Charities & NFP organisations

Charities

These days charities need to be entrepreneurial and commercially astute because lots of charitable enterprises are chasing the same pot of money. Charities also have to keep abreast of the ever more stringent legal, accounting and tax regulations imposed on this specialist sector. 

Not For Profit Organisations

This title covers a wide range oforganisations active in the community. It includes social or community enterprises which are similar to charities but may not have full charitable status. They are run for the benefit of the members or the community. An example of this type of enterprise is a Community Interest Company (CIC).

If you have questions about forming or running any of these types of organisations contact us to arrange a meeting with our team leader Shona Wardrop. or partner Fiona McGlynn. Remember, the initial consultation is free so contact Fiona or Shona on 01631 562 643 or email Shona or Fiona

Why should R A Clement Associates do your charity accounts?

We act for many charities including local, national and international clients and have years of experience in this highly regulated sector.

Our advice covers all aspects of running a charity; not just the financial side of things. We aim to understand your organisation's culture and goals so that we can offer proactive and appropriate advice.

Exactly what advice can we offer you?

Meet the Team

We have a specialist team to deal with charities and "not for profit" organisations. Charities and auditing are so closely linked that the same team, the Charity & Audit Team deals with both topics. 

So who is OSCR?

Scottish charities are regulated by the Office of the Scottish Charity Regulator (OSCR) and all Scottish charities must register with OSCR.  Charities which are registered with the Charity Commission in England, but which work in Scotland or have a significant presence here, must contact OSCR to find out if they should also be on the Scottish Register. Visit the OSCR website for details of their aims and objectives and the regulations which now apply in Scotland. The website has a "Receipts and Payments Work Pack" for smaller charities which you may find useful.

Other useful links:

How to select the best legal entity for your charity.

This is a complex issue influenced by many different factors making it difficult to give general advice.  We have listed below various types of organisations suitable for charities.  For specific advice on your circumstances please email Fiona McGlynn, the partner in charge of our charity & audit team or phone her on 01631 562 643.

An organisation is either incorporated or unincorporated and there are various types of each one from which to choose.  We can suggest the most suitable for your purposes if you contact us. Meanwhile here are brief details of each:

Unincorporated organisations are just a collection of individuals working together rather than a single business entity.  Many voluntary organisations start off in this way but this type of group may find it difficult to purchase property and enter into contracts without exposing the trustees to risk.  If the group gets into debt the individuals can be personally liable and may have to meet the debt out of their own pockets, in other words, this type of organisation has unlimited liability.

Incorporated organisations can give you a measure of limited liability and enable you to more easily undertake contracts, own property and employ staff.  There are various different types of corporate body suitable for charitable organisations and they are listed below to give you a general idea of what options are available before you contact us for more specific information.

Charitable Industrial and Provident Society (CIPS) - It is a form of co-operative society where the members all have a say in how the charity is run.  This type of organisation cannot register with the Office of the Scottish Charity Regulator and is therefore not bound by their regulations.  It is however eligible for many of the tax advantages afforded to charities.  This type of organisation must register with the Financial Services Authority (FSA) and the registration fee costs between £40 and £950.

Company Limited by Guarantee - Most charitable companies currently use this format. This type of business entity does not issue shares and cannot distribute profits.  It does have members who pay a subscription and are each liable for a limited sum if the company closes.  The members elect a board or committee to run the organisation on their behalf and the rules are set down in a legally binding document known as the Memorandum and Articles of Association.  This type of company must register with Companies House and the Office of the Scottish Charity Regulator.  This type of company can apply to the Inland Revenue to take advantage of all the charitable tax reliefs.

Community Interest Company (CIC) - Community interest companies are limited liability companies especially designed for businesses conducted for community benefit (sometimes known as social enterprises). CICs can have shareholders and pay directors and they are not restricted to just charitable activity. They do however need to demonstrate that they are run for the benefit of the community and therefore must register with the Community Interest Companies Regulator and pass the community interest test.  This ensures that the assets and profits are used in the interests of the community.  The disadvantage is that this type of business does not receive the tax advantages available to charities.

Scottish Charitable Incorporated Organisation (SCIO) - A Scottish Charitable Incorporated Company is a new type of legal form of incorporation designed specifically for charities.  It became available on 1st April 2011.  Existing charitable companies and charitable industrial and provident societies will only be able to apply to convert to SCIO from 1st January 2012.  A SCIO will provide the benefits of an incorporated company without having the dual regulations of both Companies House and OSCR to deal with.  The charity will only need to register with OSCR in Scotland (or with the Charity Commission in England and Wales).

If you think any of these business entities might suit your needs please contact a member of our specialist team to discuss the details.  Call us on 01631 562 643 or email Fiona or Shona.

