Coping with the impact of Covid-19
The coronavirus pandemic has had an extraordinary impact in the UK and across the World, and with charities playing an integral role in UK society they are not immune from the impact of the outbreak, with many seeing a significant drop in income, whether from fundraising or investments, whilst at the same time seeing an increase in the demand for their services.
So what do trustees and charity managers need to be thinking about in these unprecedented times?
The UK Regulators
Each of the UK’s Charity Regulators has issued guidance for charities on issues raised by the Coronavirus outbreak which is constantly updated as the situation changes. Trustees and charity managers should frequently refer to this to ensure that they are able to effectively manage their charity at this difficult time.
Keeping people safe
It remains a priority for all UK charities to keep their people safe, whether it is the employees and volunteers that work for them or their beneficiaries dependent upon their services. Safeguarding is as relevant now as it ever has been before. Charities should revisit their approach to keeping people safe, especially those working with vulnerable members of society who may be self-isolating at the current time. Procedures that enable adequate social distancing should be introduced, and where this is not possible Personal Protective Equipment (PPE) should be provided in order to minimise the risk of infection.
The UK Charity regulators are clear that it remains a requirement to report any matters of significant concern to them, especially where they relate to safeguarding issues.
More now than ever charities require effective management. Fortunately there are a variety of ways in which trustees can keep in contact online to hold the meetings necessary to ensure that standards of governance and oversight are maintained whilst at the same time applying social distancing principles. The holding of virtual meetings may not be in accordance with the charity’s constitution, which often set out detailed procedures for the holding of meetings. Given the exceptional circumstances though the regulators have accepted that the need to hold meetings takes priority over the need to follow precise constitutional requirements. Where such an approach is followed the regulators recommend that trustees document the apparent breach and the alternative approach that is being taken as a sign of good governance.
This is true also for the holding of annual general meetings and the need to comply with statutory requirements. Trustees may find guidance recently issued by The Chartered Governance Institute helpful, which although aimed at listed entities is equally relevant for charitable organisations with large memberships.
One of the matters trustees will need to consider is how the Coronavirus outbreak impacts upon the charity’s strategy and plans for the future, which for many charities will need to be reconsidered in the light of the many issues the outbreak raises. Financial plans will need to be revisited in the light of falling levels of income, implications for the range of services the charity provides that best meet the charity’s objectives considered and time scales for implementing changes amended where necessary. In addition the charity’s investment and reserves policy may require reassessment following on from the charity’s experience of how it has been affected by the outbreak.
Many charities will now be realising the importance of having a sound reserves policy that enables them to continue to meet their financial obligations during exceptional times, and may even have set aside funds using designated reserves for situations such as that which we currently find ourselves in. Trustees should remember that endowments and restricted funds must continue to only be used for the purposes for which they were provided to the charity, and accessing these funds should only be considered if other options are not possible. In such circumstances professional guidance should be sought, and the longer term impact of financial resilience and donor relationships considered.
For those charities that aren’t directly affected by the outbreak and with spare resources it may be tempting to offer to assist with the response. When considering this option trustees should ensure that doing so is consistent with their charitable objectives as set out in their governing documents. Operating outside of a charity’s objectives can have implications for the trustees personally if there is an apparent breach of trust. In such circumstances it may be possible to obtain a temporary extension to the charity’s objectives, but this should be discussed with the appropriate regulator first. Details can be found on each of the UK Regulators’ websites.
The Government has announced a range of measures to support the UK economy throughout the outbreak, some of which charities will be able to take advantage of. Perhaps the most significant of these is the Coronavirus Job Retention Scheme, which will pay up to 80% of a ‘furloughed’ employee’s wages, not exceeding £2,500 per month. It will also be possible to claim for support in paying the associated employer’s national insurance and the employer minimum auto enrolment pension contributions on that qualifying ‘furloughed’ wage. To be eligible for the scheme an employee when on furlough can not undertake any work for or on behalf of the organisation, those on reduced hours or pay will not be eligible for the subsidy
An employee must be ‘furloughed’ for a minimum of three weeks.
It has also been announced that VAT registered businesses will be able to defer any VAT payment due between 20 March and 30 June 2020 if they wish, without any interest or penalties being charged. VAT registered charities and their trading subsidiaries will be able to take advantage of this measure. If they do, the deferred VAT must be paid by 31 March 2021. It is still necessary for the charity to file the VAT return on time.
In addition to these measures charities will be able to take advantage of HMRC’s ‘Time To Pay’ scheme for other tax liabilities they may have incurred if they find themselves in financial distress because of COVID-19.
In addition support specifically designed for the charity sector has also been announced by the Government, with £750 million earmarked for frontline charities across the UK. Of this amount nearly half is being allocated directly by Government departments to charities providing vital services and supporting vulnerable people during the current crisis, including hospices, St Johns Ambulance, victims charities, vulnerable children charities and Citizens Advice. The balance will be available to small and medium-sized charities to support charities at the heart of local communities that are helping to make a big difference during the outbreak, including those delivering food, essential medicines and providing financial advice.
In England much of this support will be distributed via the National Lottery Community Fund. Support is also being provided by match funding amounts raised by the BBC’s Big Night In charity appeal, with at least £20 million going to the National Emergencies Trust appeal.
Additional support has also been announced by the UK’s devolved governments. In Scotland the Third Sector Resilience Fund has been launched to support organisations who are at risk of closure due to a fall in income or are unable to deliver their services due to the outbreak through the provision of grants and interest free loans.
In Northern Ireland the Government is supporting the local Community Foundation by providing match funding for community organisations working with older people to help them deliver support at this time, details can be found on the CFNI website: bit.ly/2RJN9Ue Other Community Foundations across the UK are also looking to support charitable organisations that are currently experiencing financial difficulty, details can be found on your local Community Foundation’s website.
The Coronavirus outbreak has a number of reporting issues for charities when it comes to preparing their annual report and accounts. This is true both for past accounting periods that have already ended but for which the accounts have not yet been approved by the trustees, and for accounting periods that have not yet ended. In response the SORP Committee has produced a helpful guide to the various reporting issues that trustees will need to consider.
The guidance sets out how to reflect the impact of the outbreak in the trustees’ report for issues such as a fall in fundraising income or changes in demand for the charity’s services, and how the charity is responding. It also addresses the accounts themselves, covering issues such as going concern, the impact on the measurement of provisions and the disclosure of post balance sheet events.
All of the UK Charity Regulators, and Companies House, have stated that they are taking a more relaxed approach to accounts filing deadlines at present, as well as with other filing requirements such as the annual return. You will need to notify the relevant regulator(s) though before your accounts filing deadline in order to take advantage of this. Details can be found on each regulator’s website.