Acat presentation 15.10.11

Association of Church Accountants and Treasurers

TOPICAL ISSUES IN PCC FINANCE

Lincoln Diocesan Treasurers’ Conference

15th October 2011

OBJECTIVES

To provide a topical update on:

• Legal and financial overview for PCCs

• The role of the Treasurer

• Principles of accounts

• Annual Report

• Independent examination

• Gift Aid

• VAT

• Employment

• The future of cheques?

LEGAL OVERVIEW

• A PCC has charitable status - the members are trustees

• A District Church Council is not a separate charity

• Trustees can be liable for church debts (must act responsibly)

• 4 key tests for trustees -� Honesty� Acting reasonably� Prudency� Business-like

LEGAL OVERVIEW (cont)

• Trustees are responsible for

- keeping proper accounting records

- preparing annual accounts

- arranging examination

• MUST aggregate the accounts for funds/activities under the PCC’sCONTROL

• Trustees CANNOT delegate RESPONSIBILITY

• Therefore, a Treasurer should not feel isolated!

REGISTRATION WITH CHARITY COMMISSION (ENGLAND & WALES)

• PCCs with receipts above £100,000 pa required to register with the Charity Commission (CC)

• Dispensation may be granted where threshold exceeded by an exceptional item – e.g. a legacy or building grant

• Registration does not affect trustees’responsibilities and accounting requirements

• PCC must submit an Annual Return to the CC

• PCC must quote the charity number on letterheads etc

• If not registered, PCC is an EXCEPTED charity

PRINCIPLES OF ACCOUNTS

Financial years ending AFTER 31 March 2009:

• Annual receipts exceed £250,000 -ACCRUALS ACCOUNTS

• Annual receipts less than £250,000 -can be RECEIPTS AND PAYMENTS ACCOUNTS

(accruals are optional)

• Previous threshold - £100,000

FUNDS

Fundamental concept for charity accounts

• Endowment fundsUsually capital funds where only the income

can be spent (can be examples of expendable endowment)

• Restricted fundsPurpose specified by the donor or

the charity at the time of receipt• Unrestricted funds

Available for general charitable purposes

• Designated fundsSet aside for specific purpose(s) –

remain unrestricted

ENDOWMENT FUNDS

• The Charities Act 2006 simplified the process whereby charities could expend endowment funds

• Where a fund has a capital value less than £10,000 per annum and annual income less than £1,000, the PCC can pass a resolution to expend the capital

• Where a fund has a value in excess of £10,000 or annual income above £1,000, the PCC must seek Charity Commission consent in order to expend the capital

RESTRICTED FUNDS

• Do not necessarily need separate bank accounts for each fund

• need proper controls

• avoid too many bank accounts!!

• Where a church is seeking funding for a project, suggested clause for inclusion:

“any surplus monies will be applied for the general purposes of the church”

ANNUAL REPORT

• Key document

• Demonstrates public benefit – for an individual church and within the charity sector

ANNUAL REPORT

• Purpose

• Format

• Content

• Celebrate

• Inform• Point Forward• Public Relations

• Easy to read• Words, Charts, Pictures• Group reports in appendix

• A positive view of church life

• Provide a clear vision

ANNUAL REPORT

MAIN SECTIONS

• Objectives and activities

• Achievements and performance

• Financial review (inc Reserves policy)

• Funds held as custodian trustee

• Structure, governance and management

• Reference and administration

ANNUAL REPORT - PLANNING

CHURCH

ANNUAL REPORT - PLANNING

Worship

CHURCH

Children’sgroup

Youth

group

Communityhall

Localschools

Homegroups

ANNUAL REPORT - PLANNING

Worship

CHURCH

Children’sgroup

Youth

group

Communityhall

Localschools

Homegroups

SchoolA

School

B

Sundayam

Mid-week

Visits toChurch

INDEPENDENT EXAMINATION

Independent Examination• Gross income below £500,000 except when gross

assets exceed £3.26 million and income exceeds £250,000

Audit• Gross income above £500,000; or• Gross assets above £3.26 million and gross

income above £250,000

INDEPENDENT EXAMINATION

The Examiner

“ an independent person who is reasonably believed by the charity trustees to have the requisite ability and practical experience to carry out a competent examination of the accounts”

