Much more detailed charity annual return will enable charity commission to ensure the charitable sector is more resilient

21.04.2023
Rebecca Frost
Charities
Rebbeca Frost

In the same way that limited companies have to file an Annual Return to Companies House each year confirming and/or updating their details, charities are required to file an Annual Return to the Charity Commission.

Rebbeca Frost

For those with financial years ending on or after 1st January this year, that process has become a little more onerous.

Charities enjoy a special status, so it is right that the regulator has accurate information about their financial and governance situation.  As a result, charities’ Annual Returns are more detailed than those filed by companies, and the new return introduced this year requires a new level of detail.

One of the biggest changes is that smaller charities now have to provide a detailed breakdown of where their income originates from, something which larger charities already had to do.  As well as reporting gross income, every charity must now detail the sources of that income: government contracts and grants, donations and legacies, charitable activities, other trading activities and investments.

Asking for this level of detail is all about the Charity Commission being able to assess a charity’s resilience, and where any financial risks arising from over-reliance on one source of income may lie.

The new Return also asks about the sources of large donations (both corporate and individual), and whether any donations have come from a ‘related party’.  This is to help the Commission identify any potential conflicts of interest.

For charities whose main purpose is grant-giving, there is an enhanced focus on the detail of grants given.  In a time of economic squeeze in the charitable sector, the Commission is concerned about the effect grant-making charities experiencing financial difficulties might have on the stability of the wider sector.

Information about income which comes from outside the UK is also required, including (for example) interest from non-UK bonds or donations from a non-UK private company.  The focus here is on income coming from outside the UK via methods other than the regulated banking system.

In the same way, charities spending and delivering charitable activities outside the UK are now required to provide details of how funds are transferred, for reasons of accountability and prevention of fraud.

The new return asks about property held by the charity, and in particular any property held on the charity’s behalf by trustees.  There are also questions about the structure of the organisation, numbers of employees and the nature of their contracts, and numbers of volunteers.  A new question here requires the numbers to be split into fixed-term, temporary and self-employed workers, which is significantly more onerous than what came before.

The final section is about safeguarding and risk, with wide-ranging questions about the positive and/or negative impact during the reporting period of a number of risk factors.

This may seem like an onerous requirement each year, but charities providing this information will enable the Charity Commission to build a much more accurate picture of the sector, and of the challenges it faces, which in turn will enable the regulator to put in place policies to mitigate those risks and help all charities become more resilient.

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