The Charity annual return: An increasing regulatory burden

Each year charities in England & Wales have to file an annual return with the Charity Commission, part of the regulatory burden that all charities face but one that is considered a vital part of the Commission’s oversight of the sector that helps them to identify and address areas of concern. This inevitably means that as new issues present themselves, and there have been a number of these that have arisen over the last few months which have attracted widespread media attention, the annual return is amended and updated to cover areas that the Commission feels it has become necessary to obtain greater information on.

The 2018 version of the annual return has now been updated, with an additional 19 questions across a range of subjects where the Commission is seeking this additional information. Around a quarter of these questions will be optional at first and only become mandatory next year in 2019. The remainder of the questions all become mandatory immediately, and some of them will require some additional work on the part of charities if they are to be able to answer them accurately.

The areas that these additional questions relate to are as follows:

• Income sources and fundraising
• Overseas operations
• Trustees and higher paid employees
• Working with children or adults at risk

Several of the questions relate to a charity’s dependence on income received from public sector sources. In previous years charities have had to disclose the amount of income derived from contracts with central and local government. This is extended to disclose how many such contracts there have been, and also how much grant funding from central and local government the charity has received. The Commission is also interested in finding out whether charity’s use professional fundraisers, and where they do, whether there are written agreements in place with them.

Many of the new questions relate to overseas activities, both in respect of income generated from overseas sources and expenditure incurred.

Where a charity receives income from overseas sources it will now have to identify the countries concerned, and provide an analysis of income received on a country by country basis, identifying amounts received from overseas governments, charities & NGOs, and institutional & individual donors. For individual donors and private institutions a threshold of payments over £25,000 will apply, or 80% of charity income, and providing this information will be optional for 2018.

With regards to overseas expenditure the Commission is interested in the controls charities have in place to monitor such activity, and the methods used to transfer funds overseas. From 2019 trustees will be required to confirm that they are satisfied that their risk management policy and procedures adequately address the risks to the charity arising from its activities and where they operate.

Several of the new questions address concerns over the relationship a charity has with its trustees and higher paid employees. For charities that operate separate trading subsidiaries a new question is being asked as to how many of the charity’s trustees also act as directors of the trading entity. There is also a new question asking whether any trustees have resigned during the year in order to take up employment with the charity.

There is already a requirement for charity accounts to provide details of higher paid employees. This is being extended to the annual return, where information will have to be provided on the number of staff whose salary falls into one of the following salary bands:

• £60,000 – £150,000       (increments of £10,000)
• £150,001 – £500,000       (increments of £50,000)
• Over £500,000

In addition, the value of the total benefits provided by the charity to its highest paid employee will need to be provided.

The last new question will only need to be answered by certain charities with particular classification or regulated by certain organisations. Such charities are being asked to confirm whether any trustees, staff or volunteers work directly and unsupervised with children or adults at risk.

It is clear that completion of the annual return is becoming increasingly onerous for charities. If you require any assistance in doing so we at Kreston Reeves are ready to help you meet your regulatory obligations. Please contact any of our charity specialists for guidance and assistance, or your usual Kreston Reeves contact.