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Optimum Professional Services are delighted to launch the new monthly conversational series, “Optimum: LIVE!” which will provide the opportunity for you to hear from members of the Optimum team and special guests each month as they delve into a variety of subjects in light-hearted, fire-side chat style productions.
Each episode will be shot or broadcast live (yep! One take!) which means that it is not scripted or edited and has a more natural and engaging tone.
This is a https://www.visual-pr.co.uk production
00:00 Speaker: Welcome back to Optimum Live. We're now at episode 17 and we're going to switch our focus, I guess it is this time, from quite often it's been individuals and limited companies, but we're actually going to look at charities today. Something I think we're going to be able to do quite a few episodes on because there's a lot of areas that we can cover. But this one's sort of almost a...
00:25 Speaker: A relatively global introduction with something that's prompted us to need to discuss about this right now. Accounting for Charities and Their Subsidiaries is the title. And I'm delighted to say that I've got someone that does know what he's talking about, unlike me. My name is Chris Dawes, but Rob Stokes is with me. Hello, Rob. Greetings. You all right? Bit of pressure on you there, mate. Yeah, thanks. I could actually sense the intake of breath with that one. And I say that because you...
00:55 Speaker: are involved with a number of charities uh with regards to your role as in do the accounts yeah absolutely we do a good half a dozen charities um a mix of company charities and non-company charities um actively within the firm and i also sit on a charity board as a trustee so i kind of see it from
01:15 Speaker: So from my perspective, that's great education for me as well from doing my day job is actually sitting at the table and having somebody in my seat telling me various things and discussing them with me. It does. I think it's got to help understanding both sides of it, doesn't it? Yeah, it's a massive benefit, I think. From my day job, I'm very technically focused.
01:39 Speaker: about applying standards and regulations. And then sitting the other side of the table helps me get that pragmatic view about, you know, what... It is in black and white. Yeah, absolutely. What is really going to work? What are the regulations trying to achieve and how can we best achieve it? Not necessarily kind of everything to the absolute letter because you've got to take a realistic view. Can we actually implement everything properly?
02:07 Speaker: No, I really do see the benefit of the both sides. Now, I'm going to pick up on something. I apologise to everybody that there is going to be daft questions. And that is the benefit of the way we do this, is that I'm not the one that lives, sleeps and breathes what you do, which means we don't make any assumptions that you, the viewers, are understanding everything that the experts like Rob are saying. You mentioned a comment about whether it's a company charity. Yep.
02:34 Speaker: Yes, charities can be unincorporated or incorporated. So again, a lot of previous discussions around companies about the limitation of liability and all those kind of things, that will also apply with a charity. So a lot of old school charities were formed under a trust deed, and that's how they were set up.
02:58 Speaker: It's now more prevalent that people will go down the limited company route again to help the trustees because they're volunteers. You put it inside a limited company wrapper. You're trying to help them by not scaring them off by going, you do something wrong, it's all on you. It's actually as long as you're doing the best of you can within this wrapper, you're protected. Which makes sense. Absolutely. And I think it's even more good because as a...
03:24 Speaker: a trustee you're a volunteer if you're a director you're being paid for doing this because it's your business in these terms when we're talking charities yeah absolutely the the governance level those that are ultimately responsible they're all volunteers you're not allowed to be paid as a trustee uh yes okay that makes sense one of the other things i know you and i were chatting um before we went on air was that um
03:51 Speaker: you don't necessarily become a registered charity as soon as you set up. And I don't want to go, this is probably a rabbit hole that will go down in more detail another time, but just to make sure we've got the understandings of this is that if I went and set up a charity, I cannot be a registered charity straight away, can I? It depends how you want to set it up. You can go straight to the charity commission and go, I'm doing this, I want to set it up as a charity. But we do have an extraordinary number of charities in this country. So the Charities Commission,
04:20 Speaker: are a little more careful now, I think, about going, yes, you can have charity status. I understood it. You almost have to prove yourself. Yeah, it's more about prove that there's a gap that you're fulfilling because otherwise we're just kind of, they're going, right, we've got an awful lot of charities and say half of them are doing the same thing. Why have we got that many charities? So what they're trying to do is...
04:46 Speaker: Not actively, but they'd like that consolidation to make sure that there is a real focus, that you don't get too many of one kind of charity because you're diluting the giving and you're also diluting the delivery because the number of smaller charities means you can't deliver in a big coordinated way, I guess. With the economies of scale. Yeah, absolutely. No, I get that. So, yes, you can. A lot of people do kind of set up.
