contact a Jonathan Main on Alternatively, please email your query to and we will get back to you.

Covid-19 affecting charities – updated 22/04/2020

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 pandemic
  • £370 million for small and medium sized charities, including through a grant to the National Lottery Community Fund.
  • A 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

There 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.

It 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.
  • The government’s Coronavirus Job Retention Scheme applies to charities.
  • Annual reports: Every 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.

Notes 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.

Accounting Policies

  • 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.

Accounting considerations

  • 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.

Audit 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.

Charity 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 subscriptions

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.

Coronavirus Job Retention Scheme (CJRS)

The 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.

Note: 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.

Whilst 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 help.

There might be an opportunity for charities to gain additional volunteers from the commercial sector, although it will be important to consider the benefits of this carefully.

Business rates holiday

These 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.

Note: 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 trading arm.

VAT Payment deferral

Given 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

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.

Charity 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.

Additional guidance

The Charity Tax group have also released guidance on the various measures and support available for the charity sector.

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.

Additional Information

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.

Covid-19 – Community and charity subscriptions may be able to be treated as donations

Are you running a Community Amateur Sports Club or a charity which runs a sports club/association? Are members still paying their subscriptions?  If so, this information might be of interest. 

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). 

What have HMRC confirmed?

HMRC have confirmed to the Charity Tax Group that it would be possible to treat amounts which are being paid by members, for which they aren’t receiving anything, as donations rather than subscriptions. This is not normally the case. Usually, subscriptions entitle the members to receive access to facilities etc. and so are treated as trading income which are not capable of being treated as a donations (and so subscriptions are amounts on which gift aid claims cannot be made). 

The gist of the communication from HMRC is that the sports club can validly agree with the persons that the amounts that they receive the monies from, that:

  • The subscription element is lower than usual (due to restricted availability of facilities etc) and the balance is a donation or;
  • The subscription has been suspended, and the person is simply making a regular donation whilst the membership is suspended.   


What does this mean for different clubs?

For clubs who have ongoing maintenance of facilities to keep up, then it may be most appropriate to reduce the membership fee to the level that covers the maintenance costs and then ask members to donate an amount which takes them partly, or wholly, back to their prior monthly subs.  The donated element can then be subject to Gift Aid.  

For clubs who have mothballed their facilities entirely, then suspending membership and asking for voluntary amounts from members just to be made as donations may become appropriate. 

What have the Charity Tax Group confirmed?

The quote below was published by the Charity Tax Group this week.

It clarifies that, provided that the members aren’t receiving anything for the money they provide (which will be the case if they continue to pay over the full amount which is equivalent to their “subscriptions” but cannot use any of the facilities) then HMRC agree it will be possible, in the correct circumstances, to treat the amounts as donations.

“HMRC officials have provided the following update to the Charity Tax Group in respect of Gift Aid on donations freely given to charities and CASCs while membership subscriptions have been suspended.

We are aware that many Community Amateur Sports Clubs (CASCs) and charities have suspended the collection of membership subscriptions in light of the COVID-19 pandemic but some individuals are making voluntary donations instead in order to support their club.

It is probably worthwhile reminding you that that there is no barrier to Gift Aid being claimed on such donations, provided they are freely given, no benefits arise in consequence of that specific donation (either now or in the future) or, if provided, they fall within the legislative limits, and a Gift Aid Declaration is obtained.

In circumstances where clubs have reduced their subscription rate, any amounts freely donated over and above this reduced amount would also potentially be eligible for Gift Aid. In all cases it must made clear to the members that the amounts voluntarily given by them are not subscriptions, carry no subscription rights and will be treated as donations on which the CASC or charity will claim Gift Aid.

The personal tax implications of making a Gift Aid donation will also need to be explained to donors.”

Contact us

If you would like to discuss this further please contact a member of the charities team at MHA Moore and Smalley.

This article was written by our colleagues at MHA Tait Walker.

Review of complaints to the Charity Commission and Fundraising Regulator

On the 25 February, the Charity Commission published its report on the complaints and serious incident reports made from April to June 2019. The report reviewed 200 of the complaints received by the Commission where no direct ‘regulatory action’ was required.

