UK: Charities Newsletter - Autumn 2012

Last Updated: 10 October 2012
Article by Adrian Wild


Within this issue we present and comment on an eclectic range of topics.

After much debate, it appears that new UK accounting standards are in sight and the new charity statement of recommended practice (SORP) should follow for consultation soon after. While such fundamental change is not always welcome, I believe that for most charities the impact will be less than feared.

On the taxation front, there is mixed news. For most charities, corporation tax is not a significant issue but, as Claire Perrett explains, getting it wrong can be very expensive. The case she considers highlights the weight that the High Court places on objects and the difficulty that can arise in assessing whether they are charitable. Equally, it is important for all charities to periodically consider whether they are suffering from 'object creep' which could have a tax cost.

In the VAT arena, efforts to mitigate the withdrawal of the listed buildings VAT relief continue and HMRC has published some rather lengthy guidance on the cost-sharing exemption. It remains to be seen whether the complexity will render this relief unattractive. On a more positive note, Nigel Kershaw OBE explains some of the background to the launch of The Big Issue, the subsequent creation of Big Issue Invest and how profits are channelled into The Big Issue Foundation. Of particular interest is the statistic that social enterprises are now estimated to generate a turnover of over £27bn, generating significant funds for charities.

I hope you enjoy this issue.

The ASB has issued three new reporting standards which we anticipate will become the accounting framework for the UK.

In our winter 2011/12 Charities newsletter we reported that the UK Accounting Standards Board (ASB) was considering responses to its consultation on the future of UK Generally Accepted Accounting Principles (GAAP). It proposed a framework based on International Financial Reporting Standards (IFRS) for the UK.

At the beginning of this year, the ASB issued three new exposure drafts which are anticipated to become the new accounting framework for the UK. The expected new standards will replace all current UK standards, other than the Financial Reporting Standard for Smaller Entities (FRSSE) which will remain available for use by small entities. The consultation period for these exposure drafts closed in April 2012 and the standards are expected to be issued in final form early next year.

The new reporting standard, which will apply to all UK entities other than those which qualify as small or those required to prepare accounts under full EU-adopted IFRS, is FRS 102 'The FRS applicable in the UK and Ireland'. (The other two standards are FRS 100 'Application of financial reporting requirements' and FRS 101 'Reduced disclosure framework for IFRS preparers').


By Fiona Reid

The originally proposed three-tier framework has been considerably simplified. In particular, there is no longer a proposed requirement for all 'publically accountable' entities to report under full IFRS. This is good news for credit unions and other not-for-profit entities that might have otherwise been caught by the ASB's definition of publically accountable. The new framework requires only those entities that are currently obliged to prepare accounts under full EU-adopted IFRS to continue to do so, and does not extend this requirement. Company law in the UK does not currently permit charities to prepare accounts under full EU-adopted IFRS.

Other significant changes from the previous proposals were:

  • replacing the IFRS formats for the income statement and balance sheet with the formats currently set out in UK company law
  • allowing alternative treatments permitted under current UK GAAP, such as revaluation of tangible and intangible fixed assets
  • permitting the capitalisation of borrowing costs
  • permitting the capitalisation of development costs if certain criteria are met
  • the inclusion of guidance for the use of merger accounting in group reconstruction situations and mergers of not-for-profit entities
  • the amalgamation of the proposed public benefit entity reporting standard into the draft of FRS 102.

Some consequential amendments to the FRSSE will be made as a result of this changing framework. The presumed useful economic life of goodwill will be reduced from 20 years to 5 years to be consistent with the treatment under FRS 102.

The proposed effective date for the new framework is for accounting periods beginning on or after 1 January 2015. This means that the transition date is 1 January 2014 as entities will have to prepare an opening balance sheet for the comparative period for their first set of accounts under the new standard.

The charities SORP is also undergoing revision. As well as being updated for the changes in FRS 102, the SORP committee is considering other feedback and research findings to improve the SORP, as follows.