05:15 Speaker: with charitable aims but not necessarily be a charity registered straight away they'll start setting things up getting things ready and then go right i want to now become a registered charity and we'll apply afterwards and go right this is what we're doing this is our business case kind of thing we're ready to go and and i guess the easiest way to sort of nip ourselves from disappearing down that rabbit warren is that
05:38 Speaker: That's where they speak to you guys, is that you've got the understanding of where to take this, including, okay, we need to position here. And I know you were telling me is that from HMRC's perspective is that with the intention to become a charity, and you will be registered for corporation tax to start with, but with the idea... Yeah, if you're in corporate as a company, you'll be registered for corporation tax. As a charity, you should get automatic exemption from that.
06:04 Speaker: as long as you're following their rules. But quite often, if you set up as a company, you'll be registered for corporation tax. They'll expect at least one return from you to then justify what you're doing. And after that, we can then go, right, okay, you can see from this, it is a charity. Therefore, we want the exemption. So then they'll give you four or five years where you don't have to file anything. Then they'll ask for another one just for checking that you're still doing the same things. Yeah, you can't take it for granted. Yeah, absolutely. Yeah. No, that makes absolute sense. And I know...
06:33 Speaker: um you were sort of saying the interesting thing is is that obviously being a charity is that you've got to be mindful of your costs for what you're doing and yet the irony is is the the amount of work that has to be put in because they're what were you saying that they've got yeah if you're an incorporated charity you've got the companies act that you've got to look after you've got the accounting standards that go with that you've got the charities act and then you've got the charity sort which is the kind of the distilling of all accounting standards down to try and make it more applicable to charities yeah so
07:02 Speaker: It can end up as being some of the most complicated sets of accounts we'll do. But because people were acting for a charity, people think, oh, therefore, it's going to be reduced price. But actually, from our perspective, it shouldn't be. Shouldn't be, sorry. But it is because it is part of that thing that you don't want to force a charity not to be able to deliver what it's wanting to do because you're taking too much out of the pot. Yeah.
07:31 Speaker: At least it's not as much work as involved for schools, but that's another story. Another time completely. And you've mentioned it a couple of times, SORP, and I'm going to pick you up on that one. Statement of recommended practice. Yes. Is that correct? It is. Yeah. As I say, it's the Charity Commission kind of taking the accounting standards and distilling it and going, right, these are how we're supposed to account in this country, but how do we apply that to the specifics of a charity?
08:01 Speaker: Right. And here lies our first big point that we were going to be moving on to is that there is a review. Yes, there's a consultation. So the accounting standards are they have a triennial review. And then after that, that's implemented for the wider limited company network. And then the Charities Commission go, right, OK, what's been implemented in here? How is that going to impact us? So at the moment, the consultation...
08:27 Speaker: The accounting standards have been changing, the company size thresholds have been moving. And so that has led directly to the Charities Commission going, right, OK, we need to consider our size criteria and what do we do about that? And then it means... The account's changing slightly because some of these will be applicable for large charities. Some of these other disclosures will not be applicable for small ones. So it's about that consultation of going, right, okay, it's open to everybody. So the public can have a go at answering the questions. There's a whole raft of questions. Charities can, advisors like us can answer, go in. It's about gauging public reaction as to the questions. Okay.
09:11 Speaker: Because I would assume it's not a linear match what the companies have to do when these changes. It's got to be, hence you said, the SOAP sort of... Distills it out. Yeah, no, absolutely. Because in basic terms, charities have to fund accounts rather than just a straight P&L. They're supposed to be going income and expenditure, but split by funds so they can have general funds that...
09:37 Speaker: people just donate for the charity because it's a i don't know deals with cancer and kids they'll just donate for that whereas other people go right you're going to buy a scanner i'm giving you money for that so they've got to be very specific yeah absolutely so it's about taking the accounting standards and go how do we practically implement them for a charity and the way it we want it to report so that those people that donate with a purpose know that their money is being spent on that purpose and that purpose only
10:06 Speaker: Right. OK. Yeah. So that's going to have a lot of paperwork and backstory that could be the emails and the contracts and I'm giving you this for this. Yeah. And it's around things like for charities, you record income when you're entitled to it, whether or not you physically received it, whether or not you're going to spend it in that year if you're entitled to it. So, for example, you may get a letter from a solicitor saying so-and-so's died.
10:35 Speaker: and they've left you a legacy. If the solicitor writes to the charity and says, you've got this legacy out of a will, and they give you an amount, in theory, you're supposed to account for that. Even though you might not get it for a year, or whatever it happens to be, because they're arguing over it. Yeah, exactly, yeah. And it's all of those kind of things that charities, quite often, particularly if they're small, mid-sized ones, yes, they'll have a paid management team, but the trustees are volunteers, and they're not...
