Author Archives: Martin Bailey - Partner

About Martin Bailey - Partner

T +44 (0)20 7874 8877

I have particular expertise in the charity and the social business sector, working with organisations in 'The Third Sector' since joining the profession and developing vast knowledge and extensive experience in this time.

Charities are unique and have specialised reporting, compliance, and governance requirements. They require someone with specialist skills and knowledge to support them, allowing them to focus on their important work.

I work with organisations rather than for them, providing support and advice to issues as they arise - whether that be core accounts and audit compliance, VAT and taxation planning, governance issues, risk management, strategic reviews and advice, or designing accounting systems.

As always, the detail matters—and with changes of this scale, it’s important for charities to review the proposals carefully.

Charities SORP 2026 consultation draft published: What’s changing?

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 7th April 2025

Categories:

The long-awaited consultation draft of the new Charities SORP (SORP 2026) has now been released. You can access the full draft here: SORP 2026 Consultation Draft

Some of the key proposed changes include:

A new three-tier reporting regime based on income, each accompanied by differing levels of disclosure requirements:
- Tier 1: Charities with income up to £500,000
- Tier 2: Income between £500,000 and £15 million
- Tier 3: Income over £15 million
Enhanced Trustees’ Annual Report disclosures, including information on impact, use of volunteers, and sustainability. Charities in tier 3 will be required to report on environmental, governance, and social matters, while those in tiers 1 and 2 are encouraged to do so.
Clarified guidance on income, with separate sections on exchange (e.g. contract income – including the new 5-step revenue recognition model for income from exchange transactions) and non-exchange transactions (e.g. donations and grants). The performance model remains mandatory for grant income recognition.
New modules covering provisions, contingent liabilities and assets—including accounting for funding commitments—as well as lease accounting.
New module on lease accounting following changes within FRS102, including guidance identifying leases, identifying short-term or low-value leases that may qualify for simplification, and guidance on nominal or peppercorn arrangements.
Cash flow statements will no longer be required for charities with income under £15 million (unless still required under FRS102).

As always, the detail matters—and with changes of this scale, it’s important for charities to review the proposals carefully.

The consultation remains open until 20 June 2025, providing an opportunity to engage and respond.

If you’d like help understanding how these changes might affect your charity, don’t hesitate to get in touch.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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These revisions will bring important changes to how charities account for leases, recognise revenue, and report on certain specialised activities. And, as the upcoming Charities SORP will align with these changes, charities need to start preparing now.

FRS 102: Key changes for charities ahead of the new SORP

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 17th December 2024

Categories:

The financial reporting landscape for charities is undergoing significant changes, with the long awaited new Charities SORP and the updated Financial Reporting Standard (FRS) 102 set to take effect from 1 January 2026.

These revisions will bring important changes to how charities account for leases, recognise revenue, and report on certain specialised activities. And, as the upcoming Charities SORP will align with these changes, charities need to start preparing now, well ahead of the new SORP’s anticipated release in late 2025 (an initial consultation version will be published in early 2025).

Lease Accounting

The key change here will be that charities will need to recognise both finance and operating leases on the balance sheet. This means recording both a Right of Use (ROU) asset and a lease liability, eliminating the previous distinction between finance (on-balance sheet) and operating (off-balance sheet) leases.

Unfortunately, charities are not eligible for the same exemptions as micro-entities under FRS 105. This means that whilst some short-term leases and leases of low value assets will remain off the balance sheet, charities are likely to see changes to their balance sheets. These changes will be applied by adjusting opening reserves and not by restating comparatives.

Revenue Recognition

FRS 102 will also introduce a new five-step model for revenue recognition. Applicable to all contracts with customers, the model outlines the following steps:

Identifying the contract(s) with a customer.
Identifying the performance obligations (distinct goods or services) in the contract.
Determining the transaction price (amount the entity expects to receive).
Allocating the transaction price to each performance obligation.
Recognising revenue as the performance obligations are satisfied.

