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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
