UK: Charities - A Briefing For Charitable Organisations, September 2009

Last Updated: 10 September 2009
Article by Matthew Maneely


The Charity Commission's publication on surviving the recession focuses on strategy, financial health, governance and making the best use of resources.

The Charity Commission has issued its Big Board Talk in response to the economic downturn. This report is a useful checklist of what trustees and senior management should be discussing in order to equip their charities for survival in the current recession.

A lot of the suggestions seem like common sense, and some of you may feel that you have already dealt with all of the questions raised. But how many of us never have time to get round to housekeeping and strategic planning? All too often we find ourselves firefighting when things go wrong; just the day-to-day running of the charity takes up so much time that planning for the future health of the organisation takes a back seat.

The commission urges all trustees to sit down and talk about the impact of the downturn on four main areas:

  1. strategy
  2. financial health
  3. governance
  4. making the best use of resources.

1. Strategy

The recession brings both opportunities and risks. All trustees need to ensure that the impact of the recession is understood and that their charity is in the best possible position it could be to deal with the downturn.

The risks are obvious and some will need to be tackled urgently. How certain is your future funding? Are you reliant on an income stream that is reducing or disappearing altogether? Is income from your investments reducing, and if so, will this cause problems? Are there other ways that income can be maximised, for example by letting unused space in your property? Does increasing unemployment and poverty increase the demand for your services and can you cope with this increase?

There are opportunities as well. For instance, there is a growing pool of potential volunteers as unemployment and part-time working increases. Some of these people could have the skills you need. The downturn provides an opportunity to re-focus operations and ensure they still match your charity's objects. If there has been some object drift, what do you want to do about it?

2. Financial Health

Charities and companies have, on the whole, benefited from a strong UK economy in recent years. In some cases, – perhaps more so in the corporate world – this has led to complacency. Expenditure hasn't been as tightly controlled as it should have and continuity of income has been taken for granted.

Most organisations are now looking at expenditure to see where cost savings can be made. This might be through staff costs with a redundancy programme, or something less severe like reviewing your internet service provider, your professional advisers and your banking arrangements. Accommodation costs are falling in line with the downturn in the property market so this might be the right time to move to cheaper premises or negotiate a lease with your landlord. If your charity has been considering a purchase of property, and if you are in a financial position to do so, now may be a good time to buy.

Are you aware of all your organisation's contractual obligations? Can you continue to meet these obligations, or do you need to review and renegotiate?

This might be the time to use some of the charity's reserves. All charities should have a reserves policy and most choose to have free reserves equal to, say, six months' or one year's expenditure, so that if income was to reduce the charity could continue to operate. If you do not have a reserves policy, now is the time to develop and put in place a policy that works for you. If there is already a policy in place, trustees should consider whether to use these reserves now, either for operational spending or to implement a restructuring plan to secure the charity's future.

3. Governance

Trustees have ultimate responsibility for directing the affairs of their charity. This requires them to ensure that it is solvent and well-run, and delivers its charitable objects for the benefit of the public. Working through the commission's Big Board Talk checklist will demonstrate that trustees are taking appropriate action in the current economic climate.

The trustee body has a great responsibility and it is clearly useful to have a broad mix of skills on board. Consider whether your current trustee body has the right knowledge and experience to guide the charity through the economic downturn.

Trustees should evaluate whether the charity has adequate controls in place to prevent and detect fraud within the organisation. In a recession there is increased incentive for staff and volunteers to commit fraud and this should be considered, however trustworthy you believe your employees to be.

4. Make The Best Use Of Resources

The report recommends that the Gift Aid rules are reviewed to ensure that you maximise your claims. The rules are on HM Revenue & Customs' (HMRC) website:

If you pay corporation tax as a charity, restructuring your operations could help to reduce your tax liability. Seek professional advice if you think this applies to you.

