Charities: what’s coming your way in 2018?

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As we hurtle towards the end of the financial year, Toni Hunter, George Hay Chartered Accountants, considers just what charities might expect from 2018…

Toni Hunter
Changes to charities Annual Returns
Following a consultation with charities during Autumn of last year, The Charity Commission has made changes to the content of the Annual Return for 2018 (AR18) which must be completed by any charity with an annual income exceeding £10,000.
The Commission has said that the changes will bring about an easier user experience and will be far more proportionate, in relation to the size of the charity, than has previously been the case. It has decided not to ask charities for the following information:
• if they are claiming rate relief for the premises that they use
• the amount of gift aid they have claimed (charities are already required to declare whether they are registered for gift aid, and the Commission will ask charities to provide their HMRC number)
Though this information will still be required for regulatory purposes The Commission has recognised that it may be obtained from other sources in the first instance.
AR18 will, however, ask charities to provide information about the total remuneration received by staff members, including salary, bonuses, pension contributions, private health care and other benefits in kind, some of which will be made public thereafter. Charities must also provide information about their highest paid employee, but this will not be made public.
The Commission has published the formal regulations underpinning the AR18 and is currently developing the digital service that will support it. It expects to be able to make the return available to charities within the next four months. More information can be found on the Government website here

Where will funding come from?
The wider economy, as always, will continue to impact upon charities and not-for-profit organisations. The effects of enduring pressure on public finances are likely to have sizeable ramifications for charities who principally rely on grants and contracts provided by the Government. Not only this but, as the cost of living increases for all of us and households up and down the country begin to tighten the purse strings, charities may find raising funds a painstaking task as people’s disposable income declines.
Looking ahead to a post-Brexit Britain, the first Budget following the election last year did very little to inspire confidence within the sector. Charities had hoped for more in the way of strategic interventions, encouragement and support from the Government but, instead, were left feeling largely ignored and still very much in limbo.
Even the Charity Commission has very little lee-way, as its budget remains frozen at £20.3m until 2020. Discussions with the Government have yielded a few conceivable solutions but nothing has been set in stone. As a result, it is likely that charities will be consulted on this subject sometime in 2018.

Charities must comply with GDPR
On the 25 May 2018, GDPR (General Data Protection Regulation) takes effect, introducing a new set of rules which must be observed by any business or organisation that processes data. Consequently, charities will undoubtedly have to adjust some of the methods that they currently use to reach their target audiences and the cost of compliance is likely to be a significant one for the sector to assume.
Despite the challenges, it is extremely important that charities remain mindful of their obligations under GDPR and make every effort to get it right first time. Transparency is crucial when it comes to the success of the sector and considering the volume of data that charities process daily, it simply cannot afford any breaches of these regulations.
The Information Commissioner’s Office (ICO) has published an FAQ guide specifically for charities which delivers guidance on 12 different areas associated with the new rules. Other organisations such as The Institute of Fundraising and the Small Charities Coalition have also released toolkits directed at charities.

The ‘back-pay bill’ saga: will it be settled?
This year is likely to see the crisis surrounding the social care sectors back-pay bill continue. Previously social care workers providing overnight care were entitled to a flat-rate allowance but, in October 2017, the Government clarified its guidance on how these workers should be paid.
It insisted that those employed to work overnight should now be paid the minimum wage for the entirety of their shift and launched a voluntary scheme, the Social Care Compliance Scheme (SCCS), to help social care providers identify and settle their liabilities. Providers have been given until 31 March 2019 to work out how much they owe to workers and to pay the arrears.
This decision caused outrage, with many charities facing spiralling costs and even insolvency as a result. Stability is important for charities and social care organisations, many of whom operate on shoestring budgets and have applied for funding based on their anticipated costs prior to the SCCS coming into force, but this isn’t currently being acknowledged.
This issue is a critical one for the sector and so far, the Government’s plans do not constitute a viable long-term solution. It will certainly be interesting to see how this develops in 2018.

Making Tax Digital
Previously, the Government had announced that charities would be exempt from having to comply with the initiative, but that their trading subsidiaries would not be granted the same freedoms. Despite this, there remained confusion and uncertainty about the true scope of the exemptions.
HMRC have since confirmed that there would be an exemption for charities in respect of the Corporation Tax requirements under MTD (which, it should be noted, does not extend to charities’ subsidiaries), but no such exemption for VAT purposes. Consequently, this means that unless a charity qualifies for the general exemption offered to those businesses with taxable supplies below the VAT registration threshold of £85,000, it will be expected to comply with the Making Tax Digital requirements for VAT from April 2019.
It is estimated that around 40,000 charities will be affected, although many of those who are VAT registered will likely have appropriate accounting systems, governance and procedures in place already. This should facilitate compliance and mitigate the impact of the digital requirements on charities.
Making Tax Digital aside, digital record keeping brings a whole host of other advantages for small businesses and charities. It provides access to real-time figures and balances, reduces the amount of time spent inputting data and significantly reduces the chance of errors within your data. Despite some organisations pushing for further exemptions on behalf of charities, it is unlikely that HMRC will give in to these requests. If your organisation has not yet set the wheels in motion ahead of the key implementation dates, now is the time to do so.
HMRC intend to pilot the changes from Spring 2018 and it would ideally like to see different types of organisation, including charities, participate.

We understand the distinct challenges that the charity sector face and we also understand that your organisation has very specific financial objectives, circumstances, priorities and requirements. To find out how we can help, contact us on 01480 426500 or email
You can also find our top picks of some of the latest financial and accounting issues affecting the charity and voluntary sector, here and on our blog.

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