Charities Act 1993 (section 43(3)(a))

INDEPENDENT EXAMINATION

The Examiner (continued)

• Not connected to the Trustees• Should be formally appointed by the trustees• Need not be a qualified accountant, but

possess relevant knowledge• Where gross income exceeds £250,000 must be

member of a listed body (see 1993 Act).Some professional bodies (e.g. ICAEW AND ACCA) prohibit members who do not hold a practising certificate

• Can be paid a reasonable fee

GIFT AID

Scheme from 01 April 2000

• Separate schemes for covenants and Gift Aid replaced by ONE Gift Aid procedure

• An individual makes a declaration to -

“treat ALL the donations I make from this date, and any I have made over the last four years, as gift aid donations until I notify you

otherwise.”

GIFT AID (cont)

General principles

• Applies only to those who pay tax

• Either Income Tax or Capital Gains Tax

• Must pay sufficient tax in the relevant year to cover the tax reclaimed

• Interim claims can be made during year

• From April 2010 time limit of 4 years to make a claim (previously 6 yrs). 2 year limit for transitional assistance.

• Donations must be freely given money gifts (cash, cheques, bank transfers etc)

GIFT AID (cont)

General principles (continued)

• Higher rate taxpayers can claim back their marginal rate (minimum 20%) thereby able to increase their donation

• Make the most of occasional services (weddings, baptisms, funerals) and visitors

• Keep envelopes (and pens) available

• Try to give time at beginning of service to complete details

GIFT AID (cont)

Current topics

• Tax rate reduced from 22% to 20% from 6 April 2008

• 3 year transitional scheme to pay the difference. Claim at the rate of 20% tax rate – HMRC to add the difference (to 22%). Transitional relief ended 5 April 2011

• Donations £10 and under can be aggregated up to a total of £500

GIFT AID (cont)

Current topics continued (2011 Budget)

• From April 2013, charities able to claim gift aid on cash donations up to a total of £5,000 per annum WITHOUT any evidence that the donors are taxpayers

• Intelligent electronic forms to be introduced for claims (check arithmetic etc)

• On-line facility for claims from 2012/13

• Develop an on-line database for Gift Aid declarations

BUDGET – 23 MARCH 2011

KEY FEATURES FOR CHURCHES

• Gift Aid (see earlier slide)

• Inheritance tax – from 6 April 2012 rate of 40% to be reduced to 36% where a minimum of 10% of the estate has been left to charity

• Approved mileage allowance on first 10,000 miles per annum increased from 40p to

45p per mile from 6 April 2011.

VALUE ADDED TAX

• In general VAT cannot be reclaimed

• Improvements or alterations to a listedChurch - ZERO rate for VAT

• New build work for ALL churches is ZERO rated

• Listed Places of Worship Grant Scheme

(see later slide)

VALUE ADDED TAX (cont)

• Construction work for disabled access / facilities can be ZERO rated for ALL charities

• ALL charities - 5% VAT on gas and electricity, and insulation materials

• ALL charities– all advertising should be ZERO rated

VAT – LISTED PLACES OF WORSHIP GRANT SCHEME

• ONLY applies to LISTED churches

• VAT paid to the contractor – refunded by grant

• Net 5% VAT rate – 01.04.01 to 31.03.04

• ZERO VAT – from 01.04.04 to 31.03.11 (i.e. FULL VAT refund)

• Scheme extended until 31.03.15 – see next slide

VAT – LISTED PLACES OF WORSHIP GRANT SCHEME

With effect from 01.04.11

• There will be a quarterly fixed budget.

• Payments will be made once per quarter and the rate payable will depend on the value of eligible claims in that quarter, with each claim attracting a pro-rata payment.

• First payment under new scheme will be in September 2011.

• Supporting invoices cannot be more than one year old.

