Current Issues

Page last updated 22.01.10

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The phasing out of cheques

The Payments Council has decided that cheques will be phased out by 31st October 2018, subject to a review in 2016. The Payments Council is the organisation established to ensure that UK payment systems and services meet the needs of users, payment service providers and the wider economy. It is meeting with a range of stakeholders, including charities. CFDG is ensuring that charities’ issues are identified and we are representing our members’ interests with both the Payments Council and the banks. We also aim to help identify new and innovative ways of payment that address the issues. For more information about this issue please see our FAQs document.

On 22nd February 2010 CFDG facilitated a meeting between banks, the third sector and Government to discuss the phasing out of cheques. Please see the charity banking discussion notes for additional information about factors which must be addressed in the development of alternatives to cheques.

Direct Debit Fraud

What is the issue?

The Charity Commission has been made aware of a number of instances where fraudulent direct debits have been set up from charity bank accounts, resulting in the abuse of charity funds.

What can charities do?

Prevention: write to your bank and inform them that no further direct debits should be set up without the specific approval of certain named authorised personnel.

Detection: you should ensure that you regularly check your bank statements and ensure the bank statements reconcile with the charity records. Any unexplained or unusual direct debits must be investigated.

Redress: under the direct debit guarantee scheme, if the charity has been wrongly paying a direct debit, it can reclaim this money from the bank. It is then the bank's responsibility to reclaim this money from the supplier.

A spokesperson for Bacs Payment Schemes Limited said:

"Paperless Direct Debit is a highly reliable, safe and cost effective method for organisations, including charities, to collect regular payments. Instances of Direct Debit fraud are very low when compared with alternative payment methods like cheque or card. We treat any instances of Direct Debit fraud extremely seriously, even when they take place rarely. We are pleased to work with the Charity Commission in providing this alert to the charity sector".

Advice from Bacs
Organisations setting up non paper Direct Debit Instructions must verify the identity of the Payer prior to collecting any money; the methods used vary depending upon the associated commercial risk - all are agreed and approved by the organisation's sponsoring bank. For organisations providing services and goods, for example, Bacs makes a list of stringent verification measures available in a secure area of its website. However, for obvious reasons, and in the interest of fraud prevention, these measures must remain confidential.

Organisations collecting by Direct Debit must also confirm, in writing, the Instruction given by the customer within three days of setting up the Direct Debit. Alternatively the organisation must write and give Advance Notice of the transaction, normally ten working days prior to it leaving the customer's account. In line with standard banking industry recommendations, all consumers are advised to keep their personal details secure, regularly check their bank statements, monitor their bank balance, open all post and dispose of it with care.

For more information about direct debits please see the Bacs website.

For more information about charity trustees’ legal duties and responsibilities for ensuring strong financial controls please see our guidance CC8 Internal Financial Controls for Charities.

NHS charities and accounting

There have recently been discussions over whether IAS 27 requires the consolidation of NHS charitable funds which are governed by a corporate trustee. The Charity Commission believes that this practice would essentially count charitable funds as being within the public purse, resulting in a risk that they may be used for non-charitable purposes. The Commission have issued a briefing paper, and a shorter parliamentary briefing.

22nd January 2010
Two MPs have now put forward Early Day Motions (EDMs) on this issue: EDM 518, sponsored by Jenny Willott, and EDM 662, sponsored by Lindsay Hoyle.

Phil Hope, now a minister in the Department of Health has answered questions on this topic, and has maintained that even if the accounts of NHS Charities are consolidated with their relevant NHS body, "the charity's funds would remain wholly independent from NHS budgets".

However, Phil Hope has now asked the Treasury for a delay in the introduction of the new rules, in order to investigate the impact on charities.

Gift Aid Reform

15th December 2009
HM Revenue and Customs (HMRC) have published an academic report that looks at the options for reformed higher-rate relief on Gift Aid. The report broadly suggests that redirecting higher-rate tax relief back to charities would be unlikely to deter donors. The report also looks at options for a composite rate of relief, set between the basic and higher tax rate, which charities could claim regardless of which tax rate their donors paid. Unfortunately, however, the report does not look at the implementation or compliance costs for the various options.

Going forward, HMRC and HM Treasury have committed to setting up a forum of third sector representatives to discuss the options for reform. CFDG will be closely involved with these discussions, and we will keep members up to date on their progress.