11:03 Speaker: They're more focused on a cash basis. What can we do? What have we got to spend? How can we do it? They're not necessarily going, I've got 100,000. It's sat here dangling a carrot. It might arrive. I don't know when it's going to arrive. But the reality is we have to put that in the accounts. So that means, yeah, the paid executives' mindsets and roles are very different to the trustees.
11:27 Speaker: now let's flick that into doing the accounts i mean where do you come in now take away your trustees hat now let's focus on the ones that you're not yep where does your mindset and your work come in you know what does that look like um a lot of it is about the focus is about how in from the outset how do the charity account for it
11:47 Speaker: how do they work out their funds because funds are the crucial part and that is often the biggest stumbling block is identifying if there are restricted funds and then identifying the related expenditure yeah and then the fund balances at the end of the year so a lot of it comes around have they set themselves up in order to deal with that that sounds like you have to be very proactive rather than reporting at the end
12:15 Speaker: ideally it's getting in there early when they're setting up or if we're taking on new clients is about yeah having that initial conversation about how you're dealing with it because you'd be surprised a number of people that use a bit of software but haven't adapted it well enough to do the fund accounting that they're just keeping income and expenditure because in their heads a lot of it is about right i've got this money coming in we know we've got to deliver this service or this product
12:40 Speaker: so away they go and off they do and that's that's the important bit because that's they've got a recipient of their services they want to make sure that recipient receives it the fact that they've then got to show down the line to the public we've had this money in this for a specific purpose and yes we've dealt with it properly that's neither here nor there for them at the time because they want to deliver what they've been set up to deliver
13:05 Speaker: Using some of the examples, although I think it was something slightly different, we used it. Five million a year turnover, limited company, 12-page end-of-year accounts report. But for a charity, that could be... It's going to be 30, 40 pages because you've got a lot more disclosures. Yeah. And you have a trustees report, which is the trustees talking about what they've done, what they're aiming to achieve, what they have actually achieved in the year, what they're aiming to do in the future. So there's a lot more that goes into those accounts because it's...
13:35 Speaker: The charity is a custodian for anything that comes in. Absolutely. It's not its own money. So it's a custodian. Therefore, you've got to have a lot more transparency about what's occurring for those people that are donating there. Transparency, management. of everything isn't it i mean that's why in my head and apologies if i'm wrong but i'm almost there thinking unlike i know you guys this is like fits perfectly the way optimum work because i've always said as a customer of yours myself as well is that you're very much about advising you know ongoing um you're not just the stereotypical accountants that
14:14 Speaker: has its right place that says, right, there you go. There's all my documents. Can you do my end of year accounts? Thank you very much. That was what I needed. Job done. Box ticked. Absolutely fine. You guys very much, you can do that, but you're much more about roll your sleeves up. I know that you guys have helped me and advised me and sort of pick up maybe sort of partway through the year and go, Chris, you do realize this. Now, the reason why I'm giving that backstory is that I envisage you
14:40 Speaker: very much having to do that with charities because there's a lot that can happen in a year. Absolutely. And that's why, again, we talked about it for limited companies doing the online software for doing accounting is great. And again, from our perspective, those that are on the QuickBooks or the Zeros or whatever, the online software, that's fantastic for us because, again, it enables us to just drop in and out. We've got a local one here that we do the...
15:08 Speaker: we help with preparing their management accounts every month and that's great because it gives us oversight of what's going on and then it doesn't allow us to have those conversations about oh we've noticed this coming in how do you want to account for it because this is they've effectively said it's got to be for this purpose yes what do you want us to do and how do you want to reflect that because we know that you operate on a this way but actually we've still got to a deal with it at the end of the year and count for it i mean it does mean that yeah you're you're
15:37 Speaker: you know acting as their sort of experts on this so that they can get on and do the charitable work that they really want to be doing which is why it'll have been set up we're kind of sat behind the scenes enabling them to go work ahead and do their service delivery so actually we're trying to come along behind the sweep up and make sure everything is ready for the end of year which on a personal level must be very rewarding
16:00 Speaker: To know that you're helping facilitate that. Yeah, it's great. That's part of our role is actually we pick up the problems that people don't really want to deal with. Including the charity. Including the charity. Yeah, absolutely. They'll all have that administration bit that every business has to go through. It's not why you set it up. No. So there are people that have set up like a cancer charity because their child died of cancer. They wanted to get out there, raise money.
