Love them or hate them…


Despite my (almost four) years of acting for charities, it still never ceases to amaze me quite how many charities seem to be trying to get along without trustees.

I don’t mean the charities out there without trustees, although they do exist. I mean the charities that, nominally, have trustees, but some or all of those trustees are so disengaged that they may as well not exist.

Charity trustees have many duties and responsibilities, but chiefly their role is to direct the affairs of the charity, and ensure that it acts in pursuance of its Objects, with the aim of delivering these for the public benefit. It is not possible to do this from a distance!

Unfortunately, the nature of voluntary work like charity trusteeship is such that it can easily get squeezed out by other important family or work commitments. If one charity trustee is too busy to be involved for a short period, but others can step in to fill the gap temporarily, a lapse of this sort is likely not to be disastrous. However, it is not something that can be tolerated in the long term.

If a charity trustee is suffering from a prolonged period of ill health, or lack of interest, it can sometimes be best for a fellow trustee to take the absentee trustee to one side and suggest that he or she has a bit of a break from the trusteeship until he or she has the time, energy or inclination involve him or herself more fully in managing the charity.

Charity trustees who feel they may have slipped into bad habits of absenteeism, or charity trustees who have colleagues who may have slipped into such bad habits, may find the information provided by the publication ‘Good Governance – A Code for the Voluntary and Community Sector’ (prepared by The Code Founding Group) helpful. It is on the Charity Commission website here.

Sensibly, the first principle is that an effective board will provide good governance and leadership by understanding their role.

Many charity trustees are aware of their basic legal responsibilities, in terms of providing reports and accounts to the Charity Commission / Companies House / the CIC Regulator / HMRC, and their responsibilities to safeguard the assets of the charity, and to seek to further the Objects of the charity.

However, a considerable number seem to forget that they are also are responsible for setting the vision of the organisation, overseeing its work, and managing and supporting any staff and volunteers.

This last area of managing staff can be a particular minefield. All too frequently, charity trustees can delegate duties and powers to paid staff, and then forget that they retain overall supervision for the exercise of those duties and powers.

Of course, the real problems start when the staff forget that their duties and powers are only delegated and not absolute, and try to run the charity while the trustees take a back seat. This is bad news for all concerned.

The trustees retain their responsibilities, and possibly incur liabilities, while exercising no actual control over the management of the charity. Meanwhile, the staff are quasi-trustees, as they have control of the day-to-day management of the charity, and as such as also are potentially exposing themselves to liabilities, but often believe that the trustees still have ultimate responsibility for actions they, as staff, carry out on behalf of the charity.

A good induction pack and training can help remind trustees of their responsibilities, and I would certainly recommend at least one training session per year for trustees. The cost of training, provided it is reasonable, is a legitimate expense of the charity.

However, a number of organisations offer this kind of training for free – for example, the Cambridge Council for Voluntary Service runs governance workshops which are free to member organisations. In addition, there are now online resources. So, there’s no excuse for charity trustees to plead ignorance of their role!


Gift aid on political donations


Following my first blog, a friend mentioned that he had heard that gifts to political parties might obtain the benefit of gift aid. He was clearly not too impressed with this idea.

How Gift Aid works
Gift Aid works as follows: a person gives a cash donation to a charity and at the same time makes a Gift Aid Declaration, and, provided he or she has paid sufficient income tax, the charity is able to reclaim the basic rate tax on the gift from HM Revenue & Customs.

At present, this means that a gift of £100 to a charity with Gift Aid is worth £128 to the charity, although, with the end of transitional relief on 5 April, its value to the charity will soon decrease to £125.

If the donor is a higher rate tax payer, the donor is able to reclaim the difference between the basic rate and higher rate tax for him or herself. This can be a considerable incentive to higher rate tax payers to make charitable donations.

Gifts to charity also benefit from an Inheritance Tax exemption, and, where the gift consists of assets other than cash, a Capital Gains Tax exemption may also be available.

Reliefs for gifts to political parties
Although gifts to political parties already benefit from an Inheritance Tax exemption, provided the party which receives the gift has at least two members elected to the Commons or at least one member elected to the Commons and at least 150,000 votes at the last election, there is no Gift Aid available for cash donations to political parties.

This is because, while a charity can carry out campaigning and political activity provided it is in furtherance of its (non-political) charitable objects, a charity cannot have purely political objects.

In February, the co-Chairman of the Conservative Party, Lord Feldman of Elstree suggested to the Committee on Standards in Public Life that this situation should be changed. It is not the first time the suggestion has been made. At the time of the Hayden Phillips Report on party political funding in 2007, Labour was in favour of gift aid being available on political donations.