All charities could consider whether collaboration, joint working or a merger is in their best interests. For some of you this might not be practical, but if your aims are similar to another local charity, it is sensible to at least have open lines of communication.

A merger sometimes forms a new charity to take on the work of the two old charities, and sometimes one charity takes control of the other party. Professional advice should be sought, and, possibly, guidance from the commission will also be needed.

Collaborative working allows both charities to remain separate organisations while enjoying cost savings as a result of a joint project or venture. This could relate to any aspect of the charities' operational activity including administration, service delivery, fundraising activity, advertising or profile enhancement.

This is a brief summary of some of the questions that charities should consider in the current economic climate.

Further guidance is available on the Charity Commission's website, or contact us for professional advice and support on the logistics and/or implementation of any of these suggestions.


Our Assurance and Business Services team undertakes projects for not-for-profit and charitable organisations reaching far beyond traditional audit and accountancy services.

Systems And Controls

Charities typically operate with limited resources. The overriding wish of stakeholders and founders is for as much resource as possible to be expended on the relevant charitable activity, with as little leakage as possible on administrative costs.

Therefore, as charities evolve, the development of internal systems and controls can lag behind, resulting in some control weaknesses.

We have worked with organisations helping them to understand their various financial processes and the controls in place to protect the assets. We have identified gaps in controls and suggested ways in which they may be plugged. This has ranged from suggesting that the monthly payroll is reviewed by a suitably senior member of staff to implementing complete systems of budgetary control.


One problem associated with running a charity with relatively few employees, particularly in the finance department, is a lack of a second opinion or fresh pair of eyes. This is where our validation work has been particularly valued.

An individual who has worked hard at a business plan, anticipating where the charity may be in, say, five years' time and adopting a range of assumptions into a spreadsheet model, will reach a point where no amount of checking will detect a formulaic error which could potentially distort the data on which trustees will rely in taking strategic decisions.

We have been able to carry out validation exercises whereby we check the arithmetical accuracy of a budget or business plan, test whether assumptions have been applied correctly to the model and challenge preparers as to the validity of those assumptions. The result for the organisation is a reliable plan/forecast against which management and trustees can monitor performance and make appropriate decisions. Conversely, a validated business plan may show that in the long run the organisation is not viable – then, based on reliable data, trustees can decide on an appropriate course of action to address the issue.

In one instance, we were called on to validate a business plan to give added comfort to a bank contemplating renewing loan facilities. Without such reassurance there was a risk of loans being called in and the charity being unable to continue in the provision of services to a particularly vulnerable group of individuals.

Role Of Finance Director

Many charities lack financial resources to engage a finance director and, indeed, the scale of operations may not be sufficient to warrant an appointment at that level. Nevertheless, trustees need access to financial expertise that may not be available through their bookkeeper.

We can take on the role of non-executive finance director. This includes presenting management accounts provided by the charity's bookkeeper, highlighting key performance indicators and assisting in understanding trends that will enable informed decisions to be made. We can also advise on the financial implications of a particular strategy.

Risk Management

Charities are required to have regard to risk management. We have assisted trustees in discharging their responsibilities in this area in many ways, depending on the degree of sophistication concerning risk management that already exists within a particular charity.

Examples of assignments which we have undertaken include the following.

  • Facilitating a brainstorming session at which the senior management team identified the risks facing the organisation, their respective likelihoods and impacts and the controls in place for mitigating those risks. Compiling the organisation's first draft of a risk register.
  • Testing the operation of controls identified as mitigating a charity's 'top ten' risks to give assurance to the trustees that controls are indeed effective.


The recession has affected us all and the charity sector has definitely felt the squeeze. Philip Hall of RBS discusses the EFG scheme as a possible funding solution.

The Charity Commission's latest economic survey of charities, published in March 2009, showed that just over half of the respondents have been affected by the recession, with 30% suffering from a reduction in income. One third of charities have put measures in place to combat the effects of the recession, ranging from additional fundraising to cutting costs*.

