Common Questions
Common Questions
If your organisation has wholly charitable objects, is for public benefit and has income of over £5,000 (and it is not a CIC) it must register as a charity with the Charity Commission.
You need to register if you make taxable sales of over £85,000 in a 12 month rolling period. (This is the 2022/23 threshold.) You may choose to register voluntarily, for possible advantages of doing this see HMRC’s VAT website.
The Companies Act 2006 requires you to keep records. Your accounts will need to be prepared on an accruals basis and you need to file your accounts (submit them to Companies House) on time or a fine will be applied.
- You are eligible for some reliefs on taxation
- You gain some kudos by being registered; this may make some grant funds more accessible
- Some charitable trusts will only give funding to registered charities
- You can reclaim Gift Aid on donations accompanied by a signed declaration
- You are eligible for some VAT relief on certain purchases (whether you are VAT registered or not)
- You will be regulated by the Charity Commission
- You cannot pay any of the management committee for their role (unless this is approved by the Charity Commission)
Accounting Reference Date. This is given when you first register as a company and states the last day of your accounting period. You can find this if you look up your company through the Companies House website. The ARD can easily be changed but there are time limits on when you can apply to Companies House to change the company’s ARD.
A social enterprise is a business operating for the good of the community. It is not a legal status; you may be a social enterprise and a (charitable or not) company / a social enterprise and a (charitable or not) unincorporated association.
You will need to pay tax if you have generated a profit and are not eligible for the charitable exemptions.
WYCAS are often asked, “How long should we keep our documents for?”
The table below provides some brief guidance:
| Document type | Period | Reason |
|---|---|---|
| Purchase invoices, supplier documentation, record of cheque payments, payments cash book | 6 years | Companies Act / Charities Act |
| Capital purchase invoices | 10 years | Companies Act / Charities Act |
| Petty cash records | 7 years | Companies Act / VAT / Charities Act |
| Bank statements | 6 years | Statute of Limitations |
| Receipts cash book, paying in counterfoils, remittance advices | 10 years | Companies Act / Charities Act |
| Sales ledger | 10 years | Statute of Limitations |
| Bank reconciliation | 6 years | Statute of Limitations |
Reserves are funds that are freely available to spend on any of the charity’s purposes. They need to be: unrestricted – funds that the charity trustees are able to use for any of the charity’s purposes. You will find useful guidance on the Sawyer Vincent website here.
The controls around authorising a payment / purchase.
If there are agreed procedures then all those involved in the organisation have a source of reference on who should do what and when in the financial administration of the organisation. It is evidence that financial management is taken seriously; often funders will ask for a copy of the financial procedures.
Be aware that expenditure can be incurred by one person alone with a card, whereas 2 signatures are usually needed on a cheque. This increases the risk of misuse of funds.
Set a limit (or threshold) on the amount of a purchase, above which it must have an approval before expenditure is incurred. For electronic transactions, get a dual electronic signatory (Unity Bank do these). Have debit cards only on an account which holds a specified maximum amount and make these debit cards so they can only spend up to the balance held on that account.
As an employer you must follow the law and:
- Administer the payroll to ensure tax and NICs are paid
- Have employer’s liability insurance
- Ensure health and safety regulations are maintained
- Provide sick pay and holidays
- Adhere to minimum wage legislation
- Make pension contributions
No; the law does not see it that way and will penalise you heavily if you have failed to pay the correct taxes on the employment. Use the HMRC’s Employment Status Indicator to find out if they are really self-employed.
It is good practice only to reimburse their out of pocket expenses, and buy them lunch etc if their volunteering hours necessitate this. Extensive guidance can be found on the NVCO website.
It is important to obtain receipts for all expenditure which they have incurred (except car / van mileage, which can be reimbursed at 45p per mile for the first 10,000 miles.
The risk is that you may be perceived as paying the individual and this may be a tax or benefit issue.
It is a good idea for the organisation to have a policy on payment of volunteers’ expenses.
Closing a charity / organisation can feel like a daunting task. NVCO have produced some useful guidance on the key steps you need to take, and the processes you should be aware of to close your organisation. Find out more on the NVCO website here.