Note: Taxation is a complex area that affects charities and voluntary organisations in many different ways.  The information on these pages should be treated as a guide only.  For full information please contact a member of our charity team on 01631 562 643 or email Fiona or Shona

Accessing grants and funding such as ESF and ERDF

Grants are available from the European Social Fund (ESF) or European Regional Development Fund (ERDF). These programmes aim to create and invest in more, quality jobs for the local workforce and to improve access to lifelong learning in geographically remote locations.  Particular emphasis is given to creating sustainable employment in these areas.

Email Linda Johnson to see if your organisation would qualify or phone her on 01631 562 643 to discuss your options.

Please note: The information on these pages should be treated as a guide only. Please contact us for individual advice before acting. 

Preparing annual accounts

The Charities Accounts (Scotland) Regulations 2006 now apply to all charities with a financial year starting on or after 1st April 2006.  The "Statement of Recommended Practice (SORP) Accounting and Reporting by Charities" regulations also apply to the format of the accounts in many cases.

Currently, if your charity has a gross income of more than £250,000 in the financial year and you are not a charitable company, SORP compliant, fully accrued accounts must be prepared.

For unincorporated charities with a gross income of less than £250,000 in a financial year, accounts prepared on the basis of receipts and payments will suffice, unless your constitution states that you should produce accrued accounts or the trustees have decided that fully accrued accounts are required.

If you are a charitable limited company, no matter what size you are, you must prepare SORP compliant, fully accrued accounts.

A very helpful flowchart can be found on the OSCR website in a document called "Scottish Charity Accounts - A Guide to the 2006 Regulations Part 1: The Overview". The flowchart can be found on page 5.

The information on these pages should be treated as a guide only. For full information please contact us on 01631 562 643 or email us

What internal audit and controls are required?

The trustees must oversee the activities of other people in the charity and establish, monitor and update internal controls:

  • To ensure that the charity has reliable records
  • To safeguard assets and manage risk
  • To ensure effective use of resources
  • To comply with all statutory regulations

If there is a management team running the charity, the trustees must ensure that all the above internal controls are running smoothly and that nothing has been neglected by the management team.  For example, trustees must ensure that any fundraising activities are correctly undertaken and that all funds raised are properly accounted for.

For more comprehensive details of what this means for your charity please email Fiona McGlynn, the partner in charge of our Charity and Audit Team or phone us on 01631 562 643.

Please note: The information on these pages should be treated as a guide only.  Please contact us for individual advice before acting. 

Does your charity need an independent examination or a SORP compliant audit?

Apart from a few, special cases, all charities need to have accounts audited or independently examined.

For unincorporated charities, your accounts must be audited if:

  • Your gross income in the financial year is more than £500,000
  • Your gross income in the financial year is less than £500,000 but the constitution or any enactment states that an audit must take place.
  • Your gross income in the financial year is less than £500,000 but the trustees decide that the accounts must be audited, OR
  • Your gross assets are more than £2.8ml

For unincorporated charities, your accounts can be independently examined if:

  • Your gross income in the financial year is less than £500,000 and a full audit is not required by the trustees or the constitution, and
  • Your gross assets are less than £2.8ml

For charitable companies, your accounts must be audited if:

  • Your gross income is over £500,000, OR
  • Your gross assets are over £2.8ml

For charitable companies, your accounts can be independently examined if:

  • Your organisation is a charitable limited company with income less than £500,000 and assets (before deduction of liabilities) of not more than £2,800,000.

Who should examine your accounts

Prior to the Charities Accounts (Scotland) Regulations 2006 coming into force there were no regulations governing who should examine charity accounts.  Under current regulations, the position is as follows:

If your income is over £250,000 and you are preparing accrued accounts, your accounts need to be examined by a member of one of the professional accounting bodies, a full member of the Association of Charity Independent Examiners or the Auditor General for Scotland.

If your income is less than £250,000, and you are not preparing accrued accounts, your accounts can be examined by any person that the Trustees consider is both independent and competent.

If you are a charitable limited company, your accounts must be examined by a member of one of the professional accounting bodies, a full member of the Association of Charity Independent Examiners or the Auditor General for Scotland, regardless of the level of your income.

At R A Clement Associates all our charity team staff are members of professional accounting bodies. Please contact us to discuss any of the above issues.

Two helpful flowcharts can be found on the Office of the Scottish Charity Regulator (OSCR) website in a document called "Scottish Charity Accounts - A Guide to the 2006 Regulations, Part 1: The Overview". The flowcharts can be found on pages 7 and 8 and they will lead you through the process of deciding whether you need an audit or not.

Please note: The information on these pages should be treated as a guide only.  Please contact us for individual advice before acting.

Which accounting records should be kept and for how long?

The accounts and the underlying records must be kept for a minimum of six years from the end of the financial year to which they refer.