As a result, charities receiving income under contracts (and possibly under certain grants which have attached performance conditions) may see a shift in when revenue is recognised, potentially altering reported income levels and affecting whether or not the charity is subject to audit. These changes can be applied by restating comparatives or adjusting opening reserves.

Revisions to Section 34 (Specialised Activities)

Updates address the recognition and measurement of specific types of income relevant to charities, including:

Heritage assets, such as artworks or historical items.
Non-exchange transactions, including donated goods (e.g., items for charity shops), services, facilities, and legacies.

The new Charities SORP will provide detailed guidance on how to apply these revisions, offering practical examples and criteria, but if you would like to discuss any of these changes, or have any other questions about financial reporting for charities, please contact Martin Bailey.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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The Better Business Act is a campaign to amend the Companies Act 2006 to make it a legal obligation for companies to act not only in the interest of shareholders’ profits, but also for their people, the community, and the planet.

What is the Better Business Act?

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 16th August 2022

Categories:

The collapse of several high profile companies, together with an unprecedented series of societal challenges, from the Covid-19 pandemic to the current cost of living crisis, has increased calls for change in the way businesses operate.

From policies aiming to limit carbon emissions to allowing more flexible working, there have been many new initiatives and debates around the way we work and the Better Business Act is one proposal to address some of those issues facing us.

Backed by a coalition of almost 1,200 companies, the Better Business Act is a campaign to amend the Companies Act 2006 to make it a legal obligation for companies to act not only in the interest of shareholders’ profits, but also for their people, the community, and the planet.

“The Better Business Act will transform the way we do business, so that every single company in the UK, whether big or small, takes ownership of its social and environmental impact.”

The coalition argues that section 172 of the Companies Act is unclear as to a business’s responsibility beyond the “Duty to promote the success of the company”. In its current wording it could be interpreted as justifying ruthless profiteering at the expense of the wellbeing of staff, society, and the environment.

Already signed up are companies such as John Lewis, Virgin and Iceland, and with research carried out by the BBA showing that 76% of UK voters and consumers think business should have a legal responsibility for their wider impact, the pressure on more big companies to follow suit looks likely to grow.

This change to the Companies Act would see all companies required to do something that over 700 businesses have already voluntarily done by them becoming B-Corps; certified organisations that ““meet the highest standards of verified social and environment performance, public transparency, and legal accountability to balance profit and purpose”.

What would this mean for my business?

The BBA aims to see four key principles reflected in the amended Companies Act.

First, the proposal seeks to align the interests of shareholders with wider society, elevating the cause of societal wellbeing to a legal requirement, alongside company success. To do this requires the second principle: empowered directors with the ability to make holistic assessments and decisions.

Third, the Better Business Act would require this to be a default change that applies to all businesses, large and small and, finally, this must be reflected in reporting.

Therefore, should the Better Business Act be implemented, there would be a noticeable impact on both board-level decision making and strategic reporting. However, despite the act requiring companies to report on “how the company has advanced its stated purpose and in consideration of its key stakeholders, community, and the environment,” established standards of impact assessment do not exist currently.

But having such established standards is not necessarily problematic; after all, assessing impact is something that the charity sector has long been doing, whether through formal impact assessments or via their Annual Report. Perhaps this is an area where the corporate sector can learn from “The Third Sector”.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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The government has issued guidance on the key changes brought about by the Charities Act 2022, that will come into effect in the coming months and years...

New regulations for charities: The Charities Act 2022 is on its way and SORP not far behind…

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 11th August 2022

Categories:

The government has issued guidance on the key changes brought about by the Charities Act 2022, that will come into effect in the coming months and years.

