Self-helplines

It is not surprising that charities need specialist advisers and possibly have more umbrella organisations than any other sector. They have to find their way through an abundance of special rules, regulations, statutes and concessions, despite the continuing efforts of the Deregulation Task Force for Charities and the Voluntary Sector.

Recently the 1993 Charities Act came into force and a new Charities SORP and Accounting Regulations were introduced. A repeal of the 1961 Trustee Investments Act is in the pipeline too if the recommendations in a Treasury consultation document out this summer are adopted. In addition, there are all the aspects of employment and other legislation not specifically applicable to the charity sector. All these affect the way charities operate and they must learn about them fast.

Umbrella organisations and the companies supporting them play an important part in the learning process. They supply information, and advice which are part of the hidden donations to charities, helping to make the pound put in the box stretch further. All charities try to keep overheads down (recent research shows average earnings are lower than in other sectors), and minimise tax liabilities but they still need to spend on attracting cash and managing it properly.

Trustees of charities cannot afford to employ a specialist member of staff for every task so contact with colleagues in other charities helps pool knowledge and share advice. A review of the jobs covered by members of the Charity Finance Directors’ Group, (CFDG), to which the finance directors of most large charities belong, shows that one person can be responsible to the trustees for tasks as diverse as setting the investment policy, running the information technology, managing the real estate and sorting out staff pensions. This in addition to the ‘basics’ of financial planning and accounting.

It is not the aim of organisations like the CFDG to replace the professionals employed by charities. They still need their own accountants to steer them through the new accounting regime, the latest tax changes and the vagaries of VAT. They must have their investment adviser and solicitor.

However, if some advice can be obtained for nothing it helps. A telephone call to a free helpline is often a quicker and cheaper way to deal with a query.

The latest helpline to be set up by the CFDG is an Investment Helpline, run by Fleming Investment Management. Regulations mean that Flemings (0171-382 8646) can’t recommend a specific investment, but it can give one-off information about aspects of investing. For example, some finance directors are responsible for treasury work in their charity, placing money on deposit and deciding when it must be available to spend. Advice on the options available may help. Charities operating abroad need to know the best way of transferring money safely to reach workers in remote areas and the international contacts of Flemings will give the latest situation.

Then there’s the 1961 Trustee Investments Act (which may be repealed).

It applies to any charity that does not have specific investment powers written into its governing documents. It is complicated and restrictive, requiring division of funds prior to investment in securities which fit the qualifications set out in the Act – one portion in equities and the other in fixed interest securities. There is no list of qualifying investments – trustees must look at the company history or ask a specialist. New types of investment also crop up regularly and someone has to decide whether they are permitted or not. Even large charities which have obtained much wider investment powers are still affected by the Act as they receive small legacies of funds to be held in trust which are often subject to it.

Crest, shorter settlement periods, derivatives, rights issues, nominees, tax claims and countless other aspects of investment can all cause worries.

Charities can reclaim tax deducted at source from share dividends but since the ACT rate was reduced to 20% from 6 April 1993 they have also been able to claim transition relief (now in its last year). That ACT rate reduction meant charities, in common with other non-taxpayers, faced an immediate drop of 6.25% in their gross income from shares. Without the relief it was estimated that the change would reduce the charity sectors’ investment income by # 50m each year.

Not all charities have investments or employ an investment adviser – some employ investment staff directly. The new helpline is intended to provide information to charity finance directors, whether to help with an investment decision or to assist in preparing a report for trustees.

Recently, accountants have been helping charities with the new presentation of their accounts required by the Charities (Annual Report and Accounts) Regulations and the SORP. The introduction of fund accounting and a new way of presenting realised and unrealised gains and losses on investments are two of the changes that have caused charities to reorganise some of their internal accounting systems.

Investments, gains and losses, realised or unrealised, must now be shown against the carry forward value not the historic cost. This is particularly onerous for charities which have held land and buildings as an investment for decades as they now have to obtain valuations. Queries on cost allocation are arising as income and expenditure cannot be netted off and attribution of assets to funds is also causing headaches. Rules for charitable companies differ from those of other companies and there is the problem of consolidation of accounts for subsidiaries, trading or otherwise. Although the guidance from the Charity Commission is good, putting it into practice is complicated.

Then there is tax. It is a popular myth that charities are not liable for tax. If they do not apply their income they may be liable, but they like to keep something in reserve in case the money supply dries up. There are tax-efficient ways of giving to charities so that tax paid by the donor can be reclaimed but the phrasing of the gift must be right and the rules are adjusted regularly.

Accountants help minimise tax liabilities and maximise recovery. Pesh Framjee of Binder Hamlyn runs the CFDG accounting helpline (0171-489 6140).

VAT is another complex area. Statutory and extra-statutory concessions mean that in some circumstances either charities can recover VAT or services are zero-rated. Vague definitions, VAT tribunals and frequent changes in concessions mean that Customs & Excise guidance is regularly reprinted and it runs an advice line especially for charities. Russell Moore of Hays Allan has set up a VAT Club for CFDG members (0171-831 6233) which operates workshops to examine how the rules apply in different situations.

Knowing the way around tax rules can save thousands of pounds each year.

All these aspects of charity finance are underpinned by law and there are things like intellectual property, employment law and fundraising regulations to add to the problems. A helpline provided by Alsop Wilkinson (0171-248 4141) fills this gap. There are possibly more specialist areas in the legal profession than any other, and this line gives free access to all the specialisms in the partnership.

Charities are not afraid to spend money when necessary to promote their effectiveness and efficiency, but free access to advice from specialising professionals is a hidden gift to charities that is a real poundstretcher.

Shirley Gillingham is the executive secretary of the CFDG and Flemings Senior Research Fellow at South Bank University. For information on CFDG contact: 0181-503 9217.