Charity guidance during COVID-19

Published on 24th April 2020

In these strange times, many of us have tried to do our bit for the vulnerable in society to try and help where we can. But what about the many charities throughout the country, some of which have experienced a virtually complete cessation of income, just like their business counterparts?

Whilst there has been much press and concern regarding the commercial, business side of our economy, the charitable sector may feel it has been overlooked in terms of financial support, especially as demand for services often supplied by charities has significantly increased.

Government support for charities

Many of the government’s early financial measures are applicable to charities just as much as commercial businesses. The rates holiday will be welcome news for charity shops and other, similar premises, and for any premises receiving small business rates relief, local councils should by now have invited applications for the small business grants.

For charities with employees (rather than unpaid volunteers), the Coronavirus Job Retention Scheme (CJRS) scheme is available, where 80% of employee salaries should be covered and reimbursed by the government (see our previous article for more detail). However, where most businesses are being forced to shut down due to lack of demand or government guidance, charities are likely to be trying to step up their response to this crisis and may not have the capacity to ‘furlough’ employees onto the CJRS – under which you are not allowed to carry out any work for your employer.

Cashflow can be assisted by the opportunity to defer this quarter’s VAT payment until early 2021, but many charities will not be VAT registered or will have some services which are not subject to VAT and may not find a significant saving from this deferral.

Please see our COVID-19 factsheet for further information on the schemes available.

Coronavirus funding for charities

Many of the available measures will not come close to replacing the income charities would normally be receiving from fundraising events and general donations from the public.

The £750m rescue package for charities announced by the Chancellor on 8 April should, therefore, be a huge shot in the arm for the charitable sector.
Around half of the monies (£360m) is to be allocated to charities directly by government departments and will come in the form of cash grants. It is hoped that these allocations will be made, and cash start moving, by the end of the month.

These direct allocations are to be made to those most directly involved with the Covid-19 support effort and those most pressured by it – the hospices, charities to assist the abused, children’s charities and Citizens Advice.

A further £370m is to be available for smaller, often more regional, charities. This is likely to be made available mostly through an allocation to the National Lottery Community Fund in England, which will then invite applications from charities for grants. This is also expected to be operational by the end of the month.

Although directly supplying a large amount of cash, the government is also reminding us that charity starts at home, by announcing that it will match the public’s donations resulting from the BBC’s Big Night In appeal on 23 April. It has got the ball rolling with a minimum £20m donation but will expect to be adding to that pot significantly.

This funding should help a sector badly in need of finance, but it may be coming more to charities with objectives more focused on COVID-19. For those with charitable objectives facing elsewhere there may be more question marks over how much will be available from these grant funds.

Charity objectives & using reserves

It may be possible to consider your charitable objectives more holistically, so that you can use existing charity funds to help in this crisis. For example, if your charity was in support of the arts, there may be online content that could be developed to help ease people’s isolation during the lockdown. Those charities aiming to alleviate poverty or generally better the local community will find it easier to realign their objectives to support those in need now.

HMRC and the Charities Commission have also said that they will fast track appropriate applications to change charitable objectives, if the governing document of the organisation prevents Trustees from having the authority to make such changes themselves.

Charities may feel that they need to continue to provide their assistance and services even if they have not been able to benefit from the government’s COVID-19 finance packages and reliefs. Where income has fallen, this may mean that Trustees are looking to their reserves.

The medium and long term objectives of the charity should be considered before any significant use of reserves. It is also essential to ensure that restricted funds (those earmarked for a specific purpose) are not spent on general activity or for a purpose other than its designation, and that governing documents are checked before any encashment of endowment funds.

Trustees should also consider their existing beneficiaries and any potential will legacies before significantly altering their objectives or using reserves.

Charity administration

There is guidance on how Trustees should think about reporting any changes to their activity or the impact on their charitable objectives of COVID-19 on the Charity SORP website, and there is currently flexibility from the Charities Commission regarding the late receipt or approval of annual accounts or other statutory documentation. Charities that are due to submit an Annual Return imminently, but feel unable to do so, can email the Charity Commission to request a filing extension. If every effort has been taken and, perhaps more importantly, documented, to carry out proper and normal governance, there is the recognition from governing bodies that normal service cannot always be maintained during this time.

In these uncharted waters, documentation is key for Trustees to be able to continue to evidence good governance. Simpkins Edwards has an experienced charities team – able to assist with unincorporated entities, charitable companies and CICs – and if any assistance is required for financial information, be it annual accounts or in support of grant applications, please contact us.