For all organisations, including charities, when working capital becomes – or may become – tight, it's more important than ever to engage with your bank. Despite popular belief, there is funding out there for viable charities: it's a case of making the most of your bank, finding out what funding is accessible for you and ensuring that you can demonstrate that borrowings can be repaid.

The Government-backed Enterprise Finance Guarantee (EFG) scheme was launched earlier this year and is one example of possible funding. The scheme aims to ensure that smaller businesses, including charities, with an annual turnover of up to £25m, have the necessary working capital or investment finance in place to help them through the difficult economic climate. Under the EFG scheme, the Government will guarantee 75% of any loans made. Despite press comment, this is a successful scheme – RBS, at the time of writing, currently has over £200m of EFG loans already agreed or in the pipeline.

By speaking with your bank's relationship manager, you'll be able to find out what solutions are available to you. Having worked in this sector for some time, we find that many charities are reluctant to take on debt but your relationship manager is there to guide you and offer the funding solutions that fit your specific needs. This can often be more than a simple overdraft or loan and will allow you to continue to provide the services and good work you currently do, even if income falls.

For instance, RBS recently backed the charity and social enterprise, Charity Technology Trust (CTT) with funding from the EFG scheme; this provides a good example of how the scheme can help.

Based in London Bridge, CTT was launched seven years' ago and provides charities with a range of services, such as e-communications and payments services, designed to increase efficiency in the core areas of activity: fundraising, campaigns, communications, finance and IT. Over the past two years, CTT has also developed a technology donation programme, Charity Technology Exchange (CTX), which has delivered close to £20m of savings for the sector and at the same time has massively raised CTT's profile.

In the current climate, the services that CTT provides are proving to be even more vital to the sector and the charity's board agreed that the organisation should seek new funding to enable it to accelerate its growth. In order to move quickly, the funding injection needed to be more dependable and more readily available than waiting for funding through grants and donations. James Redhead, CTT's finance director, turned to his bank to discuss options. As a result, RBS provided a £250k funding package from the EFG scheme.

James said, "The funding will enable us to invest in a number of areas, for example to improve our own internal IT infrastructure, which will alleviate a great deal of time, allowing us to serve many more charities and thereby substantially increase our impact on the sector. It will also allow improvements to our product portfolio to ensure we stay ahead of rapidly changing legislation; particularly in the area of payments security."


Charity Concession Withdrawn

HMRC has announced that the 'charitable building' concession will be withdrawn on 1 July 2010.

The VAT legislation allows the construction or acquisition of a building intended to be used 'solely' for charitable use to be zero-rated. Under the concession, HMRC permitted zero-rating where the building was used 90% or more for a relevant charitable use. In place of the concession, the legislation will introduce a de minimis use test of 95% or more. The method of calculating the 'use' of the building will no longer be defined by HMRC, but should be on a 'fair and reasonable' basis.

HMRC has decided to allow a transitional period until 30 June 2010, where either the old concession or new interpretation under statutory law can be adopted by a charity, subject to conditions.

If the building is put to business use within ten years of the building's completion, a change of use charge may apply. Therefore, charities should keep under review the reduced limit of 5% for business use going forward.

This will be of most concern to organisations wishing to take advantage of the zero-rating provisions for construction or acquisition of a building intended for charitable use, but with a small amount of business use.

Deposits On Land For Dwellings

HMRC has made it clear that deposits received by developers for the purchase of land for residential developments not yet started will not attract VAT where they are released to the developer before the building work commences (e.g. deposits paid to and released to developers by purchasers buying off plan).

This should be of interest to registered providers of social housing for whom the VAT implications could be significant where the deposit is, in practice, released to the vendor before the 'golden brick' stage of construction has been reached, thus calling into question the VAT zero-rating of such land.

Care needs to be taken in the way the contracts are put together and advice should be sought where there is any uncertainty as to the VAT position.



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
Related Video
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.