CHARITY ANNUAL RETURNS
Some new questions that were optional in the 2018 charity annual return have become mandatory for the 2019 return, covering financial years ending 1 January to 31 December 2019. The Charity Commission's guidance on annual returns, including a link to the new 2018 and 2019 questions, is at https://www.gov.uk/guidance/prepare-a-charity-annual-return. This guidance was rewritten on 11 September 2019, to make it shorter and easier to use.
All charities with annual income over £10,000 registered with the Commission, and charitable incorporated organisations (CIOs) regardless of income, must submit an annual return within 10 months from the end of their financial year. Unincorporated charities and charitable companies with income up to £10,000 only need to update their charity details. Returns and updates are now done through the new 'update charity details' service [see below].
After a consultation from September to November 2017, the return for 2018, for financial years ending from 1 January to 31 December 2018, included a host of new questions that were intended to increase transparency and accountability. These related to the use of professional fundraisers and commercial participators; the extent and value of contracts and grants from central or local government; funding from overseas and from unknown sources; the number of employees, in bands, with total employee benefits over £60,000; payments to trustees and whether any former trustees have been employed; whether any funds transferred abroad were transferred outside of the regulated banking system; whether any trustees are also directors of any of the charity's subsidiaries; and information on Disclosure and Barring Service (DBS) checks if any trustees, staff or volunteers work with vulnerable beneficiaries. Some of these were optional for the 2018 return, but are mandatory for the 2019 return.
During the consultation in 2017, many charities complained about the significant additional burden created by some of these questions. In summer 2018 one commentator wrote, "These questions highlight key areas of non-compliance and risk. It remains to be seen what the Commission will do with the additional information and if the added regulatory burden is justified."
'UPDATE CHARITY DETAILS' SERVICE (including requirement for trustees' full legal names)
The consultation on the new annual return questions for 2018 [above] also included a proposal for a digital update service for charity details and annual returns, which was launched on 12 November 2018. This enables a charity to change details on the public register held by the Charity Commission easily at any time, and introduces digital completion of annual returns. Since the service's launch every charity that wants to change its details or submit an annual return has had to – or will have to – start by initially going through a series of tailored screens showing the details currently held by the Commission, and highlighting gaps that need to be filled. Some of the information is very detailed, but the screens can be saved to be returned to later. Once this initial process has been completed, the details have to be confirmed, amended or added to before an annual return can be submitted – but as long as the details remain accurate, they will never need to be re-entered.
For any charity that has not submitted an annual return since 12 November 2018, the Commission advises the charity to check it can log into its account and to get a new password if necessary. The charity then needs to collect the information that will be needed to confirm or update its details; and then to update them. Only then will the charity be able to submit its annual return and any accompanying information. So the initial logging in and updating should be done in good time to ensure the return can be submitted before the deadline (10 months from the end of the charity's financial year). For the Commission's guidance on the process and what information may need to be collected, see Resources, below. You can see what information the Commission already holds and displays publicly by going to its website at www.charitycommission.gov.uk, clicking on Find a charity, then looking at the various pages in your charity's register entry.
The Commission may well already have most of the necessary information about the charity itself, from its application for registration or from previous annual returns. But it may not have the details it now requires for trustees, which Include their main residential address, telephone number, and email address unless the charity confirms the trustee does not have one. Trustees' contact details will not be made shown on the Commission's register of charities, but when one charity adds or changes one of these details, it will be changed for all trustee roles that person has at other registered charities. (I have a problem with this. Some people, like me, may have different email addresses for different purposes, so emails are filtered as they come in. For example I might have email@example.com for my involvement with AB Charity, but def@sandy-a for my involvement with DE Foundation, etc. I don't – but I might. Or someone might use their work email for trustee roles undertaken as part of their work, and their personal email for charities in which they are involved personally.)
The Commission has confirmed that trustees will be contacted by email only to notify them that a change has been made to their personal details, or if the Commission is handling a case about their charity, or to provide regulatory alerts and updates to help trustees run their charity effectively. The Commission will not send unsolicited email, marketing materials or anything outside of its regulatory remit.
The good news is that after the initial checking and updating of all information held by the Commission, the update service will make filling in the annual return easier, because a lot of detail will only have to be confirmed, rather than being filled in each year.