More recently, in 2009, the Liberal Democrat Lord Goodhart proposed an amendment to the Political Parties and Elections Bill which would allow a political party to reclaim up to £500 of basic rate tax on any donation by a tax payer.

Then, the proposed amendment was rejected, on the grounds that there was no public appetite for tax relief to be available on political donations, especially when politicians were held in such low esteem. It was noted that charities are viewed as deserving of special treatment by the general public, and political parties are not.

So, is the time now right for change?
I haven’t noticed any significant shift in public opinion, and my friend’s immediate response suggests that my perception may not be completely erroneous.

One of the arguments for making Gift Aid available on political donations put forward by Lord Feldman was that it would ‘decontaminate’ the issue of donations to political parties, and potentially increase the donor base for the parties. I think he is confused on this issue.

Simply giving political parties some of the same benefits that charities receive will not revive the fortunes of the political parties, in terms of their finances or their reputations. Charities have had to work hard for many years to achieve the public’s trust and confidence.

Given the current level of public trust in political parties, I can’t even begin to guess how long it might take for the political parties to achieve the same feat.

And don’t even get me started on the potential incongruity of charities being barred from engaging in any party political activity, and political parties receiving reliefs presently reserved for charities…

‘Tainted donation’ rules: worth the wait?


Welcome to my blog. At the moment I’m feeling more than a little aggrieved by the drafting of the new ‘tainted donation’ rules, intended to replace the old ‘substantial donor’ rules from 1 April 2011. Therefore, it seemed a good topic for a first post.

A brief history of the ‘substantial donor’ rules

The ‘substantial donor’ rules were introduced by the Finance Act 2006 (without any prior consultation by the then Government) with the intention of preventing the misuse by individuals of the tax reliefs available on donations to charities.

The rules applied where an individual made a relievable donation to a charity in excess of either £25,000 in any 12 month period or £100,000 over any six year period, and subsequently entered into one of a number of transactions specified in the legislation with the charity on terms which were favourable to the donor.

Even before the rules came into force, they were subject to widespread criticism for being too broad in their effect, and too likely to catch innocent transactions.

In addition, the rules placed a significant administrative burden on charities which received such donations, and, if the charity was found to have infringed the rules, the charity lost the benefit of any income tax or capital gains tax reliefs which would otherwise have been available.

The ‘substantial donor’ rules have now been under review since 2008 and, finally, with the Finance Bill 2011, replacement legislation has been unveiled in the form of the ‘tainted donation’ rules.

The ‘tainted donation’ rules

The new rules come into force on 1 April 2011. They differ in two key ways from the existing ‘substantial donor’ rules:

  • not only ‘substantial’ donations are caught – any donation can be open to scrutiny, no matter how small; and
  • the donor is liable for any penalties, jointly and severally with the charity in certain circumstances.

A donation will be considered to be tainted if:

  • a donor or connected person enters into an arrangement (involving, for example, a transaction such as the sale of property, the provision of services or a loan, or investment in a business) whether before or after the donation is made, and it is reasonable to assume that the arrangement and the donation would not have been entered into independently of each other (Condition A); and
  • the main purpose of the donation is to obtain an advantage directly or indirectly from the charity which is the recipient of the donation (Condition B); and
  • the donor or connected person is not a wholly owned subsidiary of the charity in question (Condition C).

So, were the new rules worth the wait?

Unfortunately, it appears not. The ‘tainted donation’ rules seem as likely to catch innocent transactions as the ‘substantial donor’ rules, if not more so. In addition, there are no de minimis provisions for the ‘tainted donation’ rules, which means that many more charities will be affected by the new rules than are currently affected by the ‘substantial donor’ rules.

One particular problem is that, although the purpose of the donor in making the donation seems to be key as to whether a donation is tainted or not, the rules seem to apply where there is no intention on the part of the donor to obtain an advantage. This is a result of proposed s.809ZK of the Finance Bill 2011, which ‘deems’ an advantage to arise and for Condition B to be satisfied in certain circumstances.

As a result of this, matched funding gifts would appear to be treated as ‘tainted donations’, as would a donation conditional on the completion of a marathon, for example. It is hard to believe these are the kind of donations the Government intended to target!

Therefore, it seems the only significant improvement in relation to the ‘tainted donation’ rules is that this Government has as least seen fit to consult with the sector before bringing the new rules into force.

Now, it can only be hoped that the Government listens to the criticisms of its legislation which have emerged during the consultation. The charity sector does not need another set of anti-avoidance rules which are not fit for purpose.