Gift Aid Donor Research: exploring options for higher-rate relief

Shaping the future of charity reporting

The Charity Commission and OSCR held an event on the morning of Friday 4 December in central London to launch a report on the future of charity reporting and accounting.

The report by Queen's University, Belfast, looks at the recommendations for change made by the roundtable events, convened by the Charities SORP Committee, in which many CFDG members took part.

More information is available at Charity Commission's website.

Related to this is the consultation on the Future of UK GAAP - click here for CFDG's response.

VAT and Buildings: ESC 3.29 withdrawn

HMRC have withdrawn Extra Statutory-Concession (ESC) 3.29, which allowed the purchase or construction of buildings used for 90% charitable purposes to be 0-rated for VAT. The related “switching” and “look through” concessions have also been withdrawn. HMRC have stated that even without the ESC the meaning of “solely” charitable use (which is the legal basis of the relief) can incorporate a 5% de minimis margin. In essence this means that charities now have to prove that buildings are now for 95% charitable use. There is no specified calculation method for proving buildings’ use. There will, however, be a 12 month transition period up until 30th June 2010, during which charities can use either ESC 3.20 or the new method. More information from HMRC.

CFDG has now met with HMRC to discuss the withdrawal of the concession, and have prepared the following briefing note for members. HMRC believe that all charities that could meet the 90% charitable purpose test should be able to meet the 95% test, and they are willing to provide some assistance to charities who find they cannot meet the new requirements.

If you have a worked example that shows that you can meet the requirements of ESC 3.29 but not the new rules please share it with us so that we can share it with HMRC and help to shape the guidance to the best advantage possible for charities. Please contact our Policy Team with any examples, feedback or questions: email policy@cfdg.org.uk or tel. 020 7785 6419.

Personal Liability for Senior Accounting Officers

Budget 2009 announced proposals to introduce a personal liability for the senior accounting officers of large companies (SAOs). SAOs will now be required to provide personal certification that their accounting systems are capable of ensuring accuracy in their tax reporting, under the penalty of £15,000 fines. For more information see the briefing from BDO Stoy Hayward, or Deloitte's dedicated website.

Update 15th May: An Opposition Amendment which would have deferred the SAO measure implementation date by 12 months was defeated at Second Reading in Parliament. The Financial Secretary to the Treasury announced various changes to the measure during the debate on Clause 92:

• Schedule 46 and the definition of large company will be changed in Committee so that it only applies to ‘companies with a large business relationship with HMRC and a customer relationship manager reflecting that.’ The details are not yet clear. The Minister referred to reducing the number of companies affected to around 2,000, which might suggest it will cover businesses within HMRC’s Large Business Service (LBS) with a customer relationship manager (CRM) and also those in local Large & Complex with a CRM. We understand though that this may not be the case.

• It is intended to reduce the number of certificates required from two (A or B) to one. There is no indication as yet whether this would be A or B. Type A is for companies that have appropriate accounting systems. In type B, an explanation needs to be given of circumstances where there were not appropriate tax accounting arrangements. There should be more detail at the Public Bill Committee debate on Schedule 46 (probably some time in mid-June).

• The requirement for company auditors to be notified as well as HMRC will be dropped; the Government now accepts this may cause 'operational difficulties'.

• Senior Accounting Officers will not be held responsible for retrospective accounting system flaws (ie before the legislation is passed).

• When asked about the level of materiality to be applied, the Financial Secretary referred to a return being 'correct and complete'. This may be revisited at Public Bill Committee.

• Regarding regulations to be made under Schedule 46, the Financial Secretary said that regulations on penalties will be available in draft in time for the Public Bill Committee. No regulations under Schedule 46 will be introduced for the changes to the large company definition; these will be dealt with through amendments in Committee.
We understand that draft guidance on the measure should be available before the Public Bill Committee.

Update 22nd June: Government amendments to the Senior Accounting Officer provisions in Finance Bill Schedule 46 have now been published. Detailed comment will be issued shortly when the promised draft regulations and guidance appear. The Schedule will be debated on Tuesday 23 June. The Financial Secretary Stephen Timms has told the Commons that a number of changes will be made to these provisions, and in particular that the amendments refer to ‘qualifying companies’, which, subject to possible further exclusions made by Regulation is a company which meets either or both of the following requirements:

• Relevant turnover More than £200 million
• Relevant balance sheet total More than £2 billion.