Key changes coming up:

Autumn 2022

Paying trustees for providing goods to the charity.
New powers for trustees regarding moral or ex-gratia payments, or waiving their rights to receive funds (most typically regarding a legacy that may be questionable).
Reducing the complexity regarding fundraising appeals that can’t be used for their original purpose.
Amending their Royal Charter.
Inclusion of charitable companies in the Commission’s scheme-making powers.
Automatic corporation trust status for corporate charities where the corporation is a trustee
Update the provisions regarding giving public notice to written consents
A lighter touch parliamentary process when a charity changes its governing document by parliamentary scheme

Spring 2023:

Changes for charities selling, leasing or transferring land.
Greater flexibility regarding ‘permanent endowment’ assets .

Autumn 2023

Amending governing documents.

SORP

Spring 2023 also sees the beginning of the public consultation on the new SORP which is expected to apply to reporting periods from 1 January 2024.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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One of the difficulties in making plans, budgets, and strategies at present is the level of change and uncertainty, so there is a greater need for charities to be nimble and flexible.

Scenario Planning – A vital planning tool during times of uncertainty

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 20th July 2020

Categories:

Charities & Social Businesses

One key area that is often overlooked when budgeting and forecasting is scenario planning (or ‘what if?’ analysis) but this has never been more important.

Budgeting is a vital financial management tool: it allows you to track how much has been spent against planned expenditure, it can help to identify potential future issues such as crunch points on cash flow, and it also helps with longer-term planning through forecasting future cash and reserves levels.

The importance of budgeting is heightened in current times, where circumstances are changing on what seems to be a daily basis.

One of the difficulties in making plans, budgets, and strategies at present is the level of change and uncertainty (although after Brexit and now COVID-19, perhaps uncertainty is the ‘new normal’) and so there is a greater need for charities to be nimble and flexible.

Scenario planning

Better financial information allows better decision making, and it is therefore important that the decision makers have relevant and accurate information when making those decisions.

Scenario planning allows organisations to make flexible medium and longer-term plans. It allows the Board and senior management to make more informed decisions that are based on an assessment of many and varied situations.

So what is scenario planning? It is making assumptions about the future and seeing what impact these will have on the future of your organisation, what it does, and how it does it.

Tips on the how to do this

If you have never done scenario planning before, this may seem daunting – particularly as it involves making assumptions in a rapidly moving environment. However, the process does not have to be over-complicated:

Firstly, be clear about the uncertainties you are planning for. Start broad (for example income levels or demand for services) and then narrow down (so if we take the income level uncertainty are you considering the loss of a particular funder, a general decrease in public donations, or a fall in commercial trading income?)

It’s important to consider all uncertainties – but assess likelihood and impact of each. I find that this initial stage works well alongside a review of your risk register – you want to make sure that you are factoring in those uncertainties that are most likely and/or carry greater impact. It is these critical uncertainties that you should plan for.

For each critical uncertainty, consider several different scenarios – there’s no right answer for how many to consider, and it will depend on what your charity does and how it is funded. Too many different scenarios for each uncertainty and the analysis may become too unwieldy; too few and you may not be covering every significant possibility.

This stage is where we start to narrow down the uncertainty. Let’s say the critical uncertainty is loss of commercial trading income from a cafe – consider different scenarios such as no trading income for the rest of the current financial year, different levels of capacity, or even wider issues (such as future levels of tourism).

Review and discuss the implications and impact of each scenario. Involve individuals from throughout the organisation – heads of department / project managers or even volunteers may have a clearer idea of different scenarios or impact.

Some final tips

Of course, all of this depends on a strong foundation of accurate and up to date accounting records and financial information. If the accounting records are not maintained regularly, monitoring performance against budget will be less effective and future planning may be impacted as cash and reserve levels are unknown.

Try not to fall into the trap of considering too many uncertainties and too many scenarios for each uncertainty – keep it simple and focused. But remember that there may be various scenarios to model. Scenario planning should not be built around a single factor.

Consider short, medium, and longer-term scenarios – the impact and outcomes may change over time so factor this into your assumptions and into the modelling.

Try to incorporate the scenarios into the modelling so they can be flexed easily – for example, use an Excel model that uses Excel formulae so that as few cells as possible have to be updated.

