the central council of church bell ringers

Registering the whole Ringing Society as a Charity — or just the Bell Restoration Fund?

Background

1. At the Council meeting in Liverpool in 2001 the Bell Restoration Funds Committee was asked to advise on the advantages and disadvantages of registration of whole societies as Charities. Many CC affiliated societies register their Bell Restoration Funds (BRFs) as charities and some have registered the whole society. This guidance was first issued shortly after that meeting, and is now reissued in view of tax changes.

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What is the advantage of charitable registration?

2. The main advantage, and the main reason why any charity is registered as such, is to use the tax advantages provided in the UK. This paper does not attempt to summarise or identify all these advantages but to concentrate on any that might be appropriate for a bell ringing society. Tax rules are of course subject to change.

3. Although this paper cannot address tax issues in any detail, one of the advantages of charitable registration has for some time been that no tax was payable on any financial surpluses made during the year or on interest paid by eg the bank. However, this is a complex area, as tax is not necessarily payable on surpluses made by membership organisations, and expert advice is always recommended on most tax issues.

4. In April 2002 a change was made meaning that no corporation tax was payable on the first £10,000 of taxable profits, so few ringing societies would have been liable to pay tax. But from April 2006 this has changed again, so that there is now no 'nil band' and any ringing society whose tax liability could be assessed as being in excess of £100 now has to file a tax return and pay corporation tax. This is a significant change for some societies, especially those that earn large amounts of bank interest, and this change alone has caused some societies to re-think their positions regarding charitable registration.

5. However, one alternative to charitable registration that can work well is for the society to lend any spare money it holds to its BRF, assuming that the BRF is registered as a charity, so that all the interest earned accrues to the BRF (which will pay no tax) rather than to the society. The loan document can be drawn up so that the society can recover the capital sum of the loan whenever it needs it.

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Who can register as a charity?

6. This is an important question, as clearly not everyone can. The Charity Commission has strict and clear rules about this. Further information can be found on www.charity-commission.gov.uk . In brief the organisation has to be for the relief of financial hardship, for the advancement of education, for the advancement of religion or for other purposes for the benefit of the community. Once registered the Charity has to abide by the Commission's rules, again detailed on their web site. Most ringing organisations that are charities have the advancement of religion as one of their aims.

7. If an organisation's aims are charitable, it must be registered as a charity. This means that, if you register your society as a charity, its aims are by definition charitable. It will not be possible to de-register if you change your mind.

8. But the Charity Commission rules also change, and it is now not possible to register a charity that has, or will have, an annual income below £5000. If an organisation wishes to take advantage of the Gift Aid tax rules but is too small to register as a charity it is necessary to register direct with H M Revenue and Customs (HMRC) by contacting their charity advice line for details of how to do this. (Telephone 0845 3020203)

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Gift Aid

9. Most ringing societies now have a BRF and one of the purposes of such a fund is usually to raise money. One of the most tax-efficient aids to raising money is the Gift Aid scheme, which allows charities to re-claim from HMRC standard rate tax paid by donors. Most BRFs are registered as charities and use the Gift Aid scheme as one way of raising money and reclaiming tax. This scheme has operated for some years and many ringing societies have taken advantage of its provisions.

10. The scheme changed at the beginning of April 2000, becoming very much simpler to operate. Now all that is necessary is for the donor to confirm that s/he has paid at least as much tax as the charity is reclaiming, and for the charity to keep a note of the donor's name and address and the dates of donations. The charity applies to HMRC for a refund of tax at the end of each tax year. This means that every £1 donation generates an additional 28p from HMRC (reducing to 25p in April 2008, because of further income tax changes).

11. The position of higher rate taxpayers is not always understood - this changed with the new scheme. Charities are now restricted (for simplicity) to recovering standard rate tax only. Higher rate taxpayers can record their charitable donations on their tax return and claim the higher rate allowance themselves. This is an additional incentive to higher rate taxpayers to give to charity, and an encouragement to them to give more, as they can recover some tax themselves.

12. The rules for the new Gift Aid scheme differ in significant ways from the old rules. The new scheme is still relatively new and if HMRC has any problems with the new rules these may not yet have come to light. The exercise of assessing the benefits and disadvantages of whole society registration therefore has had to be a theoretical one at this stage, as far as Gift Aid is concerned.