16:26 Speaker: do what the hospitals are overwhelmed with and provide their scanners or whatever, that's their focus. Absolutely. Not the whole, we've got to report and enable that transparency so that... those donors that give significant sums in some cases that it's gone to the right place exactly i mean your charity of choice this year i know you have a charity uh each year uh doing it for dan and that of course was was a a mum and dad that lost dan their son sadly uh in in an rta um is it an rta anyway knocked off his bike and
17:02 Speaker: It's not about raising awareness in terms of road safety or anything like that. It was actually about they knew that their lad was destined for big things in sport. They now help sports people that maybe couldn't fulfill their dream because finances stop it. And that's what they want to get on and focus doing. However, they can't do it if things aren't being aligned. And what's interesting is hearing you speak is it's not even just a case of going, phew, great, I've got...
17:31 Speaker: arbitrary figures i've got a hundred thousand sat there i can spend a hundred thousand pound on this which which facilitates x it's like no there's other bits that you've got to do here yeah not just in go that was for that specifically but there's other expenses there's other government tick boxes whatever you guys have got that oversight to make sure no one makes a mistake and they can get on with it
17:55 Speaker: yeah and and going back to the this original key point we were looking at if there's this whole review going in you guys are all over that to go not just input in the review but right when it's then done the changes are implemented what do we need to do different absolutely i and i would encourage everybody to have a it's a bit dry but i would have a read of the of the consultation and answer the questions because it it does impact
18:23 Speaker: A lot of people, so as you were saying, we have a charity of choice and a lot of people, even as an employee, a lot of firms now have a charity of the year, two years, whatever. So you're raising money for it. The whole point is the charity commission is there to make sure it's being spent in the right way. So you do have a direct involvement in whether the consultation goes because we've been asked as a firm to comment.
18:48 Speaker: by a charity as to what we thought and i i had to go back and be honest straight away and say well we've got a bit of a dilemma because if we say yeah raise the thresholds that's reducing our income because we have to do less work if the the level of reporting changes but from a a donor myself it's kind of i like the external review because i'm giving over money that i'm thinking spent in a certain way we know after is it captain tom
19:18 Speaker: yes that charity yeah so and then what would have happened if there was no oversight and that's that's what this the charity is about is providing that transparent trying to provide that transparency level in the set of accounts and yeah putting things in like independent examinations or audits for when the charities get to certain sizes because you want that external review otherwise as a trustee i'm sitting there going i'm in a volunteer's job
19:46 Speaker: You're now saying, potentially, I could be having a charity that gets a million pounds of income in a year and I don't need that much of a review. How do I sleep easily at night if I'm not having that third party coming in and going, your accounts are good, the way you're accounting for things, you're doing it the right way, as opposed to, actually, this is a right mess. You need some help to sort this out.
20:10 Speaker: Which invariably would be a mistake, not deliberate, wouldn't it? Absolutely. I know because we just mentioned the Captain Tom, which definitely was not a mistake. But, you know, 99.9% at the time, I might be being naive, but it's a mistake due to naivety. It is. And also it comes, again, comes back to the volunteer status. You're being expected to look after a complicated organisation in your spare time. Yeah. So you're not devoting.
20:37 Speaker: One of my trustee roles is I'm a trustee at Multi-Academy Trust, and we've got £60 million worth of income. Now, an FD would be paid probably a six-figure sum for looking after a business of that, but we're asking volunteers to come and do it a few hours a month, whatever we can give up. Yeah, yeah. So it's an awful lot to take on as a trustee without that external oversight.
21:03 Speaker: Yeah, I mean, people assume we're used to a legal system where you're innocent until you're proven guilty. And I know with sort of things I've been involved with sort of on a software basis long before I did any of this. was that for regulatory affairs and compliance, it actually has to be the other way around. You cannot assume that they're doing it right, that everything is OK. You have to assume they're not until you prove me, whether that's just by producing the documentation that shows what has happened, how it's happened, why it's happened. Then we go, yeah, that's fine. We're happy with that. You cannot go, unless we see something, we're going to assume they're doing it right.
21:45 Speaker: I was involved with aircraft maintenance from a software perspective many years ago. And that was an example, the Concorde crash. There was a company that did the, I'm going off tangent here, but it is relevant, is that did the maintenance on the Concorde. And they did their job fine by all accounts. But because they couldn't produce the documentation to show they did it,
22:15 Speaker: They had to go, we're going to have to assume that you didn't, which is why it's amazing how many areas that transcends. I remember going into a meeting with a company that made ball bearings, and I'm going, this is going to be great. It was ball bearings for helicopters. And everybody that touches anything to do with it, so I'm now bringing it back again, the charity, anybody who touches anything to do with it from within, from without, that's involved with the finances, we're going to assume
22:44 Speaker: Sorry, we cannot assume it's been done right unless you show me the documentation to show me otherwise. And that's where you guys presumably are having to come in. Yeah, absolutely. There's obviously different levels of checking for different sizes of charity. But if your income's over £25,000, you have an independent examination and the Charities Commission set out in a document what they expect examiners to check. And it is about checking that you've got procedures and policies in place. Can you evidence they have been done?