Photo by Daria Nepriakhina on Unsplash

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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The temptation at present may be to operate on a day-to-day basis, but doing as much planning and preparation as possible, will help you during this time.

Recommendations for charities dealing with the impact of coronavirus (Covid-19)

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 18th March 2020

Categories:

Talking to a couple of my charity clients last week highlighted that the impact of the coronavirus (Covid-19) on charities is, as with nearly every individual and every business, ever changing.

Ensuring the health and safety of beneficiaries, volunteers, and staff is of course paramount. But in order to ensure this and ensure that charities can continue to provide their much needed and highly valued services as much as possible, it is essential that organisations continue to operate and be managed efficiently and effectively.

Whilst both charities mentioned above are well run organisations, they have seen an impact on their service delivery (whether through cancellation, postponement, or through changing the way their services are delivered).

Their income is also being affected – especially where income is generated from carrying out its activities, but also from cancellations of fundraising events (as part of social distancing measures) and declines in investment performance.

Income generation is always a key concern for charities – and this is likely to become a greater concern over the coming weeks with bills and wages to pay, and services to provide.

Therefore, here are a few key matters that charities should consider:

Communication – talk to your funders. If you have been awarded funding to carry out a particular project and that project can’t go ahead, or needs to be postponed or changed, speak to the funder about rescheduling or the changes to the project.

The charities that I have advised to do this have found their funders to be very supportive and have confirmed their commitment to the funding even if the activities are delayed.

Speaking to them now, will help to keep them onside and demonstrate that as an organisation you are still focused on what you do, and that you are looking at mid-longer term service delivery, as well as adapting to the current circumstances.

Revisit forecasts and plans – business plans and budgets are not set in stone. They are living documents that should be reviewed and revised as circumstances change.

Review planned activities – can they still go ahead? Are they fully funded? If not, is funding available?

Update forecasts and especially cash flow projections. It may be difficult to predict cash flow over the next few months but doing this as accurately as possible will help to identify pinch points.

Build in ‘what if?’ scenario planning into the revised forecasts – if one project doesn’t go ahead, can the funding be used elsewhere (remember, speak to your funders), or can valuable resources be saved by delaying or cancelling non-essential activities??

Don’t be afraid to say no to income – this may sound strange, but don’t blindly chase and accept income without thoroughly understanding what it is for and where it is coming from. It is essential to stay calm and not make knee-jerk reactions – decisions should be taken after careful and thorough consideration of the circumstances.

Things to consider are:

Would accepting this income require us to do new services/activities that we don’t currently provide?
If so, are these still in line with our charitable objects?
Would we have to adhere to new regulations?
Would this require us to incur additional costs?
Are there potential reputational risks from working with this funder? Or potential conflicts of interest with other existing funders?

Review your reserves policy – there is both a short and longer-term element to this. In the short-term, reviewing your levels of reserves is an essential part of revising plans and forecasts. Going forward, a full review of the reserves policy is recommended to see whether it is still appropriate, especially if your activities and ways of carrying them out have changed.

Also, don’t be afraid to use reserves in this period – it is why they are held.

One other recommendation is to keep notes of everything that you do differently now for future – this will help with future crisis planning and highlight areas where systems/procedures may need improving. For example, do IT systems need improving to work from home? Would moving to the cloud enable better business continuity? Has this highlighted how reliant an organisation is on particular key members of staff or income streams? Does it show how easily or how difficult it was to change delivery of services and ways of working?

The temptation at present may be to operate on a day-to-day basis, but doing as much planning and preparation as possible, will help you during this time.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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SITR means that individuals can claim 30% of the cost of investing in a qualifying social enterprise

Social Investment Tax Relief

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 9th July 2019

Categories:

One of the ways in which a company can receive finance is through investment by individuals, frequently through the issue of share capital.

In 2014, the government introduced Social Investment Tax Relief (SITR) with the aim of increasing access for social enterprises to finance by offering tax incentives to individuals who invest in qualifying social enterprises. These are businesses that are run to generate profits but whose missions and objects include social purposes, rather than solely shareholder wealth maximisation.

