Covid-19 and charities: key questions and answers
While the focus of any organisation will be on ensuring the wellbeing of its people, an increasing number of operational and legal challenges will also need to be addressed.
The charity sector has responded on multiple fronts, with industry organisations and regulators issuing updated guidance in light of the crisis. The government has also announced various packages of support for the sector.
This note provides an insight into some of these key updates.
Can my charity help with the impact of Covid-19?
Many charities will wish to consider whether they can use their resources to help mitigate the immediate impact of Covid-19. However, charity trustees must remain mindful of their duty to promote the charitable purposes specified in the objects clause in the charity’s governing documents.
Trustees should initially consider the existing wording of the objects clause. Many objects clauses will be drafted broadly and may already allow charities to assist with the varying aspects of the effects of Covid-19, for instance where the objects include the advancement of health or the relief of poverty.
If a charity considers that its objects are too restrictive to allow it to help, then the trustees may consider amending the charity’s objects clause in accordance with their governing documents. In the case of all charitable companies and charitable incorporated organisations (CIOs) and some charitable trusts, this will require the prior consent of the Charity Commission (Commission). The Commission has indicated that it will prioritise such requests.
Are there any restrictions on fundraising activities?
The Fundraising Regulator has advised charities to stop all person-to-person fundraising if they have not done so already, following the government’s advice on social distancing.
Holding fundraising events (which involve people gathering in one place) will also now contravene current government measures. If a charity has had to cancel any fundraising events, it may be required to refund any donations that were conditional on the event taking place. The governing documents of many charities do not allow for, or are unclear on, the return of donations. Those charities should consult the Commission for permission to make refunds.
As a result of the cancellation of events and other person-to-person fundraising, charities may be considering increasing marketing activity by phone, email, text or post. It is important to be mindful of any communication preferences which individuals have previously communicated to the charity. Additionally, care should be exercised when dealing with vulnerable donors, bearing in mind that undue pressure must not be applied, as people may be feeling unusually anxious during these times.
Do I need to make a serious incident report (SIR) to the Commission?
Charities are obliged to report serious incidents affecting their organisation to the Commission. The Commission has confirmed that charities should continue to report serious incidents in accordance with existing guidelines. Therefore, if the trustees consider that the pandemic has resulted in or risks significant harm to its operations, staff, reputation, beneficiaries or finances, then it should make an SIR to the Commission. The decision as to whether to do this is down to the trustees’ discretion, but it is likely that significant numbers of charities will be making SIRs in relation to Covid-19. There is no immediate benefit to making a report, but it remains a regulatory requirement so that the Commission can have confidence that the trustees are actively managing the situation.
How can our trustees carry on running the charity if they are not able to meet in person?
Holding physical meetings such as AGMs, board meetings and trustees’ meetings is likely be difficult under the current circumstances. Unless the charity’s governing documents expressly prohibit virtual meetings, it is generally accepted that meetings held via video link are valid, so long as the participants can all see and hear each other.
Normally, unless the governing document specifically permits the use of a telephone-only meeting, a meeting conducted via telephone may not be validly held since the participants cannot see each other. However, the Commission has indicated that it will take a more relaxed approach to telephone meetings under the circumstances, so long as any decisions made at the meeting are recorded. Nevertheless, meetings should be conducted via video wherever possible.
Where a meeting is to be held remotely, the usual requirements regarding giving notice of the meeting and circulating minutes should be complied with.
Charities might also consider alternatives to holding meetings, for instance by approving decisions through unanimous written resolutions where the governing documents allow this. There is also case law to suggest that a simple majority of trustees of an unincorporated charity may bind the minority, but the safest course of action would be to seek unanimous approval.
I am worried about the finances of my organisation. What should I be aware of?
A recent survey by the Institute of Fundraising has found that charities are reporting a projected loss of 48% to their voluntary income as a result of the Covid-19 crisis.
Might I have personal liability if my organisation becomes insolvent?