Trustees' full legal names
As well as being required to provide a residential address, phone number and (unless they don't have one) an email address, trustees now have to provide their full legal name, rather than a display name which has been allowed in the past. A display name (also referred to in other Commission documents as a public display name) is any name that is not the trustee's full legal name, for example Sandy Adirondack rather than Sandra Myers Adirondack. From 1 April 2020 (postponed from 1 April 2019 and 1 September 2019), the public register of charities will show only full legal names – unless the trustee can show that the use of their legal name would put them at risk of personal danger. An example of where a trustee might apply to use a display name might be writer John le Carre not wanting to use his legal name, David John Moore Cornwell, if he was still working for MI5 or MI6 and no one knew who he really was.
In this situation, the Commission's guidance The first time your charity uses …[see Resources below] says the trustee "can apply for permission to use a display name". However, the link on applying to use a display name rather than a legal name goes to the Commission's guidance on applying for a dispensation, which seems to cover only applications for no name to be shown on the register. It does not seem to make clear that a person could apply not to have their legal name shown, but to have a display name shown instead.
A trustee who already has a dispensation in relation to their full legal name does not need to re-apply. Where a charity has such a dispensation for all of its trustees (for example, a domestic abuse charity), it does not need to re-apply.
The delays in showing trustees' full legal names on the public register of charities is to allow more time for trustees to apply for a dispensation.
These overlap but all include different information.
- Check and update your charity details. Charity Commission, most recently updated 16 July 2019: http://tinyurl.com/ybelvprq. Explains the main changes.
- If your charity last did an annual return before 12 November 2018. Charity Commission, 11 September 2019: http://tinyurl.com/y3b2d6t5. Summary of the process of logging in for the first time, updating the charity's details, and then submitting an annual return.
- The first time your charity uses the 'Update charity details' service. Charity Commission, 11 September 2019: http://tinyurl.com/y5qb5lzf. Guidance on the information a charity might need to collect before logging in, including information about trustees' email addresses and full legal names.
- Display of trustees' legal names on the charity register. Charity Commission, updated 16 July 2019: http://tinyurl.com/y3eqvxg7. Applying for a dispensation for a trustee's name not to be displayed on the register.
ERRORS IN ANNUAL RETURNS
In September 2018 the Charity Commission published results of a review checking the accuracy of annual return figures for three random samples based on charity income, with just over 100 charities in each sample. After checking each charity's annual return figures against those shown in its annual accounts, the Commission found that:
- For charities with annual income up to £25,000 threshold, the percentage showing annual return figures that agreed with their accounts was 66% for income, 65% for expenditure, and 62% for both income and expenditure.
- For those with annual income between £25,001 and £500,000, the percentage where annual return figures agreed with the accounts was 93% for income, 92% for expenditure, and 89% for both income and expenditure.
- For charities with income over £500,000, which have to provide an analysis of their income and expenditure and of their balance sheet and charitable funds, the percentage where the analyses submitted for the annual return agreed with the accounts was 83% for income, 85% for expenditure, 98% for balance sheet, and 97% for charitable funds.
The Commission sought to identify reasons for the discrepancies. For some charities with income up to £500,000. the Commission could not find any obvious reason why the figure submitted for the return did not agree with the accounts. Where it could identify a cause, this included the accounts and return covering different periods; netting off of income and expenditure; reporting underspend or overspend as income; and excluding some categories of income and/or expenditure, such as restricted funds. For charities over £500,000, causes of a mismatch between the accounts and return included the charity using an out of date format for its statement of financial activities (SOFA); including unusual items of income or expenditure in its SOFA; or the person compiling the annual return being uncertain over whether, or where, the different types of charitable funds should be included in the return. Overall, the Commission believed that input error – choosing the wrong figures from the annual accounts – was the most common reason for inaccurate figures.
As part of the review, the Commission provided all charities in the under-£25,000 sample with guidance on their responsibilities for preparing an annual return and accounts, even if the accounts might not need to be routinely filed with the Commission. For charities in the over-£25,000 and over-£500,000 samples where there had been discrepancies, the Commission checked the following year's return, and provided guidance where figures continued to be reported incorrectly.
More widely, the findings from the review have been used to help improve the Commission's annual return guidance, and are being fed into the development of a new charities statement of recommended practice (SORP).
The main take-away from the review is that financial information that will be submitted in the annual return should only be compiled by a person familiar with the charity's accounts, or should have a final check by such a person.
- Accounts monitoring review: Assessing the standard of charity financial information. Charity Commission, 25 September 2018: http://tinyurl.com/yyq353r4.
Sandy Adirondack Legal Updates 1921 04.10.19