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43 Top Accounting Tips for Charities

Charities have their own unique set of accounting requirements and if you are a charity there are lots of things to remember to make sure your accounts are fit for purpose. Rawlinsons provides specialist charity accountancy services to the not for profit sector in and around Peterborough and we’ve put that to good use below, creating an incredible 43 accounting tips just for charities.

Legal structure

  1. Make sure you know where your governing document is.
  2. Check that everything you do is covered by your charitable objects and that you are following all the procedures that you agreed to do when the charity was set up.
  3. If you are an unincorporated charity consider whether the Charitable Incorporated Organisation (CIO) is more appropriate
  4. If your governing document is old, consider whether its time for a refresh. You will find example governing documents on the Charity Commission website.

 Help, I’m a trustee!

  1. Make sure you read the Charity Commission booklet, ‘The essential trustee: what you need to know, what you need to do (CC3)’ as it will give you an introduction to your role and the Charity Commission.
  2. Make sure you disclose any business interests or other trusteeships etc. to your charity. Charities must have procedures for identifying and managing potential conflicts of interest. This can include conflicts of loyalty between, say, two charities operating in a similar field.
  3. If something goes wrong in your charity, consider whether you have a duty to report it to Charity Commission as a ‘Serious Incidents’
  4. Never forget that you are there to make a positive impact on the charity’s beneficiaries

Year end

  1. All charities have to prepare annual accounts, but the format of accounts depends on your size, so make sure you know which regime you are in.
  2. Make sure you set a timetable to complete your accounts and agree it with your accountants. You have 10 months from the year end to file your accounts with Charity Commission (9 months with Companies House) – don’t be late!
  3. Make sure your accountants understand charity accounts!
  4. Charity accounts can be complex, so make sure your treasurer or accountants explain the key points so that you understand the main financial issues
  5. Don’t be afraid to ask a ‘silly question’ about your accounts. If more people did that, less issues would arise.

Management accounts

  1. If you don’t receive it already, request management accounts for each trustees meeting so that you can keep up to date with the financial position and address issues early.
  2. Consider whether you receive the right amount of detail – not too much, that you never see the key points, and not too little that you are none the wiser!
  3. Challenge (nicely!) those who have prepared the figures and consider whether the explanations make sense with your understanding of what the charity is doing.
  4. If the same people have been producing the same information on the same system for a long time, consider whether there are ways of doing things more efficiently. Examples include reviewing the coding structure / fund structure within your accounts package to avoid unnecessary work on spreadsheets outside of the system or reviewing whether data can be transferred electronically between, say, a fundraising database and the accounts system to avoid keying in data twice.

Tax: Gift aid

There are a number of potential pitfalls, but also, many opportunities, in the area of gift aid, so:

  1. Check that the wording on your gift aid forms is up to date and in accordance with the latest HMRC guidance
  2. If you receive cash donations, consider whether you are eligible for an additional tax reclaim under the Gift Aid Small Donations Scheme (GASDS)
  3. Make sure you have a gift aid declaration from every person listed on your reclaim form. If HMRC do a gift aid inspection, that’s what they do and if they find one missing they will ask for the tax back.
  4. There are a number of circumstances that have special rules. Check out the HMRC website, to see whether you are able to take advantage of them.   If in doubt, consider approaching HMRC to seek clarification – and make sure you get it in writing.

Find out more about charities gift aid.

Tax: VAT

VAT is a highly complex area for charities, and the consequences of getting it wrong can be very expensive, so:

  1. Regularly review income streams to consider whether the right VAT treatment is being applied to each one. As charities are increasingly looking at new income streams, this is becoming more important.
  2. If you have some income streams that are subject to VAT and others that are not – regularly review how you allocate input VAT on expenditure between the various categories.
  3. If you have a set way of reclaiming input VAT, for example a set percentage of the total, check that you have the original correspondence from HMRC allowing you to do that, and make sure you are still following any conditions that came with it.
  4. There are some special rules for a limited number of purchases where you can ask your supplier not to charge VAT. Examples can include the purchase of advertising space and some property purchases. Check out the HMRC VAT charity guide.
  5. If you are buying, selling, building property – take professional advice! Early!

Tax: Trading

  1. If your charity trades, you need to be clear whether that income is covered by one of the exemptions or whether you need to set up a trading company. There is a potential tax liability if you don’t do this properly.
  2. If you need to set up a subsidiary consider whether a trading company or a community interest company best suits your circumstances
  3. Once set up, make sure that there are clear lines of separation between the charity and the trading company because charitable funds must not be used to support a trading company.

Tax: Payroll and expenses

  1. Running a payroll can be complex, so make sure you keep up to date, or outsource payroll to someone who does.
  2. Review any payments to employees that do not go through the payroll. If HMRC come visiting you will need to be able to demonstrate why they are not taxable.
  3. Make sure you know when your ‘staging date’ for pension auto enrolment is. If you employ people you will have some work to do, and it may impact on your budgets.
  4. Beware of using ‘self employed’ individuals on a regular basis. HMRC might argue that they are employees, rather than self employed, and they can ask you for the tax and national insurance.
  5. Beware of round sum expenses, as generally only exact reimbursements are acceptable.
  6. You can reimburse volunteers for expenses they incur in their work for the charity – and unlike employees, you can reimburse their actual expenses for travelling from home to the charity.
  7. If your trustees do not wish to be paid expenses, consider paying them anyway, and if the trustee is a UK taxpayer, they can donate it back under gift aid, and everyone wins.

Grants

  1. Keep documentation regarding grants that are awarded to you and check that you are complying with any conditions
  2. Keep records of which items of expenditure are allocated against which grants, and keep an eye on any unspent grants, as you may have to repay it.
  3. If your grant claim requires independent certification, tell your accountants so that it is timetabled in. Sometimes you will be required to use a registered auditor, like Rawlinsons, so check whether your accountant is.

Viability

  1. Budget on at least an annual basis and monitor actual results against the budget to make sure you’re on course
  2. Set a reserves policy i.e. consider the amount of funds you would ideally like to keep for a rainy day. This is a matter of judgement and you will probably all have different views, but it is important that you come to a consensus.
  3. Keep an eye on the unrestricted fund balances in your accounts. If they fall below the amount set by the reserves policy, consider what corrective action you need to take.
  4. If fund balances get low or significant sources of income come to an end, take professional advice, and ensure you are aware of your legal responsibilities to protect beneficiaries and creditors. Consider using your accountants to undertake an independent assessment of the short or medium term financial viability.

If you haven’t already attended our annual charity conference, why not have a look to see what we do each year: Charities Conference.

For more information about accounting support for your charitable organisation, contact Mark Jackson on 01733 568321 or email  mark.jackson@rawlinsons.co.uk.