What is Social Investment Tax Relief?

Individuals can deduct an element of the cost of their investment from their income tax liability in the year in which the investment is made, or carry it back to set against income tax in the previous tax year.

How much is Social Investment Tax Relief?

An individual can claim 30% of the cost of investment against their income tax liability.
An individual can also defer a capital gains tax liability if their chargeable gains are invested in a qualifying social enterprise. The capital gains tax liability then only becomes payable when the social investment is sold or redeemed.

When the social investment is sold, no capital gains tax arises on any gain on the investment itself (but it is worth noting that any dividends or interest received on the investment are subject to income tax).

How long must the investment be held?

The investment must be held for a minimum of 3 years.

Is there a maximum amount of investment?

Individual investors can invest up to £1 million and this can be in more than one social enterprise.

Individual social enterprises can receive €344,827 over 3 years – depending on exchange rates, this is around £300,000. An enterprise can receive a maximum of £1.5m social investment over its lifetime.

What is a qualifying social enterprise?

In order to qualify, there are numerous conditions that an organisation must meet:

1. Use of money

The organisation, or its subsidiary, must use the money for a qualifying trade or for preparing to carry out a qualifying trade (which must start within 2 years of receiving the investment).

A trade must not include such activities as (amongst others): leasing, receiving royalties/licence fees, financial services, dealing in land or financial instruments, agriculture, property development, running a nursing home or residential care, or production of gas/fuel or generation of electricity/heat.

2. Characteristics of organisation

The organisation must not:
• Have more than 250 or more full-time equivalent employees at the time of the investments,
• Be controlled by another company
• Have more than £15million of gross assets immediately prior to the investment
• Have more than £16million of gross assets immediately after the investment

3. After receiving investment

For the 3 years after receiving investment, the organisation cannot:
• Be controlled by another company
• Be quoted on a recognised stock exchange
• Be in a partnership
• Control another company that is not a qualifying subsidiary

How are HMRC notified?

The social enterprise must inform HMRC that the organisation qualifies as a social enterprise, that the investment received is a qualifying investment, and that all necessary conditions have been met.

It is worth noting that the investor is unable to claim the relief until HMRC have received this confirmation from the social enterprise.

Future of SITR

Finally, just a few comments about the future of the scheme. The government has announced a ‘call for evidence’ into the scheme and how it has impacted access to finance for social enterprises. This call for evidence has probably been triggered, at least in part, because take up of SITR has been less than thought.

The latest HMRC statistics show that during 2017/18, 20 social enterprises received £1.4m of investment through SITR. Since its launch in 2014, 80 social enterprises have received investment totalling £6.7m.

As it stands, SITR is due to come to an end on 5 April 2021 – but this may be extended, and/or the rules changed, depending on the outcome of the call for evidence.

Tax Planning

The above comments provide an overview of the key elements of SITR but, as with all things tax, there are likely to be additional conditions or factors to bear in mind.

In addition, this should form part of wider tax planning arrangements to ensure that an individual’s full tax affairs are assessed.

At Goodman Jones, we work closely with organisations and individuals enabling us to understand this from both sides of the fence – so do get in touch with any questions or for advice on claiming SITR.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Having B Corp certification publicly demonstrates an organisation’s commitment to being a socially responsible business. This may make a company more attractive to potential employees, potential customers, and potential investors.

What is a B Corp?

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 24th June 2019

Categories:

UK Business & Entrepreneurs

The “bottom line” is well-known in business parlance as referring to the profit or loss of an organisation. Around 40 years or so ago, the concept of the “triple bottom line” was introduced and this has gained more and more prominence, especially in recent years.

The triple bottom line approach to business expands on traditional financial reporting to include social and environmental performance.

In fact, the triple bottom line has already been extended to, unsurprisingly, the “quadruple bottom line” – the fourth ‘line’ being a future-oriented approach to business where future generations and intergenerationality are considered alongside financial, social, and environmental matters.