The findings of the report have been summarised by the Commission as follows:

• People who complain are usually people you know

• Be accountable – it’s worth making the effort to explain and to listen properly

• Don’t take your status as a charity, and the public’s support, for granted

• How you do something is as important as what you do

Helen Stephenson, CEO of the Charity Commission, declares “Charity can and should lead the way in taking public expectations seriously. If you’re a charity, that includes showing that you take complaints and concerns seriously and are responding appropriately.”

Following this, the Fundraising Regulator published its own ‘Complaints Report 2018/19’ on the 27 February.

The key findings of the Report have been summarised below:

• The total number of complaints reported in 2018/19 was 20,541, 6% lower than the 21,851 reported in 2017/18.

• Addressed mail, door-to-door fundraising and outdoor events were the most complained about methods of fundraising.

• Complaints about clothing collections, online advertising and email fundraising fell significantly on the figures reported in 2017/18, by 55%, 16% and 15% respectively.

The Chair of the Complaints and Investigations Committee, Michael Smyth CBE QC does end the Report’s foreword on a positive note, stating “Where we have identified breaches of the code, the organisations concerned have accepted our findings and have taken steps to make improvements. I am pleased to note that the fundraising sector is responsive to feedback and puts learning from our investigations into practice in a timely manner.”

For further information please contact Nicola Mason on 01772 821021.

Government support for charities

The Chancellor has acknowledged the role of charities in the current situation and the impact of reduced fundraising opportunities on their ability to continue to offer vital services.

The support package announced includes:-

  • £360 million direct from government departments. This will include support for:
    • hospices to help increase capacity and give stability to the sector (potentially up to £200m)
    • St John Ambulance to support the NHS
    • victims charities, including domestic abuse, to help with potential increase in demand for charities providing these services
    • vulnerable children charities, so they can continue delivering services on behalf of local authorities
    • Citizens Advice to increase the number of staff providing advice during this difficult time
  • £370 million for smaller charities, including through a grant to the National Lottery Community Fund. This will support those organisations at the heart of local communities which are making a big difference during the outbreak, including those delivering food, essential medicines and providing financial advice.
  • A commitment from the Government to match donations to the National Emergencies Trust as part of the BBC’s Big Night In fundraiser later this month – pledging a minimum of £20 million

Government departments will now be working to identify priority recipients, with the aim for charities to receive money in the coming weeks.   The application system for the National Lottery Community Fund is expected to be operational within a similar period of time.

For further guidance on the impact of Covid-19 on charities please read our insight here.

Preparing for your independent examination

When do you require a independent examination?

If a charity has income over £25,000, charity law requires external scrutiny of the accounts. Provided an audit is not required, this requirement can be met with an independent examination.

In order to ensure that a charity is prepared for the independent examination, they must ensure the following.

Accounting records

Accounting records are maintained for the period and that these are kept up to date. These should contain details of all income received, payments made and records of any stock and fixed assets held. These records  should separately identify movements on restricted, designated and unrestricted funds.

All bank statements, for all accounts held in the period under the review should be obtained and provided to the examiner. The year end bank balance recorded in the accounting records should be reconciled back to the bank statements.

A record of period end assets and liabilities should also be prepared and provided to the examiner.

Supporting documentation for all income and expenditure transactions should be retained and provided to the examiner

Should accounting records not be maintained to a reasonable standard, the examiner is required to report this as part of the independent examiners report on the accounts and to the Charity Commission.

Related party transactions

Accounts must be prepared on an accruals basis where income is greater than £250,000 or where the charity is incorporated. When preparing accounts on an accruals basis, management should ensure that all related party transactions are recorded and reported within the draft accounts.


As part of the independent examination, minutes of meetings will be reviewed. These should be retained for all meetings and provided to the examiner.

Going concern

The charity trustees should consider the financial circumstances of the charity at the period end.

For accounts prepared on an accruals basis, the trustees should demonstrate that they have considered  whether the charity will be able to continue in operation for a period of at least 12 months from the date of signing the accounts.

For receipts and payments accounts, the trustees should still demonstrate that they have assessed what invoices, bills and commitments remain outstanding at the end of the reporting period and whether the charity has the ability to settle these.