• Estimated £24 m claimed in 2010/11

• Indication of £12 m available for 2011/12

VAT – REPAIRS GRANT SCHEME (cont)

clockspipe organ

investigative worksfitted pews

professional feesbell frames, bells & ropes

Claims for these must have been by 31.12.10

• For work after 22.03.06 and until 31.12.10 the scheme included:

• Includes services RELATING to repair works (e.g. plumbing, electrical)

• Principally relates to the FABRIC of the building (walls, roof, floor, doors, windows)

VAT – REPAIRS GRANT SCHEME (cont)

Excludes –

• floor covering

• non-fixed pews

• external work (paving, boundary walls etc)

• categories on previous slide PRIOR to 22.03.06 AND after 31.12.10

EMPLOYMENT ISSUES

• Is the person an employee or self-employed?

• Control over the work?

• Ability to delegate?

• Mutuality of obligation?

• Guidance on employment status – see www.hmrc.gov.uk

• Must consider need for –

Contract of Employment

Job Description

EMPLOYMENT (cont)

When person is confirmed as an employee:

• Who is the employer? May not be straight-forward, e.g. ecumenical partnership

• Churches with employees must register with Inland Revenue

• Payroll bureau may be appropriate

• Minimum wage - £6.08 per hour

(from 1 Oct 2011) – aged 21 and over

• Recommended “living wage” (Church Action on Poverty) - £7.60 per hour (outside London)

PAYE/NI for Local Religious Centres (LRCs)

• Only applicable to churches not already registered for PAYE. If registered, queries must be directed to its tax office

• Lower earnings limit for NI and PAYE - £110 per week in 2010/11 (annual review)

• Usually no tax charge for expenses

• However, travel to and from the LRC is not an allowable expense if paid with a fee

EMPLOYMENT (cont)

EMPLOYMENT (cont)

EXAMPLE

Funding a Youth Worker for 3 years

Salary £18,000 pa x 3 = £54,000

What about extra costs?

EMPLOYMENT (cont)

EXAMPLE (continued)

• Recruitment costs (e.g. Church Press)

• Employers National Insurance

(from 06.04.11 = 13.8% of earnings above £136 per week)

On £18,000 pa = £1,508 per annum

EMPLOYMENT (cont)

EXAMPLE (continued)

Employers pension contributions

• NOT compulsory at present. Scheduled to change with the National Employment Savings Trust (NEST). Phased implementation from 2012 – minimum employer’s contribution likely to be 3% of Gross Pay (employee’s 4%)

• Traditional defined benefit schemes are very expensive

• Church may elect to pay, say, 5% of Gross Pay:- £900 p.a. in Year 1 in this example

EMPLOYMENT (cont)

Avoid “round sum” allowances

Assume 3% pa increases in Years 2 and 3

2,080

720Stationery, telephone etc

600Equipment

360Training

400Travelling

£EXPENSES IN YEAR 1

EMPLOYMENT (cont)

Allow for potential statutory redundancy pay

e.g. Employee under 41 years of age – 1.0 week’s pay for each year of service

Employee over 41 years of age – 1.5 week’s pay

In this example –over 41 years of age = £1,800

(4.5 wks x £400*)

* Current maximum Statutory Redundancy Pay per week

EMPLOYMENT (cont)

1,800000

Potential redundancy pay

72,30725,65723,16223,488TOTAL

6,4282,2062,1422,080Expenses

2,782955927900Pension

1,000001,000Recruitment

4,6611,6001,5531,508NI

55,63619,09618,54018,000Gross

TOTAL

£

Year 3

£

Year 2

£

Year 1

£

THE FUTURE OF CHEQUES?

• The Payments Council has indicated it will make a decision in 2016 to end the present system of cheque clearing in 2018 if there is an acceptable alternative system in place.

• On 15 June 2011 Mark Hoban (Financial Secretary to the Treasury) said that he did not believe that there is a credible and coherent case for abolishing cheques.

• More discussions to follow ………………

REVIEW

Reviewed

• Legal and financial overview for PCCs

• The role of the Treasurer

• Principles of accounts

• Annual Report

• Independent examination

• Gift Aid

• VAT

• Employment

• The future of cheques