  • Think small first: the SORP will be written to be more accessible to smaller charities.
  • The current SORP contains a lot of guidance and is therefore a long document: the new SORP will seek to rebalance guidance/length.
  • Where possible, less technical language will be used, so that the SORP is more accessible.
  • A modular format will be adopted to make it easier for charities to access the parts which are relevant to their specific circumstances. (For example, there will be separate modules for charities applying FRS 102 and for those applying FRSSE.)

Currently, most charities are eligible to adopt the FRSSE, but many of them do not as the current SORP imposes significant disclosure requirements which eliminate the benefits of the FRSSE. However, in the future, such charities may be tempted to use the FRSSE rather than transition to FRS 102.

The SORP will also have to be issued for consultation, but the timing of this is dependent on the issue of a final version of FRS 102 by the Financial Reporting Council.


The emergence of the social entrepreneur

By Nigel Kershaw

Back in 1991, when The Big Issue was set up, the idea of a 'social entrepreneur' was completely foreign to most people. There were a few pioneers out there involved in 'ethical business', such as The Body Shop, and one or two you might call 'social innovators', like Lord Michael Young, who helped create the Open University and the Consumers Association. But social entrepreneurship itself was largely uncharted territory.

Now, in 2012, the term social entrepreneur is much more widely used, and we are seeing many social enterprises doing business in ways that create a positive social impact.

One of my heroes in life, Thomas Paine, a radical involved in both the American and French revolutions, once said, "A long habit of not thinking a thing wrong gives it a superficial appearance of being right." Paine was talking about the need to always challenge the status quo, and not accept things as they are. This underlies the story of my life, the story of social enterprise and the story of The Big Issue.

The Big Issue is born

Gordon Roddick and A. John Bird launched The Big Issue in 1991 in response to the growing number of rough sleepers on the streets of London. It addressed the problem by offering people who were homeless, or at risk of homelessness, the opportunity to earn a legitimate income, thereby 'helping them to help themselves'. Created as a business solution to a social problem, it has gone on to become one of the most instantly recognisable brands in the UK and a powerful blueprint for social change.

The organisation currently works with around 2,500 homeless and vulnerably housed people across the UK, and circulates over 105,000 copies of the magazine every week. Now comes the really good bit – the vendors pay £1.25 for each magazine and sell it on for £2.50. What we've done here is create 2,500 entrepreneurs and given them a self-sufficient alternative to begging, stealing, prostitution and street crime.

It sounds simple, but this idea really challenged business norms and we came up against a lot of resistance both from charities and business. For example, bank managers just couldn't get their heads around the fact that we might want to use our profits to solve homelessness rather than buy a yacht in Marbella!

Tackling the root causes of homelessness

But our social impact doesn't stop there. When The Big Issue makes a profit we mug ourselves on the way to the bank and give that profit to our foundation to help tackle the underlying causes of our vendors' homelessness. We've created a transformative business model that really works. We're not frightened of making profit. The profit we make, through the simple self-help mechanism of selling a magazine to our vendors, is recycled to seek to dismantle the causes that created the problem in the first place.

And that is what social enterprise is all about: finding a business solution to a social or environmental crisis. Creating profit to reinvest in growing the business and delivering the social mission.

In good company

Thankfully, we are by no means an isolated example. Government figures suggest there are more than 55,000 social enterprises in the UK, generating annual turnover of more than £27bn. Other well-known social enterprises include the Eden Project, Cafédirect and Jamie Oliver's Fifteen Foundation.

Less well known but equally inspiring examples are Cool2Care and My Time. Cool2Care places care workers with families with disabled children, while My Time delivers mental health counselling services. They were both set up by entrepreneurs who had experienced the problems they wanted to solve. Both offer remarkably innovative solutions to big social challenges. And both make a financial profit and deliver a social dividend.

Big Issue Invest

We're now helping to expand the social enterprise sector with Big Issue Invest, which is effectively an old-fashioned merchant bank that is run by social enterprises, for social enterprises. All our funds have been raised in the private marketplace with initial seeding from Government. So far we've loaned nearly £20m to 230 social enterprises – including Cool2Care, My Time and Fifteen – with a loan repayment rate of 96% (and that with 75% loaned against future cash flows).