23:12 Speaker: So yes, you're absolutely right. It's about the trustees having oversight of, have we got X, Y, Z policies? And actually, how do we satisfy ourselves that they are being implemented? And the external review is a key part of that with people coming in. And from our perspective, we do commercial organisations as well. And it's great to be able to share knowledge, taking examples of how things work in the commercial sector and bringing it to the charity sector and going, right, OK, this is how commercially we would do it.
23:42 Speaker: It's not necessarily going to work in full for you, but you might want to take these elements out of it and think about applying it to yourselves. That makes sense. That does make sense. You mentioned, obviously, we discussed about this review that's going on and you said, even though it's dry, you do recommend people have a look. I'm going to test you. Do you know where we find that? I'm not expecting you. If you go onto the Charity Commission website, there is a link on there to the SOAP consultation. Okay.
24:09 Speaker: fabulous that was what i said apologies especially but i knew i'd cover it because we could probably put something on the screen if you didn't know so that's fine so go to the charities commission website and then there'll be a link to the consultation fabulous okay um what are the current guidelines so it's a it's a it depends whether you're a company or
24:35 Speaker: unincorporated charity unincorporated charity up to 25 000 you can do receipts and payments yeah and you don't need a formal review if you're over 25 000 of income then you do need an independent examination each year by by a suitably qualified individual now Yeah. It's relatively broad, but on the Charities Commission website, they do go into a bit more detail. So it could be like a business owner. Someone's got experience of running an organization. Yeah. But when you go over 250,000 income, that's when it needs to be a qualified accountant. Ah, got you. So that's where you guys are involved. We do often do it underneath that as well. Getting ready. Yeah, because we're either the...
25:19 Speaker: charities is looking to grow or actually they're just going you know what we don't have that suitable volunteer because again it's another often it's another volunteer role that yeah up to 25 to 250 um so quite often if they don't know got not got enough wide enough network or people are just so busy nowadays they've not got the time to spend doing it again we'll step into the and help them okay that makes sense
25:46 Speaker: My next question, you might need to give me a bit of background on this as well, because my next question is, why do charities have trading subsidiaries? And I'll be honest and say that that was news to me that they even did. Probably because I don't understand what that actually means. So if you consider some of the national charities like Salvation Army, they have charity shops. Yeah. OK, so that is a subsidiary. So they run their trading arms through a subsidiary.
26:13 Speaker: So when you set up a charity, you have a purpose. That's what you're going to do. And part of obtaining the corporation tax exemption is you don't do any trading that's outside your core services purpose. Whereas the shop would be. Yeah, absolutely. So that's where the trading subsidiary comes into it is A.
26:36 Speaker: you potentially can't do what you want to do in the charity because your objects say i'm doing this so it rather limits what you can and can't do within the charity yeah and also you're adding that layer of protection so if something goes wrong with the shop actually the charity as itself is still protected it's still operating running you're limiting
26:59 Speaker: The exposure. Yes. What is that? And again, apologies for the daft questions. I make a living out of them. But that subsidiary, is that a charity or is that a limited company? No, that is normally a normal incorporated company. It is, is it? So it would be set up as a generally, unless you're going to bespoke it and say it's only going to do charity shops, you would set it up with kind of normal trading articles, memoirs.
27:27 Speaker: just to say it can do whatever the directors decide it wants to do and then the idea of that is that it's money is that it's generating yeah so again you've got the overlap with things like vat so a charity might be providing services that's all exempt but it might have some trading activities that are vatable so then it causes problems potentially if you are going to that register the charity so it makes more sense to take out what's not core
27:55 Speaker: and is potentially VATable and put it in a trading subsidiary. So again, you're limiting your risk and the VAT exposure is just then into the trading subsidiary. And I'm probably going to ask an unimportant question, but these things just interest me, how it's all made up. The owner of that subsidiary is the charity? It can be done with, yes, either the charity owns the shares in there, or some people set up a limited by guarantee company as the subsidiary, but they have co-directors.
28:23 Speaker: so that effectively it's got control by having the co-directors. Okay. Are these normally not for profits because any profit is going straight to the charity? No, they are profit-making enterprises. Okay. You are correct, though, that they retain some corporation exemption by gifting the profits up to the charity. So they don't suffer the tax on their profit because it's going back up here to be used on charity purposes. So presumably you have to get involved in the complicated...
28:52 Speaker: accounting for that because that's going up before the profit is worked out for corporation tax and everything. Yes, there are rules around timing of when the donations need to be paid by to get the exemption and all that kind of stuff, which we then, yeah. And again, you are correct again with corporation tax profit might be different to the accounting profit. So then it's how do we balance these two things out to make sure that the books still work and the charity gets what it needs out of it.
