UK: Charities, A Briefing For Charitable Organisations. In Over Your Head?

Last Updated: 12 March 2009
Article by William Cussans and Jo Tollow


As charities, independent schools need to meet the new public benefit requirements. In particular, they must provide significant opportunity to those in the community who cannot afford their school fees.

In our September 2008 edition of Charities, we discussed the definition of 'public benefit' and how charities can ensure that they meet the criteria. Since then, the Charity Commission has issued further guidance in respect of the following charitable purposes:

  • education
  • relief of poverty
  • advancement of religion
  • fee-charging.

Independent schools will find the guidance on public benefit and fee charging most relevant, as their main aim is to provide education, and this is the service for which fees are charged. In particular, schools with high fee levels need to ensure that public benefit is adequately demonstrated, as the higher the fees, the more people there will be who cannot afford them.

The new Charities Act specifies that people in poverty, and those who cannot afford the fees, must not be excluded from the opportunity to benefit in a 'material' way that is related to the charity's aims. Note that the benefit must be related to the charity's aims. Thus, for an independent school, the benefit must be the provision of education. Allowing the general public free use of the sports ground, for example, would be an indirect benefit and not enough on its own to satisfy the requirement. The use of the word material is also relevant as the benefit must be significant and tangible. It is not enough to provide a token gesture.

According to the commission's guidance, offering bursaries is the simplest way for independent schools to meet the public benefit test. However, it does not give any indication of the size or number of bursaries that should be offered. Indeed, the guidance states that " is primarily for the trustees of the charity to decide ... the extent to which they offer free or subsidised access, and how much to offer to how many people..."

There are other ways in which schools can provide significant opportunity to benefit those who cannot afford the fees. For example, they can work in partnership with a state school or an overseas school to provide education for children who cannot afford to pay for it.

The Office of the Scottish Charity Regulator (OSCR) has published results from its assessment of Scottish charities and public benefit. As part of the OSCR's review, six mainstream independent schools were selected and, of those six, only two were found to provide public benefit. The main conclusions to be drawn from the OSCR's findings are that means tested benefits are preferable to non-means tested, and there have to be a significant (more than 5%) number of pupils in receipt of the benefit. The England and Wales regulator has yet to start its review and it is not possible to say whether it will use the same approach as the OSCR, but for now the OSCR findings are a good indication of how the Charity Commission might approach this issue.

Trustees need to consider whether their charity would pass the public benefit test, and if not, develop a strategy to remedy this. The commission does not expect any charity to change overnight, but if change is found to be necessary a strong commitment from the trustees is required to ensure that the public benefit requirement is satisfied.


The turmoil in the financial markets has forced investors to re-assess their portfolios. We consider the various options available.

Unfortunately, many charities will earn less income from investments in 2009 than they earned in 2008. The sooner that charities' trustees and directors address this issue, the less likely it is to cause unnecessary difficulties.

In the last year, income investors have had to contend with collapsing banks, rising pension fund deficits, falling interest rates, shares in lieu of dividend, dividend cuts and dividends cancelled. Even those companies that have, to date, held their dividends have made few promises that they will continue do so in the future. With some historic dividend yields now in double figures, it appears inevitable that more dividend cuts will be announced.

Indeed, to a UK investor, it feels as if the only dividends that have seen benefit from this global economic downturn have come from companies such as BP and HSBC: the ones that pay their dividends in US dollars or euros.

Corporate Bonds And Equities

During 2008, investors shied away from corporate bonds and equities as risks were re-assessed. This has caused the yield gap between corporate bonds and gilts to widen significantly. However, some companies will maintain and even increase their dividends and most will not default on their debt. The need to replace income from maturing gilts and term deposits in 2009 may force investors to return to corporate bonds and equities.

Successful bond investors now have to be even more diligent when considering whether issues are secured or unsecured, cumulative or non-cumulative. As such, regular, even daily, checks should be made on the credit ratings of all such investments. By increasing carefully the proportion of corporate bonds held, it will be possible to improve income levels.

Long-Dated Gilts And Bonds

We would caution investors against buying long-dated gilts and bonds unless they are willing to watch them closely. The descent into recession has been unquestionably rapid. If western governments are forced to print money in an attempt to stave off depression, the end result could be an equally rapid return of vicious inflation. Such a scenario would destroy the capital value of long-dated gilts and bonds. It is at times like this that investors should consider the inclusion of index-linked gilts to protect capital and income.

In order to protect income flow, charity investors will have to recognise those equities that have announced an interruption to ordinary dividend payments. If income is of paramount importance, action, such as selling shares received in lieu of dividend, may have to be considered.

Finally, cash returns are set to plummet. As the gap between the Bank rate and the London interbank offered rate continues to narrow, bank deposit interest rates will fall further. After a sustained period of higher interest rates any such fall will be noticed. To some extent, this fall can be offset by the use of sensible term deposits and cash funds, but there will be a shortfall when compared to recent cash returns.


Investors and businesses are increasingly looking to reduce their carbon footprint and be more socially responsible. In turn, they look to forge relationships with like-minded companies and advisers.

The Corporate Statement of Social Responsibility (CSR) was formalised by the Companies Act 2006. While this only applies to listed companies, many others are adopting the principle that companies can and should make a positive contribution to society. This can be achieved by managing the social, environmental and economic impacts of your business, being responsive to stakeholders and behaving to a set of values that are not codified in law. In practice, the term can apply to a wide range of actions, such as donating to charity, getting involved in the community and reducing carbon emissions.

