SORP Update Bulletin 2
SORP Update Bulletin 2 has been published following a consultation period. The Bulletin reflects the updating of Accounting Standard FRS 102 by the Financial Reporting Council ‘Triennial Amendments’ which was published in December 2017.
Update Bulletin 2 consists of ‘significant’ and ‘clarifying’ amendments. Significant amendments are applicable for accounting periods beginning on or after 1 January 2019. Clarifying amendments are noted as applicable for accounting periods beginning on or after the date of publication of the Update Bulletin 2 (5 October 2018). The Bulletin does however highlight that these clarification amendments reflect existing requirements of FRS 102 and are already applicable for charities preparing their accounts in accordance with that Standard.
The three clarification amendments, which are therefore effective now, are as follows:
- comparative information must be provided for all amounts presented in the financial statements and notes unless otherwise stated in FRS 102 and the SORP
- Gift Aid payments, by subsidiaries to their charitable parents after the end of reporting period, are accounted for as a distribution to owners and must not be recognised as a liability at the end of the reporting period unless there is a legal obligation to do so (for example a deed of covenant)
- to remove the undue cost of effort exemption for depreciating assets, comprising of two or more major components, which have substantially different useful economic lives.
As a reminder, Update Bulletin 2 must be read in addition to applying Update Bulletin 1 and the Charities SORP (FRS 102).
SORP-making body expanded to include Northern Ireland and Republic of Ireland regulators
The four UK charity regulators will now work together to develop the charity accounting framework to be used across all four jurisdictions. The Financial Reporting Council (FRC) has approved the addition of the CCNI and the Charities Regulatory Authority for the Republic of Ireland as joint members of the SORP-makingbody with the CCEW and OSCR. The inclusion of the Charities Regulatory Authority is subject to the SORP being formally adopted by way of regulations for use in the Republic of Ireland.
The SORP will promote high quality reporting by charities whilst respecting local differences and legal requirements. The four regulators will begin developing the new SORP from the beginning of 2019.
Standard of accounts – CCEW monitoring review
The CCEW has undertaken one of its regular reviews into the standard of filed accounts.
The findings are somewhat worrying in that over 25% of the accounts reviewed were defective in some respect. The deficiencies ranged from missing narrative and pages through to accounts which did not even balance!
Such deficiencies not only look bad but can have longer term effects on the charity and its credibility. It is therefore important that trustees and advisors take all reasonable steps to ensure the quality of their submissions.
VAT and temporary employees
VAT is always an area of difficulty for charities, with most unable to reclaim VAT on purchases.
A recent Court of Appeal case has confirmed that where organisations are paying a staffing agency for employees (usually temporary contract workers), VAT is chargeable on the staff remuneration element by the agency.
While this will have a cash flow impact on all business, those registered for VAT will of course be able to reclaim this input VAT.
However, charities employing temporary workers are unlikely to be VAT registered and therefore will see an additional cost of using such agencies.
Gift Aid – simplification
The government has published details of its plan to simplify the Gift Aid system and draft legislation has been issued.
The main impact will be on the amount of benefit a donor is allowed to receive in return for a donation to a charity. The plan is that on donations of up to £100, a benefit of £25 can be provided (as is currently the case). For gifts exceeding £100, charities can offer benefits up to the sum of £25 and 5% of the amount of the donation that exceeds £100, up to a total value of £2,500. This is both more generous and simpler than the current regime.
The new limits replace the current mix of monetary and percentage thresholds that charities have to consider when determining the value of benefit they can give to their donors without losing the entitlement to claim Gift Aid tax relief on the donations given to them. The draft legislation is intended to make Gift Aid claims easier to administer for the claiming charity.
Budget 2018 and charities
The Gift Aid Small Donations Scheme (GASDS) applies to small charitable donations where it is impractical to obtain a Gift Aid declaration. GASDS currently applies to donations of £20 or less made by individuals in cash or contactless payment. It was announced in
the Budget that the limit will be raised to £30 from 6 April 2019.
The Budget also included the announcement of an increase in the small trading tax exemption limits for charities from £5,000 per annum to £8,000. Where the turnover is greater than £5,000 (rising to £8,000), the limit is increased to 25% of the charity’s total incoming resources, subject to an overall upper limit of £50,000 (rising to £80,000). Finance Bill 2018-19 will include the legislative provisions to increase these limits from April 2019.
The retail Gift Aid scheme will allow charity shops using the scheme to send letters to donors every three years (rather than every tax year) when their goods raise less than £20 a year. This will significantly reduce the administration burden for charities. This will be effective from April 2019.
Gift Aid – ineligible donors
The Charity Tax forum has noted that 8% of donations had Gift Aid incorrectly added by ineligible donors generating a tax gap of up to £180 million. As expected, HMRC has reported that it will not approach charities to cover any shortfall in tax paid by donors to cover any Gift Aid declared, as this shortfall is the responsibility of donors.
It is expected that the HMRC guidance will be clarified to reflect this approach and also to advise charities that Gift Aid claims should include full forenames rather than the sole use of initials.
This publication has been prepared by Robinson Reed Layton LLP. It is to be treated as a general guide only and is not intended to be a comprehensive statement of the law or represent specific tax advice. No liability is accepted for the opinions it contains, or for any errors or omissions. All rights reserved.