Records kept should be of sufficient detail to:

  • Show day by day the money spent and received
  • Record the asset and liabilities of the charity
  • Disclose the financial position of the charity at any time

If in doubt call us on 01631 562 643 or email us.

Please note: The information on these pages should be treated as a guide only. Please contact us for individual advice before acting. 

Trustees' responsibilities, restrictions and liabilities. (Financial & other)

Although it is an honour to be asked to be a charitable trustee, the job comes with many obligations, restrictions and liabilities so think carefully before committing yourself.

Responsibilities - Trustees are accountable for the solvency and continued effectiveness of the charity.  They must ensure that procedures are in place to prevent fraudulent activity and that the charity's financial affairs are under control and reported correctly.... and these are just some of the duties for which the trustees can be held responsible.

Restrictions - The restrictions imposed on trustees are there to prevent a conflict arising between personal interests and your duties as a trustee of the charity.

Liabilities - Trustees can find themselves personally liable if they fail to act prudently.

The Office of the Scottish Charity Regulator website has more information. See their publication "Guidance for Charity Trustees" Please feel free to contact us if you are considering becoming a trustee or if you are a trustee and want advice for you or your charity. You can phone Shona Wardrop on 01631 562 643 or email Shona.

Please note: The information on these pages should be treated as a guide only. For further information please contact Shona on 01631 562 643 or email her

What information must be included in the trustees' annual report?

The figures in a charity's financial statements will not provide a full picture of the charity's activities for the year.  For example, what has the charity achieved and what impact it has made in its chosen sector? Nor do the figures alone provide any information about the management or structure of the charity. The trustees' annual report will enable the reader to understand how the financial statements relate to the structure and activities of the charity.

Notes for preparing the trustees' annual report (and a pro forma annual report) can be found on the Office of the Scottish Charity Regulator's website in their Receipts & Payments Work pack - Guidance booklet.

The sections covered by the report are as follows:

  • Charity name
  • Other names by which the charity is known
  • Registered charity number
  • Charity's principal address
  • Names of the trustees on date of approval of trustees' annual report
  • Names of all other trustees
  • Type of governing document
  • Trustee recruitment and appointment
  • Charitable purposes
  • Summary of the main activities
  • Summary of the main achievements
  • Policy on reserves
  • Details of any deficit
  • Donated facilities and services
  • Other information
  • Signatures

Talk to one of our charity team for details of what you should include in each of these sections. To arrange a consultation call us on 01631 562 643 or email us.

Please note: The information on these pages should be treated as a guide only. Please contact us for individual advice before acting. 

What information must be submitted to the Office of the Scottish Charity Regulator (OSCR) and by what date?

Charities must file the signed annual return, supplementary monitoring return (for charities whose income is £25,000 or over) and an original copy of the signed annual accounts with OSCR within nine months of their financial year end.

Charities with a gross income of £250,000 or more during a financial year must prepare fully accrued accounts complying with the Charity SORP consisting of:

  • A statement of financial activities (SOFA) showing total incoming resources and how they were used.
  • A balance sheet
  • Notes to the accounts (including accounting policies)
  • Trustees' annual report
  • Independent examiner's report

Charities with a gross income of less than £250,000 during a financial year (see note below) must file the signed annual return, supplementary monitoring return (for charities whose income is £25,000 or over) and prepare receipts and payments accounts consisting of:

  • A receipts and payments account
  • A statement of balances at the financial year end
  • Notes to the accounts
  • Trustees' annual report
  • Independent examiner's report

NOTE: Limited company charities must submit fully accrued accounts no matter what level of income. Similarly, unincorporated charities with a gross income of less than £250,000 must submit fully accrued accounts if their constitution calls for it or if the trustees request it.

Please note: The information on these pages should be treated as a guide only. Please contact us for individual advice before acting.

Reimbursing volunteers' expenses

Who is a Volunteer? - Volunteers come in all shapes and sizes and volunteering is an activity described as:

  • Socially useful
  • Freely entered into
  • Unpaid

Why reimburse? - All volunteers should be reimbursed for expenses incurred even though some feel that they should not take money from a charity.  From an equal opportunities point of view it is important that there is no stigma attached to claiming expenses.  Those volunteers able to donate the sum back to the charity could then do so, avoiding any embarrassment for the low income and unemployed volunteers who otherwise could not afford to volunteer.  In addition, if all volunteers are reimbursed, it gives the charity a truer picture of the cost of volunteers' expenses for budgeting purposes.

It is permissible under the Social Security Amendment (Volunteers) Regulations 2001 to reimburse any volunteers in receipt of benefit in advance of their spending any money.  This will enable them to volunteer where they otherwise could not afford to do so thus widening the pool of volunteers.  They must return any money not spent and hand over receipts for that expenditure.