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What is a Donation?

13. It is often obvious what a donation is - especially if you imagine putting a coin in a collector's box in the High Street. But even then you will often get something in return - perhaps a badge. If you make more significant or regular charitable donations you are likely to receive something rather more - perhaps a regular newsletter or invitation to an event. What is to stop the charity providing you with gifts of greater value than your donation? The answer is Inland Revenue Gift Aid rules about what constitutes a donation on which the charity can recover tax.

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Gift Aid Rules

14. These are complicated. If you want to study a summary of them look at the HMRC website ( www.hmrc.gov.uk) and the sections about Gift Aid. These are briefer than in the past and easy to understand. There are useful sections about Gift Aid generally and about benefits that can be given in exchange for donations. Some extracts are quoted here:
15. "Subscriptions for membership of a UK charity can, at the discretion of HMRC Charities, be treated as donations, provided the payment:

• does no more than secure membership of the charity
• does not allow personal use of the charity's services or facilities

  e.g. a youth charity providing various activities as part of its educational objectives would not be providing services or facilities for personal use.

  Any other benefits provided by your charity as a consequence of the donation (membership subscription) are subject to Gift Aid benefit rules."

16. "Some items don't need to be treated as benefits, for example:

• literature describing the work of your charity such as newsletters, annual reports or a members' handbook.
• an acknowledgement of a donor's generosity, say, in a printed brochure or on a plaque.

• For more information please see the detailed guidance about what is not a benefit."

17. "There are two donor benefit limits. If either is exceeded the donation doesn't qualify for Gift Aid.

    The two limits are made up of:

    • The value of benefits provided in relation to the amount of a particular donation (called the 'relevant value') - as shown in these tables; these limits apply separately to each donation
    
    

    Benefit limits for donations made up to and including 5/04/2007
    Amount of donation	Maximum value of benefits to the donor
    £ 0 -100	25% of the donation
    £ 101 -1,000	£25
    £ 1001+	2.5% of the donation

    
    

    Benefit limits for donations made on or after 6/04/2007
    Amount of donation	Maximum value of benefits to the donor
    £ 0 -100	25% of the donation
    £ 101 -1,000	£25
    £ 1001+	5% of the donation

    • There is an overall benefit limit of £250 for donation made up to and including 05/04/2007and £500 for donations made on or after 06/04/2007 - arrived at by adding the value of benefits provided for the current donation to the value of any benefits already provided by your charity to the same donor in the same tax year, as a consequence of Gift Aid donations (the 'aggregate value')
    • For some types of benefits you will need to work out the annual value before applying these limits.
    • For more information please see the detailed guidance about the donor benefit rules."

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Implications for ringing societies

18. If you want to take advantage of the ability to recover the standard rate of tax paid by your members under the Gift Aid Scheme you will need to examine the benefits conferred by membership of your society to ensure that you comply with these rules. Many societies will do so, as members will receive only (perhaps) a newsletter or annual report and the ability to attend meetings in return for their membership subscription. Indeed, even attendance at meetings may not count as benefit, as these are usually open to non-members as well.

19. But you might offer free training courses or other benefits as part of your membership package. You need to ensure they comply with the rules in order to be able to re-claim tax on the membership subscription.

20. You will also need to obtain the consent of each member to your re-claiming tax they have paid (and not everyone will always give this - there are people who believe that this scheme is an abuse of the tax system). They will also need to confirm to you that they will pay that amount of tax during the tax year - and not everyone will do so. Those in full time education rarely pay tax. Many others of working age do not earn and pensioners may not pay tax and may be particularly sensitive to an enquiry on the subject.

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What are the Disadvantages of Registering whole Societies as Charities?

21. There are also disadvantages to registering as a charity. The Charity Commission has very detailed rules about how charities must behave and the duties of the trustees who run them. You could move from running a comfortable little bell ringing society with few rules and minimal responsibility to running a charity as a trustee, expected to understand what your duties and responsibilities are (detailed on the Charity Commission's web site), including complying with their ever-increasing rules about preparation and examination of annual accounts. You will have to report all funds held by the society, including any within branches, in your annual accounts. This is not a change to be undertaken lightly or without full understanding of what is involved. Trustees need to be organised and trustworthy people who will understand and comply with the Charity Commission requirements.