Trustees Annual Report

This should be prepared to provide an update on the charity’s activities during the year and plans for future periods. As part of the examination process, the content of this will be reviewed to confirm that it complies with legal requirements and further evidence may be required to support narrative on key elements of the report.

If you require any further information or guidance, please contact a member of the charities team at MHA Moore and Smalley on 01772 821 021.

Safeguarding resources

The National Council for Voluntary Organisations (NCVO) has recently released a new resources to assist organisations with safeguarding. The resources include a range of different tools from videos, podcasts, to briefings and more practical tools.

They cover a wide range of topics such as policies, training, reporting and responsibilities. Detailed guides for specific roles for example for Trustees, chief executives, volunteer managers etc. are also available. The NCVO hopes that providing this support will help to build safer cultures and more supportive behaviours regarding safeguarding in organisations of all sizes.

The release of these resources marks the end of phase one of work funded by the Safeguarding Training Fund, a partnership between the Department for Culture Media and Sport (DCMS) and the National Lottery Community Fund. Phase two is to focus on delivering training, promote and champion safeguarding/safe culture and enabling local networking.

To access the NCVO Knowhow resources on Safeguarding, follow the link here.

If you are interested in discussing more, please get in touch with Nicola Mason from our Charity Team.

Contact either on 01772 821 021, or email

This article originally appeared in MacIntyre Hudson’s Not for Profit eNews – February 2020.

Exploring Charity Investments

Charities are increasingly being judged not just on the work they do but also on how they operate and adherence to their core values in all areas.  How a charity invests surplus funds is coming under scrutiny and can generate adverse publicity in respect of an issue that the charity may not have been fully aware of.  Historically, charities are likely to have looked for the highest return on their investments to maximise the income for the charity but may not have considered if the investments made are in line with the charities aims.

In guidance issued this month, the Charity Commission are asking for the views of charities in terms of how they review and monitor investments in order to establish what is preventing charities from engaging with responsible or ethical investing.  They want to know charity’s experience and considerations around responsible investments and what the barriers are. They are also looking for consideration of what could be done to support trustees to invest in a way that reflects the charity’s purpose and values.  A link to the email is included in the attachment.

If Trustees are in a position to invest funds, it is important that they review the Charity Commission guidance. In summary this recommends that trustees should:

  • decide on the overall investment policy and objectives for the charity
  • agree the balance between risk and return that is right for their charity; this may include a wide range of factors that will impact on return including environmental, social and governance factors
  • have regard to other factors that will influence the level of return, such as the environmental and social impact of the companies invested in and the quality of their governance
  • be aware that some investments may have tax implications for the charity
  • invest any permanently endowed funds in a way that helps them to meet their short and long-term aims
  • decide whether to adopt an ethical, socially responsible or mission related approach to investment and ensure that it can be justified

Any investment decisions should be fully documented.

The guidance emphasises the need to consider other factors in the selection of investments and this is an area that is likely to receive further emphasis in the future.

If you require any further information or guidance, please contact a member of the charities team at MHA Moore and Smalley on 01772 821 021.

Refuse Donations

There have been several recent cases where Charities have felt compelled to return donations to protect the reputation of the charity and maintain public trust.   This is obviously a decision which will not be taken lightly.

As the best interests of each charity differs each will need to consider their own circumstances and the details of the donation and different charities will likely reach different conclusions. It should be noted that the terms of the donation may restrict the return of the donation to the donor and the Charity Commission’s authorisation may be required in certain cases. Trustees should also remember their duty to report any serious incidents which could harm their charity’s reputation to the Commission. We would encourage trustees to have a board policy on donation acceptance to help manage such situations.  Ultimately, the Trustees should be able to demonstrate how they reached a decision about the acceptance or return of a donation.

The Institute of Fundraising has issued practical guidance on acceptance, refusal and return of donations, which recommends that charities develop and implement policies for returning and refusing donations, which they may then also choose to make public, to guide and justify their decision-making on this issue. This policy would need to take into account the Charity Commission and Fundraising Regulator’s oversight.

If you have any questions on donations, please do not hesitate to contact one of the charity specialist team at MHA Moore and Smalley.