As charities struggle with cashflow, trustees or directors of incorporated charities (i.e. companies and CIOs) might be concerned about personal liability in case of insolvency. Typically, there is personal liability under the insolvency rules if an entity continues to trade when there is a real likelihood of that entity becoming insolvent. The government has announced a suspension of these “wrongful trading” rules, which will provide trustees and directors some breathing space during the pandemic.
The trustees of charitable trusts (and other unincorporated charities) may also face personal liability for losses suffered by the charity – particularly where the assets of the charity are not sufficient to meet any indemnity provided to the trustees under the terms of the charity’s constitution.
We advise decision-makers to seek professional advice on personal liability and insolvency.
Can I use reserves and restricted funds to manage cashflow problems?
The Commission has clarified that reserves can be spent to help cope with unexpected events like those unfolding at present.
However, “restricted funds” can only be used for specific, defined purposes. In certain circumstances, it may be possible for a charity to amend/relax these restrictions, but the Commission has advised that this should only considered if other options are unavailable.
Similarly, it may be possible for trustees to consider releasing permanently endowed funds. Depending on the size of the permanently endowed fund, Commission approval may be required for this.
The body responsible for the Statement of Recommended Practice for accounting and reporting by charities across UK and Ireland (Charities SORP) suggests that any changes to a charity’s reserves should be detailed in the trustees' annual report.
How do I continue paying my staff?
The government has made various announcements in recent weeks aimed at helping organisations to continue paying its employees. Employers (including charities) can apply to HMRC for a grant to cover most of the wages of any employees who remain on payroll but are temporarily not working during the Covid-19 outbreak. Further details on this can be found in our notes Covid-19: furlough and lay-off and Covid-19: employment FAQs.
What tax reliefs have been put in place for charities?
The Charity Tax Group has written to the Chancellor, asking for immediate support through the tax system to help charities manage their cash flow. The proposals include the freezing of VAT collection on digital advertising (during the crisis and beyond) and allowing Gift Aid on donations in lieu of cancelled events or debts.
The government has already announced that all organisations may defer the payment of VAT due between 20 March 2020 and 30 June 2020. On the second proposal, the government has indicated that cultural venues may claim Gift Aid on the value of tickets for cancelled tickets if donors have agreed not to be refunded for the cost of the ticket, though this is yet to be confirmed.
Will there be any other government assistance for charities?
The government announced on 8 April 2020 that as part of a UK-wide package of support, £360m will be directly allocated by government departments to charities providing key services and supporting vulnerable people during the crisis.
£370m will also be allocated to small and medium-sized charities operating to support local communities during the outbreak, including those delivering food, essential medicines and providing financial advice.
Do I still have to file accounts and annual returns?
The Commission has acknowledged that it may be difficult for some charities to comply with their obligations to file an annual return and reports. The Commission advises charities with an imminent deadline to contact the Commission to request an extension, but that generally charities should still be aiming to submit reports on time.
Charitable companies can apply to Companies House for a three-month filing extension. This can be done online, and Companies House are granting extensions automatically where Covid-19 is cited in support of the application. However, this application should be made before the filing deadline itself.
Should I adjust our accounting practices?
The Charities SORP has issued guidelines on the preparation of charity accounts in the current circumstances. It advises that trustees should consider whether information needs to be included in the charity’s accounts to explain the impact of the Covid-19 situation on their charity.
Notably, trustees are reminded that “adjusting events” (being events which affect the balance sheet after the reporting period but before the accounts are approved) should be accounted for. However, it is worth noting that adjusting events only need to be noted in the accounts where there is evidence of conditions existing at the reporting date. As the Covid-19 crisis developed in 2020, it will be the case that December 2019 year-end accounts are less likely to be the subject of adjusting events.
Further information on the impact of Covid-19 on charities can be found in the guidance issued by the various organisations mentioned above.
This article is intended to provide high-level guidance - for detailed advice on how the crisis might affect your charity’s particular circumstances, please get in touch with our charity team and we would be happy to help.