22. The Charity Commission requires that trustees must "Use charitable funds and assets reasonably, and only in furtherance of the charity's objects." ( CC3 - The essential trustee: what you need to know. ) Many ringing societies may use their funds for various purposes from time to time, such as subsidising social events etc, and may not wish to be restricted in the way they can use the charitable funds.

23. If you change your mind once you have registered your society as a charity you are in an awkward position. By registering as a charity you have declared your aims to be charitable: consequently your funds are charitable funds and cannot just be transferred elsewhere. The society would probably have to be run down, using its funds for its charitable purposes, and a new society with new (non-charitable) aims started.

24. If yours is a small ringing society with a small number of members paying a nominal annual subscription it may not be worth the trouble of meeting the Charity Commission's requirements just to be able to recover some tax.

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Trading

25. There are also some quite detailed rules about charities trading. Again these can be found on the Charity Commission web site ( CC35 - Trustees, Trading and Tax). Charities can trade if their prime purpose is of a trading nature - such as a fee-paying school - but if their prime purpose is not trading (probably like most ringing societies) then they can trade in a very small way only. A related organisation may have to trade and pass any profits or surplus to the charity as a donation. Many major charities are set up like this and you will notice if you buy your Christmas cards from them that you make your cheque out to a trading company with a similar (but different) name to the Charity. The trading company can pass its profits to the charity without the need to deduct corporation tax.

26. CC 35 says "While charities may trade more or less freely in pursuit of their charitable objectives, there are restrictions on engaging in trades the objective of which is to generate funds for the charity. In particular, charities may not engage in such commercially-oriented trades where a significant risk to their assets would be involved.

• Where trading (other than trading in pursuit of its charitable objects) involves significant risk to a charity's assets, it must be undertaken by a trading subsidiary. But even where it is not essential for the trading to be undertaken by a trading subsidiary, the use of trading subsidiaries may produce benefits, for example in reducing tax liabilities. In particular, trading subsidiaries may make donations to their parent charity as 'Gift Aid' so reducing or eliminating the profits of the subsidiary which are liable to tax."

27. CC 35 is much shorter than earlier versions, which provided much more detailed advice. But it now also says "This guidance sets out the main principles and considerations which apply to trading by charities themselves, and to trading through trading subsidiaries. However, due to the complexity of the law in this area, and the potential scale of adverse consequences if mistakes are made, charities and the trustees of charities engaging in substantial trading operations should also take independent advice from appropriately qualified professional persons."

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So, should we do it or not?

28. Sadly there is no simple answer - it really does depend on your circumstances. Think about these questions:

1. Is there someone organised and efficient with time to spare to handle all the administration of charitable registration, the ongoing relationship with the Charity Commission and reclaiming tax from HMRC?
2. Do the society's aims include one of advancement of religion, or if not would your members be prepared to amend the aims to include this (and to make any other changes that may be needed to comply with Charity Commission requirements)?
3. Does the society have an annual income of at least £5000 (the Charity Commission's threshold for registration)?
4. Are the benefits your members receive from being a member of the society in line with the requirements quoted above in HMRC Guidance note?
5. Would the amount of corporation tax the society is liable for exceed £100 each year? (If it does, it should be paying this.)
6. Would the amount of tax you could recover under Gift Aid on your membership subscriptions be sufficient to justify the additional work involved?
7. Do you currently have your accounts audited or reviewed by an independent examiner within a reasonable time after the end of your financial year?
8. Are you happy you will comply with the Charity Commission rules on trading?
9. If the answer to question (viii) is "no", would you instead be prepared to start a separate organisation to carry out the trading? (Profits can be donated to the charity without deduction of tax, but the trading company would also require proper setting up - professional advice may be needed here.)
10. Are you happy only to use your income and property for the purposes set out in your governing document and for no other purpose?

29. If you can answer yes to these questions it would be worth your while investigating whole society registration further. Get the leaflets and guidance from HMRC and from the Charity Commission (all on their web site). If your BRF is already registered as a charity you will already have some experience of working with the Charity Commission and will have someone who can do this work, which is a good start.

October 2007

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