In 2010, we launched a fund to raise private capital to invest in social enterprises, with reasonable financial returns and high social impact. Investors include HSBC, Deutsche Bank, the Esmée Fairbairn Foundation and NESTA, as well as individuals and family trusts, such as Tony Nutt from Jupiter Asset Management, Eric Lonergan of M&G Investments and Henry Tinsley, formerly of Green & Blacks.

With Big Issue Invest we've had to turn the traditional finance model on its head. We're challenging the status quo again – extending the boundaries of traditional investment and philanthropy.

Making a difference

The culture of saying, "Yes, we can do things differently" comes from being a social enterprise. It comes from the kind of radical thinking upheld by Thomas Paine. And it's the kind of thinking that will continue to drive increasing numbers of social entrepreneurs as they look to address both inequalities and social and environmental problems with business solutions that can really transform our society.

Big Issue Invest

By social entrepreneurs – for social entrepreneurs

Big Issue Invest is a specialist provider of finance to social enterprises. Part of The Big Issue group of companies, it is led by social entrepreneurs and experienced social financiers. Big Issue Invest pays any dividends generated up to its parent, The Big Issue, a social enterprise with a charitable arm, The Big Issue Foundation.

For further information, visit


By Adrian Wild

Adrian Wild discusses Lord Hodgson's review of the Charities Act 2006, and outlines the actions he recommends that charities themselves should take.

As detailed in our summer 2011 issue of Charities, Lord Hodgson was appointed by the Government to review the operation of the Charities Act 2006. (You may recall that the Act was unusual in that it contained a requirement to be reviewed after five years).

Lord Hodgson issued his report in July 2012. Although running to 159 pages in length, it is clearly laid out and surprisingly easy to access. However, the value of any such report is in the conclusions drawn and, in particular, whether any action is taken as a consequence. In the report, Lord Hodgson has come up with nearly 110 conclusions and about 100 suggestions for future action. Of immediate interest to charities will be those actions which Lord Hodgson suggests that they themselves should take. (He also proposes actions for the Charity Commission (the Commission), the relevant minister and identifies where legislation is required).

We summarise the key suggestions aimed at individual charities which can be applied immediately.

Public benefit and impact reporting

Charities exist for the public benefit and always have done. However, there is a perception that some charities' annual reports do not always adequately demonstrate the benefits that they deliver. It is suggested that charities should recognise how public benefit reporting forms an essential part of their annual reports and one which should enhance public confidence in the sector. In part, this can be achieved by changing the focus of reports, with more emphasis on how the lives of charity beneficiaries are enhanced, as opposed to the nuts and bolts of service delivery.


Some charities have difficulty recruiting and retaining trustees, particularly if the position requires particular skills or attributes. For other charities, trustee bodies comprising long-serving trustees can put off potential recruits and occasionally, if the trustees are unwilling to consider change, can stymie the development of the charity.

For these reasons, the report makes a number of recommendations relating to trustees.

  • Charities should consider reimbursement of trustees' expenses. Our experience is that most charities do this, but that not all trustees claim expenses.
  • Charities should limit the length of service of trustees to no more than three terms of three years each.
  • Where there is no such limit on length of service, the annual report should include an explanation for this.


Charity fundraising has a high profile, be it TV campaigns, door to door collections, mail shots or the solicitation of donations in the street. For many individuals, their sole interaction with a charity will be making donations. Standards of probity and compliance with the law must be demonstrably high. In 2006 the Fundraising Standards Board (FRSB) was set up to be a self-regulatory body for UK fundraising. While membership of the FRSB is currently voluntary, Lord Hodgson recommends that:

  • all fundraising charities with an income of more than £1m should be members of the FRSB (and this limit should be reduced over time)
  • members of the FRSB should use the FRSB tick logo on all fundraising material.

