Charities – What we can do for you
We are often approached by charities for guidance on a range of financial and advisory matters. For example, what needs to be included in our annual reports? Do we need to be audited? What are the deadlines for our accounts, are they the same as a normal company? What are restricted and unrestricted funds? This article will aim to provide an answer for these questions and also clarify the tax position of charities that are structured as a Charitable Incorporated Organisation (CIO).
Let’s start from the beginning, what’s a CIO?
Usually, when organisations wish to gain protection via limited liability they opt to structure as a limited company. This process however can be time-consuming due to initial registration with both Companies House and with the Charity Commission. The company is also expected to comply with company law, which may not be ideal for a charity. As a result, the CIO was introduced in the Charities Act 2006.
The CIO structure seeks to provide charities with select benefits of being a company, but without having the need to perform additional reporting and legal duties required of charitable companies. As the name gives away, a CIO is only available to charities and can be further split into two distinct models. The first constitution states that charities can be set up as a corporate body and allow voting members other than trustees. Otherwise, the charity can set up a foundation CIO, so long as the only members of the charity are trustees.
Does your charity need to be audited?
The reporting criteria for charities can be sophisticated, but can be condensed as follows:
|Gross Income for the year more than £1,000,000?||If YES to any of these – |
An audit is required
|Gross Income exceed £250,000 and Gross Assets exceed £3,260,000?|
|Do trustees (or a trustee) wish to have financial statements audited?|
|Does the governing document require an audit?|
|Has the Charity Commission asked for an audit?|
|Does the funder need audited accounts?|
|Otherwise, also consider the following:|
|Gross Income between £25,001 and £1,000,000?||If YES –|
An independent examination is required
|Do trustees (or a trustee) wish to have financial statements independently examined?|
|Does governing document require independent examination?|
|Does the funder need audited accounts?|
Why choose a CIO structure in the first place?
The Charity Commission recommends a CIO structure to small and medium-sized charities that employ staff, with the following advantages:
- Fewer requirements for accounts preparation
- Single registration with the Charity Commission (free) and not with Companies House. CIO is registered in the register of charities
- One annual return (but does need to file a separate return under charity law). Annual returns must include changes in trustees, objects etc. in the last 12 months. Furthermore, annual returns need to be filed within 10 months from end of accounting year
- Trustees receive greater protection as they are not liable to charity debts
- The charity has their own legal personality, can conduct business under own name and not trustees
- Expanded merger and restructuring provisions
- Able to use one of two constitutional models (see above), which have fewer government provisions
How do I convert to a CIO structure?
An existing charity can convert to a CIO structure by choosing the correct CIO model constitution – the association model or foundation model. In the event that the original charity was an unincorporated association or a charitable trust, the charity can apply for the conversion using the online service.
What are the accounting implications arising from the conversion?
Old entities in an unincorporated charity will need to have cessation accounts prepared which are not on a going-concern basis. The new entity should be able to apply merger accounting once the necessary criteria are met. Unlike when companies convert to CIO, following the above process ensures that the conversion process does not affect the accounts.
The accounts of a company and CIO have few differences between them, such as a CIO statement of assets and liabilities needing to include a note of any guarantee given by the CIO (as well as details of debts on CIO assets). A separate income and expenditure statement is not required if evidence of endowment is on the statement of financial activities.