The last few years in particular have seen more and more businesses engaging with triple, and quadruple, bottom line reporting, and adapting the way they do business.

One way in which this is evidenced is through the rise in the number of B Corporations (or B Corps). B Corps started in the USA in 2007 and launched in the UK in 2015. There are now over 170 certified B Corps in the UK (as at June 2019).

What is a B Corp?

A certified B Corporation is a business that “meets the highest standards of verified social and environment performance, public transparency, and legal accountability to balance profit and purpose”, source: https://bcorporation.uk/about-b-corps.

B Corps take a triple bottom line approach – they seek to generate not just financial profits, but also change and improvement for the wider world.

How do you become a B Corp?

B Corps are certified as such in the UK by B Lab. In order to be certified, an organisation is assessed by B Lab to see whether it meets the required standards.

An organisation must be re-certified every two years.

What are the required standards for certification?

An organisation completes an impact assessment and disclosure questionnaire – then subject to validation by B Lab. To meet the standards of certification, an organisation must obtain a score of at least 80 out of 200 across five areas: governance, community, workers, environment, and customers.

The required standards are always being reviewed and revised to ensure that B Corps move with the times and reflect what good looks like at the current time.

An organisation must also meet the legal requirement.

What is the legal requirement?

B Corps are legally required to consider the impact of their decisions and activities on all stakeholders, not just shareholders. In the UK this involves updating the relevant governing document to include a commitment to the triple bottom line approach.

Practically, for a UK company, this means changing the objects clause in its Articles Of Association to include a statement that the business exists to have a positive impact on society and the environment, as well as for the benefit of its shareholders.

Who can become a B Corp?

Any for-profit organisation can be become a B Corp. It must generate the majority of its revenue from trading activities, compete in a competitive marketplace, not be a charity, not be a public body or majority owned by the state.

The organisation must have been trading for at least a year – for new business less than a year old, they can still go through the process but will have B Corp Pending status until full status is confirmed after a year.

What are the Pros of being a B Corp?

Having B Corp certification publicly demonstrates an organisation’s commitment to being a socially responsible business. This may make a company more attractive to potential employees, potential customers, and potential investors.

Many organisations already take a triple bottom line approach to business – even if this isn’t documented or made known to stakeholders outside the business, inside the business, and perhaps even to the business leaders themselves (such an approach just coming naturally). So getting formal B Corp certification may just be putting an official public stamp on what a company is already doing.

Any Cons?

The triple bottom line approach may be new to an organisation and require significant input of time, money, and resource – not to mention, a likely change of mindset, focus, and culture.

In addition, although present in the UK for 4 years, B Corps are relatively new and so still a relatively unknown concept. Whilst they may be attractive, the concept may also give rise to increased caution from potential investors who want/need a level of financial return and therefore may have concerns around maximising profits (however, this attitude is starting to change with increased numbers of social investors).

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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Reviewing your charity’s processes around tracking reserves is an important exercise and shouldn’t be dismissed as a year-end accounts process.

Fund accounting for charities – the importance of monitoring restricted funds

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 7th June 2019

Categories:

Charities & Social Businesses

One of the ways in which charity accounts are ‘different,’ is the use of fund accounting.

Fund accounting splits income and expenditure into different pots depending on the purpose of the donation.

There are four types of fund:

1. Unrestricted or general funds – these are funds that a charity has received from a donor and which are not held for any particular charitable purpose. They can be spent as deemed fit by the trustees.
2. Designated funds – these are unrestricted funds that the trustees have set aside for a particular purpose. Such funds can be undesignated or re-designated.
3. Restricted funds – restricted funds have been given to a charity for a particular purpose and can only be spent on that purpose.
4. Endowment funds – these are funds received by a charity that represent capital. Charity law requires trustees either to invest such funds, or to retain and use them for the charity’s purposes.

Knowing the position on each of a charity’s funds at any point in time is an essential part of a charity’s financial management. In particular, there is a need to be able distinguish between unrestricted (including designated) funds and restricted funds. Restricted funds can only be spent in accordance with the requests of the donor; failure to do this may be a breach of trust.