Smith & Williamson's commitment to CSR includes creating measurable business benefits, reducing risk and enhancing company values. We are making strides to reduce our carbon footprint through decreasing emissions and the way we work with our staff, clients, suppliers and the community. Corporate philanthropy and community service also play an important role in our CSR. In the 12 months to 31 December 2008, we donated funds to 68 charities nominated by staff.

A Few Of Our Green Credentials

We are one of a handful of professional firms to have had our carbon footprint verified. As a result, we feature in the Managing Partner's Forum Carbon Verified list 2008.

  • Working with Ricoh, we participate in a tree-saving project. For every 100,000 pages printed, a new tree is planted in dedicated woodland. In 2007, we planted 432 trees. We are also looking to offer our marketing material in an electronic format.
  • We are active members of City Action (a not-for-profit community development organisation) and the Heart of the City (the Corporation of London's CSR service).
  • We provide valuable advice and support to those businesses and investors who are similarly motivated. Our Sustainable Technologies group aims to raise our credentials in the green energy sector. We specialise in offering green audits, advice and tax services. To date, we have worked for companies such as Green Dragon Gas, Evergreen Securities, the Carbon Neutral Company and Vycon.

At Smith & Williamson, we are committed to minimising our impact on the environment. Our desire is to inspire our employees to become involved in the community and behave ethically. It is also increasingly important that our clients are seen to be upholding high standards of corporate governance and social responsibility, and this extends to the appointment of their advisers. We understand that fulfilling our social responsibilities actively and honestly supports both the community and our own business.


For periods starting on or after 1 April 2008, charities need to be aware of different accounting and reporting requirements.

The statutory framework under which charities are required to prepare their accounts and reports has been updated to reflect public benefit reporting requirements, and to specify the requirements relating to group accounts and reports. This affects accounting periods starting on, or after, 1 April 2008.

Public Benefit Reporting

The most significant impact is likely to be the public benefit reporting requirements, which arise in two areas.

  1. A charity's review of activities undertaken in the year must relate to how those activities furthered its charitable purposes for the public benefit.
  2. The trustees must make a statement as to whether they have complied with their duty to have regard to guidance published by the Charity Commission on public benefit.

To assist with these requirements, the commission has published an example of a trustees' annual report setting out how these reporting obligations may be met. This is available at

Group Accounts

Prior to the Charities Act 2006, there was no statutory framework for charity group accounts. However, with the implementation of this Act, charitable groups must now prepare group accounts if their consolidated gross income is greater than £500,000.

The reporting framework specifies the basis on which the group accounts and the trustees' annual report are to be prepared. These largely follow the requirements for single entity charities.

Risk Statements

The requirement for trustees to include a statement that they have considered the major risks to which the charity is exposed has been expanded. Previously, trustees had to make a statement that they have established systems or procedures to manage these risks. However, going forward, trustees have to make a statement that they have satisfied themselves that systems or procedures are established to manage risks.

The Statement of Recommended Practice (SORP) 2005 has also been updated to reflect the impact of the act and the revised reporting framework. However, the SORP requirement in this respect has not been changed. Therefore, trustees will need to continue to make a statement that they have established systems to manage risks, and now also state that they are satisfied that the systems are established. This should not make any difference in practice as trustees should be gaining comfort that the systems are operational as a matter of course.

Audit/Inspection Regime For Small Charitable Companies

For accounting periods starting on, or after, 1 April 2008, charities exempt from audit under the Companies Act are brought under the audit/independent examination regime of the Charities Act 1993. This has three main implications for smaller charitable companies.

1. Exemption From Audit

Exemption from audit is only available if the charity is exempt under both the Companies Act and the Charities Act. However, in certain circumstances, a charitable company can be exempt from audit under the Charities Act 1993, but not under the Companies Act 2006. The charity needs to check both acts carefully and be aware that the Companies Act 2006 exemptions require consideration of both the current and the preceding year.

Charities taking the audit exemption must include a statement on their balance sheet stating that the charity is exempt from audit under the Companies Act 2006.

2. New Independent Examination Limit

Previously, charitable companies that were exempt from audit required an accountant's report to be prepared if their income was above £90,000. However, under the Charities Act, an independent examination is now required if the charity's income is greater than £10,000. This reduced lower limit will result in a greater need for charitable companies to have their accounts examined. An independent examination is more onerous than the preparation of an accountant's report, and may take more time and require greater trustee involvement.

3. Lower Limit For Group Accounts

For small charitable companies with subsidiaries, unless the consolidated income is less than £500,000, group accounts must be prepared (previously, the Companies Act limits applied, which were much higher). These group accounts must be audited, unless the income is less than £500,000 (or £100,000 if the total assets are more than £2.8m). This compares to the previous limit of £700,000.

Proposed Changes To Regulatory Limits

The Office of the Third Sector has committed to reducing the regulatory burden on small charities by increasing certain limits (figure 1). In addition, currently the accounts of charities with income of more than £100,000 and a balance sheet total of more than £2.8m need to be audited. It is proposed that these limits should be increased to £250,000 and £3.6m.

The legislation to enact these changes is expected to be published shortly.

Fig 1: Proposed Financial Reporting Regulatory Limits For Small Charities


Annual Income

Current Limit

Proposed Limit

Submission of accounts to the commission



Submission of trustees annual report to the commission



Preparation of accruals accounts



Independent examination required



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.

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