29:18 Speaker: And you as an accountant, would you expect to be looking after the accounts of that charity and its subsidiaries as one so you've got a general oversight? Absolutely, yeah.
29:30 Speaker: Again, it's kind of a bit like if we were doing a group of companies, normal trading companies. We'd like to look after the whole group because you see the whole picture as opposed to being focused in on this one bit that actually we might miss something because we don't understand what's going on over here. And I know for my company is that mine and my wife's personal accounts are even done with you guys because it just means that you've got this. It would be anyway, obviously, but that's by the way. You get a holistic view of it. Correct. Exactly. So that kind of makes sense on that one. It just goes to.
30:00 Speaker: show there's so much more to it isn't there which is where that knowledge for me just comes in and that constantly moving knowledge you know we talk about this uh you know review and everything else things are going to change somewhere along the line we just don't know what yet you're going to be all over that um i brought up something there and i just want to quickly throw this in and apologies if i'm going in a tangent that is totally unimportant but
30:25 Speaker: i mentioned not for profit there yeah what's the difference between not for profit and charity charities are registered yeah with the charity commission so back in the day charity and not for profit were kind of synonymous they were effectively the same thing but now so many people are setting up things that they call them not for profit but it's more
30:48 Speaker: I guess, mutual trading. So it can make a profit, but it's not being extracted from the entity that's making it. It's being reinvested. So if you think like pubs, there's a lot of pubs closing down and communities are buying pubs and running them. They're not running them to make a profit to distribute to anybody. They're running them for community use. So all of the profits that are made are just reinvested back into the environment or whatever in the pub. So that is more, not-for-profit is more about, it's mutual, so the money stays in. Rugby clubs, sports clubs are another prime example of that. My background with motorsport, I know racing clubs do the same, is that any profit is reinvested.
31:30 Speaker: Or they had, I forget what they call it, they've got a... Oh, goodness me, I've got a mental block on the word I'm looking for, but there is a certain amount that gets put into this, and at the end of the year they're able to look after maybe some marshals that have had accidents or some equipment that's needed for the health and safety, and they've got money that's able to go to that. It's kind of like a trust. I think it is a trust, that particular part.
31:55 Speaker: okay so that's that that was why i just thought as we were bringing it up not for i was bringing it up not for profit and yeah so the charity it should always if so if people are saying they're a not-for-profit charity just be careful make sure you do check that they are registered charity they will have a number on the charity commission website because yes not-for-profits are generally set up as an organization to look after something that's particularly community based
32:25 Speaker: Are they still regulated? Just because they say they're not for profit, could they suddenly go, oops, we made profit? Are they regulated to make sure that they stay not for profit? No, that's the impression I got there. So, yeah, that's why I say if you're thinking you're donating to a charity, make sure. Because then you know. Yeah, it is a genuine charity and it's not something that somebody set up that, yeah.
32:51 Speaker: They're saying it's a not-for-profit, but actually there's no controls over them in the same way as if you were given to a charity. I think we've answered this, and I think this is largely, well, in theory, at least my final question. But my question was, how does charities having trading subsidiaries impact on reporting requirements? So if the subsidiary is relatively minor, it doesn't have a great deal of...
33:19 Speaker: impact because it's effectively just going to donate up the profit. But if it's a significant element of the group as a whole, then yes, it absolutely impacts because, for example, if you're under current regulations, if your charity got 600,000 of income in and you've got 400,000 or more in your trading subsidiary, the total is over a million. Therefore, it needs to produce consolidated accounts and be audited as a group. So it does add a
33:49 Speaker: extra layer to it but for example if the charity was say turning over one and a half million and the trading subsidiary was having a bad year and only had 50 000 of income it's not it's not going to materially impact the disclosures in this charity's account so you wouldn't consolidate yes so it's just about making sure you understand there's going to be more admin burden to it
34:15 Speaker: some extra cost and potentially if it's growing to a size it might actually your charity might be just ticking along nicely and having an independent examination but when you take the two together it might actually need consolidated accounts that need auditing hence having that holistic view yeah it's very important yeah yeah it makes sense okay um hopefully that that has helped people sort of understand and maybe there's some bits that even if you were
34:41 Speaker: clued up there might be something of interest in there that resonates with you and my advice if you haven't already is reach out to you guys to have a conversation even if it goes nowhere and it's just a little bit of advice I know that you guys are open to coffee and chat but it is reach out have a look at it see but who is more likely let me put this in the most rudimentary terms who is most likely
35:08 Speaker: to become a charity client of yours for their accounts? Is it somebody that's just setting up? Is it somebody that's set up now getting too big? I don't know. What people are more likely to go, do you know what? I need you guys to do this for us and with us. A lot of the time, it's those that are suddenly breaching the $250,000 income. So they need the independent examiner that's qualified. So then they're dropping into a new area.