So why else is it important to monitor restricted fund balances?

Planning and budgeting – not identifying restricted funds at time of donation and not allocating expenditure to restricted funds until the year-end can have a distorting impact on your planning and budgeting processes. This may give rise to the expectation that available funds are greater than the true position.
This could result in:

Encouraging you to plan additional activities thinking the reserves are available to fund them – yet once the fund allocations are done, it may indicate highlight that reserves are lower and so these extra activities may put additional pressures on fundraising or cash flow
Indications that your reserves policy is not appropriate (see below)
Indications that your income streams are not sufficiently diverse – for example tracking funds during the year may help to highlight that most of your income is received in the form of restricted grants and therefore there is a need to look at other sources of funding

Reserves policy – every charity needs to develop its own reserves policy that establishes an appropriate level of reserves for the charity to hold. Restricted funds fall outside of the definition of free reserves – but they still impact a charity’s reserves policy.

If the nature of a charity’s activities is such that significant levels of its income and reserves are restricted, then the level of unrestricted reserves the charity should hold may be reduced. However, if restricted fund balances aren’t being monitored, then the reserves policy established may not be appropriate and the charity may be holding too high, or too low, a level of unrestricted reserves.

Keeping track of restricted funds during the year will allow better monitoring of financial performance, unrestricted reserve levels, and the level of unrestricted funds needed – and will help to drive review and setting of the reserves policy.

Donor reporting – it is often the case that that when restricted funds are awarded to a charity, the donor specifies that a report be provided on how these funds have been spent. Such a request may be made for unrestricted funds too. These donor reports will not necessarily coincide with your accounts year-end.

Many charities, both large and small, perform the analysis and allocation of expenditure by fund as part of the annual accounts process. Therefore, you need to make sure that you can easily identify the expenditure connected to each restricted fund at any time during the year. Ensuring that your accounting system allows allocation of income and expenditure to a particular department/project/cost centre should make extracting the information for the donor report more straightforward.

Accounting system and resource –good questions to ask include: does the absence of monitoring funds during the year indicate that your charity has outgrown your accounting system? Is the system still fit for purpose? Does it highlight a training need for your accounts team? Are the trustees receiving the financial information they require?

Overheads – unrestricted funds are often seen as the holy grail of charity financing as they can be spent as the trustees deem appropriate. There can be the belief that “unrestricted funds = overheads”, and that restricted funds cannot be used towards overheads or support costs.
However, this is a slight misconception. Donors are aware that projects and activities don’t just happen – for example, a charity might need premises to carry out its activities so it’s only right that a proportion of premises costs relate to the projects funded by the restricted reserves.
Not tracking restricted funds until the year-end may mean that overheads are not apportioned until the year-end – by this time, the restricted funds may have been spent, resulting in support costs being funded out of unrestricted reserves.

It may also indicate that support costs are not being allocated appropriately – a charity’s activities are likely to change over time (either in terms of what activities are carried out, or the way in which they are carried out). Therefore, previous methods of support cost allocations may not continue to be the most appropriate method.

The above are just a few reasons as to why restricted funds should be monitored on an ongoing basis – but it’s certainly not a definitive list!

Reviewing your charity’s processes around tracking reserves is an important exercise and shouldn’t be dismissed as a year-end accounts process.

Do get in touch if you have any questions on how your charity can best monitor its funds.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

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GASDS is a very useful scheme, especially for small charities or charities that receive lots of cash donations.

What is the Gift Aid Small Donations Scheme?

Martin Bailey - Partner - mbailey@goodmanjones.com

Posted on 9th April 2019

Categories:

Charities & Social Businesses

I blogged recently about various tax changes affecting charities from April 2019. One change related to the Gift Aid Small Donations Scheme.

I have had a few questions from charities recently about this scheme so I thought that a reminder of what this is and how it operates would be useful – not least because, whilst this is a very helpful relief, the rules regarding eligibility are not the most straightforward.