General matters

  • Unregistered charities should disclose that they are unregistered on all correspondence, fundraising materials and cheques.
  • Charities should have policies on dealing with disputes and complaints, and those policies should be published. Lord Hodgson also sees a significant role for umbrella bodies. Umbrella bodies are organisations which seek to represent charities with common characteristics – examples being the Northern Ireland Council for Voluntary Organisations and the Hospital Broadcasting Association. Such bodies also offer guidance and support to their members.

Lord Hodgson also suggests that they should:

  • provide guidance on recruitment best practice, in conjunction with the Commission
  • work with Government and the Commission to create a centralised portal for trustee vacancies to continue to develop a partnership role with the Commission so that, for example, such bodies could assist with resolving queries (we believe that this is pragmatic, given the reduced funding available to the Commission)
  • work with the Commission, Government and the FRSB to enhance the self-regulation of fundraising and promote membership of the FRSB. There is an expectation that individual charities should be a member of one (or more) umbrella bodies. (The Charity Commission lists such bodies on its website:


While many of Lord Hodgson's recommendations require action by Government and/or the Commission, we believe that the actions identified for charities will be seen to represent best practice in the sector. It is therefore incumbent on all trustees to consider the recommendations and take any actions which are appropriate for their particular charity.


By Claire Perrett

Decisions upon charitable status rarely reach the higher courts. The Court of Appeal judgment in Helena Partnerships Ltd v HMRC is therefore particularly important. The decision includes consideration of whether objects 'for the benefit of the community' are for the public benefit and therefore charitable. The Court of Appeal unanimously dismissed an appeal by the housing association against the decision.

Helena Partnerships Ltd was incorporated in January 2001. It was a registered social landlord and its objects were the provision of housing, accommodation, assistance to help house people and associated facilities and amenities, and any other object that could be carried out by a social landlord for the benefit of the community. It therefore believed itself to be charitable with no tax reporting requirement; however the Court of Appeal found otherwise.

The key points of the judgment are as follows.

  • A statement in the objects that the activities of an organisation must be for the benefit of the community is not enough to confer charitable status.
  • The provision of good quality housing stock is not analogous to the other public works that have been regarded as charitable.
  • The provision of housing is only charitable if it is directed at the relief of a charitable need such as the relief of poverty or illness.

This case has cost Helena Partnerships Ltd £6m in corporation tax relief and emphasises the importance of the objects. In November 2004, Helena changed its objects and registered as a charity with the Charity Commission, thus achieving excluded status from 2004.

Although it is time consuming, if you are in any doubt regarding your charitable status it is worth considering obtaining clearance from HMRC or Charity Commission registration. Smith & Williamson can help you with this.


A round-up of topical VAT issues affecting the charity sector

By Ian Mullen

Places of worship grant scheme extended

In the March 2012 Budget, the Government announced the withdrawal of the VAT zero-rating for approved alterations to listed buildings with effect from 1 October 2012.

At that time, the Government also announced that it would extend the grant scheme offered by the department of culture, media and sport (DCMS) to incorporate approved alterations to listed places of worship to mitigate the removal of the zero-rating.

Under the extended scheme, grants may be claimed towards the VAT paid on the approved alterations. The existing scheme will also be simplified so that the same eligibility conditions apply for both approved alterations, and repairs and maintenance.

Some minor changes will be made to the scheme, including:

  • a return to monthly payments from November 2012
  • the removal of restrictions on claims for plumbing and electrical work, kitchens, toilet fittings, floor coverings, handrails, decoration work, repair work to pews and asbestos removal
  • the inclusion of claims for security systems to prevent crime.

In addition, DCMS and HM Treasury have announced a review of grants for the VAT element of costs not paid for by an insurance company, with a view to removing such claims from the grant scheme from April 2013.

The extended scheme and the aforementioned changes came into effect on 1 October 2012 and full details of how the scheme will work and the new application form are now available on the listed places of worship grant scheme website (

Cost-sharing exemption

In past editions of the Charities bulletin, we have reported on proposals to introduce a VAT exemption for services supplied between specified organisations, including charities.

The relevant legislation has now been enacted and HMRC has recently issued guidance on how the exemptions will be applied. VAT Information Sheet 07/12 can be found on the HMRC website.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.