The turnover and assets of members of the same group (broadly defined) are aggregated for this purpose.
As drafted, branches of foreign companies and UK resident non UK incorporated companies will not fall within the definition of a qualifying company. The requirement for companies to provide certification to their auditors is still expected to be dropped and there is now only one type of certificate that needs to be provided to HMRC. A welcome change means that the accounting arrangements are now required to enable the company’s ‘relevant liabilities’ to be calculated accurately in all material respects.

Update 26th June: An amendment to the definition of ‘Senior Accounting Officer’ has also been agreed, which now reads ‘the director or officer who, in the company’s reasonable opinion, has overall responsibility for the company’s financial accounting arrangements’.

Icelandic banking crisis

23rd April
On 4th April the Treasury Select Committee released a report, Banking Crisis: The impact of the failure of the Icelandic banks, which recommended that charities should be compensated in full for their losses in the Icelandic banks. So far the Government has not given a formal response to the report, and there was little to give any indicator of their likely action in the Budget on 22nd April. Alongside Save Our Savings, NCVO, CAF and Acevo, CFDG wrote to the Chancellor on 20th April to welcome the report and urge the Government to adopt its recommendations.

Letter to the Chancellor (20th April 09)

3rd November Iceland
Over the last four weeks CFDG in collaboration with other sector bodies has been campaigning for charities to get full compensation for their losses in the Icelandic banking crisis. Research by CFDG, NCVO, Acevo, the Charities Aid Foundation and the Charity Commission has revealed that 48 charities are affected and they have lost £86.6m. However, there still may be more charities that have not come forward and we would urge those charities to do so we can understand the full loss to the sector. We believe from the KSF website that it may be as much as to £230m (the KSF indicated on 30th June 2008 that they had 99 charity clients investing £230 million - but we cannot be sure these are all british charities.)

We are currently in discussions with the government to set up a loan gurantee scheme that would be provided on an interest free basis until charities could recover their lost funds from the administrators. We will continue to lobby on your behalf on this issue and will keep you informed of any progress.

Further information:
Letter to the Chancellor
Call for members to contact CFDG if they are exposed to the Icelandic bank freeze
Joint statement from the Office of the Third Sector and sector leaders on the Icelandic banking crisis
Latest new story: Charities lost up to £200m in Icelandic banks

Pyramid selling schemes

CFDG has become aware of a spate of pyramid selling schemes in the South West and Wales from which part of the funds generated are donated to charities. The schemes work in something close to the following way: Each entrant pays a fee of £3,000 and recruits 2 other members. These two repeat the exercise and so on until a total of £24,000 has been raised (the “game” continues for all but the first member). The original entrant then claims their prize of £23,000 at a ceremony where they have to answer 3 questions, £600 goes to their nominated charity, £300 is used for miscellaneous prizes at the ceremony and £100 is for the buffet. Presumably the organiser also gets a return as well.

These schemes ultimately always fail leaving a number of participants out of pocket. They are also possibly in contravention of the gaming act and the charities act. Whilst it is perfectly reasonable to accept the donation, charities should be aware of the reputational risk to the charity, and of course to the sector, should the scheme become public.

The Charity Commission has provided us with the following advice:

'Charity trustees have a duty to act in the best interests of their charities. This will include on occasions refusing or returning a donation which has come from a source that could create reputational risk for the charity if it was accepted. Recently some charities have been offered or received donations from pyramid gifting schemes, schemes that the Office of Fair Trading describes as offering "false promises about quick and easy money". Such schemes always collapse leaving many members out of pocket and creating ill will towards those that have benefited. Trustees may consider that the negative publicity that will be associated with such a scheme would damage their charity and so refuse or return any donation from such a source.

In very extreme or complex cases, where trustees consider that their decision to refuse or return a donation may be challenged as not being in the interests of the charity, they can ask the Charity Commission for advice.'

Please be on the lookout for donations of this type and consider seriously whether you should accept them or return them to the donor. Also please advise the Charity Commission and give them as much detail as you can should you receive such a donation - you can do this by calling 0845 3000 218 or emailing enquiries@charitycommission.gsi.gov.uk