What is the Gift Aid Small Donations Scheme?

The Gift Aid Small Donations Scheme (or “GASDS”) was introduced back in April 2013 to allow eligible charities and Community Amateur Sports Clubs (“CASCs”) to claim Gift Aid on small cash donations – for example cash collected in tins or buckets via street collections, or at religious services.

Can any charity or CASC claim?

To qualify as an eligible charity or CASC, an organisation must:

1. Be registered as a charity with HMRC

2. Have claimed Gift Aid:

in the same tax year as you want to claim GASDS
without getting a penalty in the last 2 tax years
in at least 2 of the last 4 tax years (without a 2-year gap between claims) if you’re claiming on donations made before 6 April 2017

What is an eligible donation?

The scheme is available to cash donations (including contactless card payments from April 2017) of:

£20 or less – for donations on or before 5 April 2019
£30 or less – for donations on or after 6 April 2019

The donation must have been made by an individual, banked in a UK bank account, and must be used for charitable purposes. No benefit can be received by the donor in return.

Membership fees do not qualify as GASDS donations – not amounts given through payroll giving.

How much can a charity or CASC claim?

You claim 25% of the eligible donation. A total of £2,000 can be claimed – i.e. on gross donations of £8,000 (up to 5 April 2016, the limit was £1,250 of relief on gross donations of £5,000).

However, as well as the £2,000 cap the GASDS claim can’t be more than 10 times your Gift Aid claim – so for example if, in the same tax year, you’ve received £100 of Gift Aid donations then you can claim on up to £1,000 worth of donations through GASDS.

The ‘10 times’ rule does allow a planning opportunity – whilst it may increase administration requirements, the more donations that can be claimed under Gift Aid (by getting donors to complete declarations – even if these are small cash donations too), then more eligible donations can be claimed under GASDS.

Is a donor declaration needed like Gift Aid?

No – the scheme was designed to provide some relief for small cash donations where obtaining a signed gift aid declaration is difficult or impractical (such as street collections). A charity or CASC does not actually have to know the identity of the donor, unlike with Gift Aid. Therefore, there is an admin cost saving (from not having to obtain and store Gift Aid declarations) as well as a cash receipt benefit.

If Gift Aid is claimed on such a donation, then it does not qualify for GASDS.

Does the donor claim tax relief?

No, donations made via GASDS are not a tax relief for the donor. Therefore, higher-rate tax payers cannot claim further relief on their tax return for small cash donations made under GASDS.

What if the charity is connected to another charity?

If two charities are connected then all of the connected entities share the £2,000 limit between them. If you are connected through recent merger, then you may be able to take on the other charity’s claims’ history.

If you are connected and share a community building, then you may be able to make an additional claim as if you have a community building.

Community Buildings

Every charity is entitled to claim up to £2,000 per annum (on donations of £8,000 as noted above). However, charities that also have one or more ‘community buildings’ may be able to claim additional amounts, subject to meeting certain conditions.

These conditions can be quite complex but in essence a ‘community building’ is a building, or part of a building, to which the public or a section of the public have access at some or all of the time. Buildings used wholly or mainly for residential purposes, for the sale or supply of goods, or for commercial purposes (except at times when the charity is carrying out a charitable activity in the relevant part and the charity has exclusive use of that part)

How do I claim?

Claims are made via the usual Gift Aid claim form. Where amounts are claimed for different community buildings, the donations must be split be building (and the addresses o the building noted on the claim).

Is there a time limit for claiming?

GASDS claims must be made within two years of the end of the tax year in which the donation was collected.

GASDS is a very useful scheme, especially for small charities or charities that receive lots of cash donations. If you have any questions about the scheme, and whether your charity would qualify, do get in touch.

The information in this article was correct at the date it was first published.

However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.

If you would like to discuss how this applies to you, we would be delighted to talk to you. Please make contact with the author on the details shown below.

Comment on this...