Charity Commission Consultation on Annual Returns
On the 9 June 2022, the Charity Commission launched a consultation on its approach to the annual return and a set of proposed new questions that will apply to the charities' financial years starting on or after 1 January 2023.
The annual return ('AR') has not changed significantly since 2018.
The consultation relates to AR rules affecting registered charities in England and Wales with income over £10,000 and all charitable incorporated organisations (CIOs).
New Approach
The Commission has proposed a new flexible approach to the AR. Each year, the Commission will:
- ask core fixed questions (enabling the comparison of year-on-year trends)
- have flexibility to include or omit a small number of questions in the AR that it considers are necessary or appropriate to run, depending on prevailing circumstances eg a pandemic. The Commission will publish in advance details of these questions and its rationale for including them.
New Questions
The Commission has proposed adding 23 new questions to the AR and issued draft guidance and a glossary to help charities answer them. It has also simplified and clarified existing questions. In total, a minimum of 32 questions will be asked of all charities (up from 16). The maximum number of questions (depending on a charities activities and size) will increase from 36 to 52.
Amongst others, new questions that are proposed to be included are:
- to capture and understand charities' reliance on certain types, and single sources, of income
- on payments made to charity trustees. This will go beyond the existing question to ask whether the payment is made for being a charity trustee, a role within any of the charity's trading subsidiaries or connected organisations or providing goods and/ or services to the charity or any of its trading subsidiaries or connected organisations.
- asking grant-making charities what percentage of grants were made to individuals or other charities, and whether any of these are connected parties to the charity
- asking charities that receive income from outside the UK to indicate how such payments were received from a drop-down list eg bank transfer, cash courier or cryptocurrency
- to check whether charities that work with overseas partners have formal written agreements in place with their partners
- to gather information on the premises from which charities deliver their services or manage their operations, other than the one provided at the point of registration.
- to identify properties belonging to unincorporated charities held or controlled by holding or custodian trustees, other than the Official Custodian for Charities
- to establish if a charity's website is hosted outside the UK, and if so, where
- to establish whether a charity belongs to a wider organisational framework, such as membership of federated or regional structures, affiliations and membership of umbrella or processional bodies
Other new questions identify charities who have members, trading subsidiaries and staff, as well as those who work with children or at risk adults and any significant events that pose a risk to the charity's ability to operate in the financial year.
Why?
This is in line with the Commission's strategy to become a more data-driven regulator. The Commission intends to proactively deal with emerging issues and problems, rather than reacting to the consequences.
Next Steps
Charities can respond to the consultation questions via an online survey by 1 September 2022. Funders are also encouraged to respond to the consultation. Alongside the formal consultation, the Commission has undertaken user-testing of the question set, to ensure the questions as drafted are clear and easy to understand. This will involve 4,000 randomly chosen charities being asked to provide feedback.
The Commission will publish a response to the findings of this consultation in the autumn of 2022. This is expected to include draft regulations under the Charities Act 2011 to implement the changes to the AR (replacing the Charities (annual return) Regulations 2017).
The Commission recognises that the updated AR will result in additional work (and therefore costs) for charities. However, it considers the benefits of collecting data will outweigh this extra burden. This additional complexity may well result in the need for input for appropriate professionals. If you would like advice on this, please do get in contact.
VWV also offer a range of company secretarial services tailored to charitable companies, CIO's, their trading subsidiaries and social enterprises, including the preparation and filing of the annual return.