Which expenses should be reimbursed? - General advice is that any expenses incurred as part of the voluntary work should be reimbursed. This can include:

  • Travel to and from the place of volunteering
  • Travel while volunteering
  • Meals taken whilst volunteering
  • Care of dependants, including children, whilst volunteering
  • Postage, phone calls, photocopying, stationery etc.
  • Cost of Protective clothing/special equipment etc.

Since 9th October 2006 the Department of Work and Pensions (DWP) have allowed volunteers in receipt of state benefit to be reimbursed for their meal expenses without this affecting their benefit payments.  Meal allowances can have an upper limit but it should allow volunteers to have a hot meal and drink in a local café.

Volunteers can be expected to take the cheapest form of transport to and from the place of volunteering.  Some disabled volunteers may not be able to use cheaper public transport and will have to use a taxi.  This should be factored in when estimating volunteer expenses.

How to reimburse expenses - HM Revenue and Customs have set rates for reimbursement of motoring expenses. The current figures are:

  • Cars & vans - 45p per mile for the first 10,000 miles, 25p per mile over 10,000.
  • Motorbikes - 24p per mile.
  • Bicycles - 20p per mile.

See the HM Revenue and Customs website on travel for further details.

Avoid giving a flat rate sum to volunteers if possible because it can cause problems for both the organisation and the volunteer.

Volunteers receiving benefits are only entitled to out of pocket expenses (e.g. bus tickets and other receipts). Any additional sums given to them may cause them to lose part of their means tested benefits.

Volunteering asylum seekers are only allowed to receive out of pocket expenses.

Money over and above out of pocket expenses is seen by HM Customs and Revenue (HMCE) as income and is therefore taxable.  The entire sum received by the volunteer then becomes taxable, not just the part above the real expense!  The volunteer would then be treated by HMCE as an employee and would probably be subject to PAYE regulation.

Flat rate expenses payments could also be seen as forming part of a contract by certain tribunals, giving the volunteers the same rights as employees.  This could mean that they are subject to national minimum wage regulations for any work they do.

Ask your volunteers to sign for any reimbursed expenses and consider how frequently they need to be reimbursed.

If you wish to discuss any of these issues please call us on 01631 562 643 or email us

Please note: The information on these pages should be treated as a guide only.  Please contact us for individual advice before acting. 

VAT and tax relief for charities

VAT - The following overview is only for general guidance.  The VAT rules for charities and voluntary organisations are very complex and can change as a result of test cases.  E.g. the High Court found in favour of the Church of England Children's Society in 2005 opening the way for charities to reclaim VAT on certain costs related to fundraising.

What is VAT? - VAT is a sales tax charged by businesses with a turnover above the VAT threshold, on Vatable goods and services they supply and purchase. For more information on Value Added Tax (VAT) see our Bookkeeping and VAT section

Should your charity register for VAT? - Often charities are not registered for VAT because they are not undertaking business activities.  If not registered for VAT, the charity cannot charge or reclaim VAT.  Non-business activities such as collecting donations or performing grant funded work are outside the scope of VAT.  Most charities undertake some business activities many of which do fall under the scope of the VAT regulations.

The decision as to whether your charity should be registered depends on your sources of income.  You need to go through your income and identify the VAT category of each type of income.  Even when these figures have been established, you still need expert advice to interpret the results.

Broadly speaking the VAT categories are:

  • Outside the scope of VAT (i.e. non-business supply)
  • Exempt
  • Taxable income at zero rate
  • Taxable at standard rate

Outside the scope of VAT. - These are usually transactions where something is given with no expectation of anything in return.  E.g. the receipt of a donation or grant.

VAT exempt. -  This includes broad categories such as health, education and welfare. These supplies do not count towards the VAT registration threshold.

Zero rated - Some items are subject to VAT at a rate of zero percent.  This means that these items count towards the VAT registration threshold.  It includes categories such as children's clothing, books and some food items.  There are also some categories that are zero rated when undertaken by charities such as sales of donated goods.

Standard rated - Many goods and services supplied by charities are standard rated unless you can establish that it is outside the scope of VAT, zero rated or exempt.  Fund raising activities involving some type of selling can be subject to standard rate VAT.  Sponsorship is one such activity.  The sponsor receives advertising and promotional services in return for payment so this is a business transaction and therefore subject to VAT at the standard rate.

Since charitable VAT is complex and subject to sudden change as a result of case law, please contact us before making any decisions about registering for VAT. Call us on 01631 562 643 or email us.

Taxation - Taxation is another complex area that affects charities and voluntary organisations in many different ways.  Once you register with the Charity Regulator, you can apply to the Inland Revenue to take advantage of the tax exemptions available, and register to claim back tax on any gift aided donations.  However, you should be aware that tax exemption is based on English Law, and there are some areas which are charitable under Scottish Law but where you might encounter problems

Please note: The information on these pages should be treated as a guide only. Please contact us for individual advice before acting.