Lesley Kendrew, a Charity and Not for Profit Partner at BHP – one of the largest independent firms of Chartered Accountants in the North – has written the following article for AIM.
BHP is a corporate member of Charity Finance Group and AIM members can join CFG for free as part of their membership. Benefits include discounted access to charity finance events and training, free member meetings covering pressing sector issues, online resources and exclusive publications.
The key to a successful charity is that it should be run as a business. Charities need to make conscious decisions to not have an over-reliance on core funding, but to consider opportunities to diversify to other types of income to cover operational and maintenance costs which can be significant in the case of museums.
Charities need to determine the value and longevity of the amounts currently receivable and the seasonality of these. There may be easy wins to increase the amounts or make them more regular over the course of a year to help reduce cashflow issues. For example, where income is regular (members fees, rents) it could be taken by direct debit to ensure payment patterns are maintained and controlled by the charity.
In the case of museums, the Trustees need to consider the demography of their current visitors and how they can widen that appeal to others. The need to attract different groups of visitors is great and, once through the doors, those visitors need to be persuaded to both stay and have reason to return.
It isn’t unusual for a charity to develop partnerships with similar charities, other venues, funders and supporters. The Trustees should identify local businesses who are focused on corporate social responsibility. These businesses encourage their staff to take time away from work to enable them to volunteer. This can result in publicity for both the business and the charity and often forms the start of ongoing relationships. These businesses may also be encouraged to make donations to the charity which are not monetary but could be pro-gratis professional services and facilities.
Many charities now have alternative income streams, for example: hosting events and festivals, hire of facilities, catering services, retail outlets, corporate activities, membership fees, legacies, admission charges and exhibits.
Many charities do not maximise Gift Aid recoverable from HMRC on donations received from individuals who pay UK income tax. This is currently an additional 25% of the monetary donations received from those individuals. These donations must be freely given, and the donor must not, generally speaking, receive something from the charity in return. In addition, there are provisions which allow Gift Aid to be claimed on donations to view charity property e.g. museum entry fees, and this should be maximised.
It is essential that charities maintain exemption from a liability to paying corporation tax on surpluses. It is therefore crucial to obtain advice prior to commencing any new activities. If an activity does not fall within one of the charity tax exemptions then it should be carried out through a trading subsidiary. Profits made by the trading subsidiary are usually donated up to the charity, which results in them not being liable to corporation tax.
Charities must also be aware that some types of income stream will be classed as a taxable supply under VAT rules and the impact of this should be considered.
Charities must always have their objectives and purpose at the forefront of all their charitable activities, which should be for the public benefit. They should also consider the environment, respect cultural heritage, be educational and interactive.
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