35:33 Speaker: or it's those that are starting to grow and they're getting in extra funds so to start with they might have just been raising for children with cancer and now they've gone to bespoke projects and they're raising for that and they're wanting that reassurance they're dealing with things in the right way yeah and i think it is that piece of two things jump out at me peace of mind to know it's been done properly
35:58 Speaker: uh including protection on that as well um but also what's got to be a growing workload as the thing gets bigger and the values are bigger and all of that it suddenly it becomes a bigger task yeah yeah absolutely and also if you're going for grants from there's lots of big institutions that give grants every year to charities there it provides them with a bit of comfort as well that if you've got that qualified accountant who's overseeing the books
36:25 Speaker: that it gives them the comfort that they're giving their money away to an organisation that knows what it's going to be doing with it, knows how to account for it properly, so that they've got a bit of comfort that it's being dealt with in the right way. And I think us that donate to know that it's being... I don't know whether I'm using the right word in the right...
36:45 Speaker: tense, but audited in the right way. It's been reported in the right way, managed in the right way. And like I say, that doesn't mean we suddenly suspect anyone of doing anything underhand, but mistakes can happen because just a brief insight and you've shown how complicated that becomes with all of it. Yeah. For me, as a donor, I'm quite comfortable that some of the money is being spent on external fees to check that things are being done in the right way because I
37:15 Speaker: Rather, I gave, I don't know, rough figures again, £1,000 and £100 was siphoned off to deal with the governance side of things, making sure it was done right. I'm quite comfortable with that. I'd rather that happen than I gave £1,000 and it was misspent completely. Yeah. No, I agree. I mean, especially, as you know, obviously, the one that we mentioned earlier was such a high profile, gone very, very wrong in a very questionable way.
37:42 Speaker: allegedly, just to make sure I'm covering myself. I think it was beyond that, but let's just cover our backsides on that. And that gives you a nervousness as a donor unfairly to the legitimate ones. Yeah, absolutely. Because you question it. Yeah, it does make you sit there and wonder, oh, is the charity my charity of choice? Because we don't tend to see the actual outcomes afterwards, do we?
38:06 Speaker: know the principle of what's going to happen. But as donors, we don't often actually get to see it happening. It's easy when you're doing something like the cancer care unit and they get a new machine because there's a big thing in the press and you can see the physical thing. But a lot of them are services. They're covering holes where public service can't cope. So it's not so visible to those donors. So the accounts and the end of year report is actually...
38:32 Speaker: a comfort blanket in terms of yeah somebody has looked and it's reported i can go on to the charity commission and i can read about it it's visible isn't it yeah absolutely no it does make sense okay the big thing therefore in my opinion is uh if in doubt if any of this has sort of maybe just made you think
38:52 Speaker: Reach out. You're not committing to anything. And I know you guys personally these days is that they're really not. And it could be a conversation and it might lead to nothing thereafter other than give them a bit more peace of mind when they walk out the door. You guys have always impressed me is that it's not always about the lasso to get a client. You think that that's proved by your...
39:14 Speaker: your work ethic you know the the conversations that you've had and it does speaking from personal experiences it does you kind of go oh do you know what they know what they're talking about and i think that's what hopefully has come across in this discussion yeah from my perspective it's both the charity itself we can more than happy to sit down and go right what do you what do you worry about but also trustees yes
39:39 Speaker: As a trustee myself, I'm always happy to sit down and have a conversation with people because they're in short supply trustees. Really? So it's kind of, if we can do that education piece about going, right, okay, yeah, it might be a daunting role, but actually there are mechanisms around to help and support you. Please don't disregard it because it's a stressful thing.
40:02 Speaker: There is an enjoyment factor to it. Once you get past that, there is an enjoyment to putting something back. Yeah, absolutely. Putting something back. And as I say, we're quite happy to sit down with trustees and have a conversation with them about their concerns. It sounds like, on the face of it, there could be at least a perceived or otherwise vulnerability in that role. Yeah.
40:24 Speaker: Very much so. And that is why I think charities and their trustees should get involved in the consultation document, because if all of the thresholds start rising and there's less external verification, unfortunately, a lot more of the onus does then fall back on the trustees. So they should get involved to say, actually, you know what, what is my comfort level? So if it moves then to a small charity is anything less than a million, a million of somebody else's money is still quite a lot to look after.
40:52 Speaker: Absolutely. For an unpaid volunteer. So, yeah, please get involved and have conversations. Yeah, the different perspectives are important in this one. Final word then, just with the way that conversation went then. Are you able to succinctly explain what a trustee is or what a trustee's role is? The trustee is ultimately responsible for the charity or the board of trustees are, and they're primarily there for governance.
41:20 Speaker: So they're making sure that policies, procedures are in place, that they're adhered to and that for a charity, that the people's money is being spent in the right way. So, for example, it's not we're not paying our CEO 200,000 a year and we're only doing 50,000 on service delivery. It's about those. A lot of it is common sense about actually making sure things are good. Things are in place and money is being spent correctly. But there are obviously the regulations behind that.
41:50 Speaker: stages and levels to it about what you've actually got to have in place to comply. I presume, because am I right in assuming that a trustee is going to be almost an expert in a different role will make up the board of trustees? Very much so. That is the ideal situation. Like a football team. I need a goalkeeper. I need defence, midfield and forwards. You can't piece it together.
42:13 Speaker: But that's where... Sorry, I should have said rugby for you. Sorry. Wrong football. My bad. But that's where the concern is, is the pool of trustees. We've got a lot of charities in this country, and the pool of trustees is generally shrinking because without being too ageist, a lot of trustees are.
42:36 Speaker: older generations that they they have a bit more time potentially to devote to it or they have a particular interest in whatever the charity is doing so going back to my school trustee role a lot of the board is educationalists because that's the primary function of it so they're interested in becoming a trustee to try and help steer the educational side which leaves other areas probably a little more exposed yeah
43:03 Speaker: I kind of feel that there's an education piece that we should do in the future to really sort of help open that up because I guarantee there's a misunderstanding of that trustee role that makes people think wrongly. I'm working with an organisation that provide medical expert witnesses and one half of their drive is that they're having to try and get the message out to potential medical expert witnesses.
43:32 Speaker: that you know are medical experts in something but they know this expert witness phrase but they don't fully understand what it does and what it could do for them if they got involved it's in addition to what you're doing not right for everyone but could be perfect in this situation they're actually having to do an education and i'm kind of seeing these trustees in the same situation yeah absolutely there are um organizations that are trying to do that and pull together people who might be interested to
44:01 Speaker: It's like its own recruitment company. Yeah, no, absolutely. It is. Because, yeah, a lot of people will be scared off by the title, the fact that you're effectively ultimately responsible. But there is an awful lot of guidance in there to help you do your role. And it is a rewarding role. You're giving back your expertise, your knowledge to something that is there for a very good reason. Yeah.
44:24 Speaker: Absolutely. I do love that. Final question on that then. Does the trustee answer to the, I don't know, say the CEO or the management team? No. Or do they answer to the trustees? They answer to the trustees. That's almost like odd, isn't it? That the ones that are getting paid actually are answering to these unpaid people. But I understand why it works, but it's interesting to put that line in there. Yeah, absolutely. Wow, okay. And that is one of the tough bits about being a trustee is you're there for the strategic governance role.
44:51 Speaker: not the day-to-day role. And it's really hard for people to get that culture shift that actually I tell them how I would like things to be done and they're there to implement it. I just then need to check that they are implementing what I think I as the Board of Trustees think is a good way of going. Wow.
45:11 Speaker: I do love it. As you can tell, I could go in a whole load of other directions, and we will do. We will pick up charities, I think, on different areas, which incidentally, by the way, if there are any areas around the whole accounting for charities and their subsidiaries or anything... in a different tangent, though, I haven't quite gone. Can't be many left, but there will be. I'm sure we can find some. Yeah, there will be. And that you would find it interesting to find out more. And equally, by the way, if you're an expert on that and you fancy coming on as a guest with us, please reach out and get in touch. I'm trying to remember your email address. rstokes at optps.co.uk. So rstokes at...
45:52 Speaker: optps.co.uk you know please do reach out because the whole idea of this is that hopefully it's an engaging conversation a bit of uh you know useful information that has been within this but if there's other things that either you want to know or you think you can help you know put out there reach out let's do it a future episode it would be brilliant to do that rob thank you so much for for jumping on um
46:18 Speaker: Reach out to optps.co.uk, optimum professional services, of course, if you have any other questions or want anything. But Rob, that was really, really enjoyable to find out more. As you could probably gather, I was like growing in understanding as that episode progressed, which is the idea. And I think it's been really useful. Yeah, as I say, it is a rewarding sector to work with because from our perspective, it's complicated.
46:44 Speaker: many standards, et cetera, in there. But actually, it's nice to see being able to educate people. Absolutely. So from Rob Stokes, myself, Chris Dawes, thank you very much for joining us. And we'll see you next time for, what would it be, episode 18 next time. Cheers.