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Developments in the charity sector

January 2020

We have highlighted a few reports and changing regulations that may have an impact on your charity. In particular, please take some time to consider the new reporting requirements under the Companies (Miscellanous Reporting) Regulations 2018, the new energy and carbon reporting requirements and the Charity Commission's latest blog and request for responses regarding responsible investment.

SORP 2019 and new information sheets

A revised edition of the Statement of Recommended Practice for Charities (SORP 2019) has been published by the Charity Commission, effective for years commencing on or after 1 January 2019. This revised edition draws together the changes from bulletins 1 and 2 but does not make any additional changes. The key changes are covered in our previous charity alerts. A link to the revised SORP can be found here. Our briefing on the changes proposed in bulletin 1 and bulletin 2 are linked.

The Charity Commission has also published two new information sheets.

The first, Information Sheet 3, covers the impact of the Companies Act miscellaneous reporting requirements on charitable companies. A briefing on the requirements can in be found here and more detail is given below in the new reporting requirements section.

In summary:

  • Four new governance-related reporting requirements for large private companies will be required (subject to varying size criteria as discussed in the full briefing linked above) in annual reports for periods commencing on or after 1 January 2019. Three of these will apply to charitable companies:
    • Section 172(1) statement
    • Employee engagement
    • Business relationships
  • Although charitable companies have been excluded from the requirement to provide the fourth element, a statement of corporate governance arrangements, there is a charity governance code available to the sector, which the largest charitable companies are expected to apply voluntarily.
  • The reach of these new requirements is considerable and there is no exemption for subsidiary companies. Very large private companies will be undertaking most of these activities already but for companies at the lower end of the scoping criteria, more attention and effort will be required. Trustees will need to review the requirements carefully and assess where there are gaps in arrangements.
  • In addition, large charitable companies, together with large private companies and LLPs will be required to disclose information about their UK greenhouse gas emissions, energy consumption and energy efficiency for periods commencing on or after 1 April 2019.

The second, Information Sheet 4, provides additional application guidance that the Charity Commission considers to be useful when a charity participates in a defined benefit plan, which is a multi-employer plan accounted for as if the plan were a defined contribution plan, and sufficient information to use defined benefit accounting becomes available.

New reporting requirements under section 172(1) and other changes


A strategic report for a financial year of a company must include a statement which describes how the directors have had regard to the matters set out in section 172(1)(a) to (f) (shown in the surrounding hexagons in the diagram above) when performing their duty under section 172.

For a charitable company the directors’ duties should be modified to reflect the duty of trustees to promote the success of the charity to achieve its charitable purposes. When reporting against the factors, charities may also need to consider

  • any factors, other than economic and financial factors, may affect the performance of a charitable company
  • the contribution of unpaid general volunteers in addition to paid staff
  • their relationship with other stakeholders, e.g. service users, beneficiaries, funders and the wider community

This will apply to charitable companies qualifying as large under the Companies Act.

There are two other changes under the companies miscellaneous reporting regulations: the first requires a statement on employee engagement (for all companies with over 250 UK based employees); and the second is about business relationships (charitable companies qualifying as large under the Companies Act). Where section 172(1) reporting is prepared, it is expected that these requirements will already be addressed and can be dealt with by a cross reference between sections.

Charities with over 250 employees, but below the other two Companies Act thresholds, will need to provide a statement on employee engagement covering:

  • how employees are provided with information on matters of concern to them as employees;
  • how they are consulted and their views taken into account in decision making that may affect their interests;
  • how employees are involved in the companies performance through rewards and benefits; and
  • how the charity achieves a common awareness of financial and economic factors affecting performance.

Charites should ensure that they consider the action aimed at engagement with volunteers as well as paid staff.

There is further information on the new reporting requirements in the following publications:

Charities alert on the new reporting requirements

Pulse January 2020 edition

Deloitte Board briefing on the new section 172(1) statement

Climate change and energy and carbon reporting requirements

For charitable companies qualifying as large under the Companies Act 2006, there is a new requirement for periods commencing on or after April 2019 to report on energy use and carbon emissions.

Charitable companies must disclose:

  • The annual quantity of emissions in tonnes of carbon dioxide equivalent resulting from activities for which the company is responsible involving the combustion of gas or the consumption of fuel for the purposes of transport.
  • The annual quantity of emissions in tonnes of carbon dioxide equivalent resulting from the purchase of electricity by the company for its own use, including for the purposes of transport.
  • A figure, in kWh, which is the aggregate of the annual quantity of energy consumed from activities for which the company is responsible involving the combustion of gas or the consumption of fuel for the purposes of transport and the annual quantity of energy consumed resulting from the purchase of electricity by the company for its own use, including for the purposes of transport.
  • The methodologies used to calculate the information disclosed above.
  • At least one ratio which expresses the company’s annual emissions in relation to a quantifiable factor associated with the company’s activities.
  • If the company has in the financial year to which the report relates taken any measures for the purpose of increasing the company’s energy efficiency, the report must contain a description of the principal measures taken for that purpose.

There are some exemptions, for example if the charity consumed less than 40,000kWh of energy during the period.

For further information on Energy and Carbon reporting, please see Need to know: Government enacts new energy and carbon reporting requirements for all large companies and limited liability partnerships.

For further information on the question “what does climate change mean for business?”, please see our new website www.deloitte.co.uk/climatechange.

In October 2019, the FRC published Where to next? its thoughts on climate-related corporate reporting and challenges companies to

  • Consider the company’s impact on the environment
  • Address and, where relevant, report on the effects of climate change (direct and indirect)
  • Consider the resilience of the business model; risks and uncertainties; and viability and financial position.

Whilst this does not directly apply to charities, there is growing public opinion that these issues should be on the Board agenda.

IR35 reminder

The application of the IR35 rules to private sector companies from April 2020 will apply to a number of large charities. Detailed guidance has been provided by HMRC. These rules will apply to charities which exceed the small company thresholds in line with the small companies regime. That is those charities that meet two or more of the following conditions:

  • an annual turnover of more than £10.2 million
  • a balance sheet total of more than £5.1 million
  • more than 50 employees

Charities outside the limits will need to decide the employment status of each worker with whom the charity contracts through an intermediary or directly. The charity will need to:

  • pass their determination and the reasons for the determination to the worker and the person or organisation they contract with
  • make sure they keep detailed records of your employment status determinations, including the reasons for the determination and fees paid
  • have processes in place to deal with any disagreements that arise from their determination

If the charity is also the fee-payer and the off-payroll working rules apply, they will need to deduct and pay tax and National Insurance contributions to HMRC.

Small-sized clients in the private sector will not have to decide the employment status of their workers. This will remain the responsibility of the worker’s intermediary.

More detail can be found on Deloitte’s IR35 journey to April 2020 page linked here.

Charity Commission Consultation on Investment

A Charity Commission blog published in January 2020 announced the intention of the Commission to seek views on investment. The Charity Commission wants to hear from those with an interest in responsible investment and have requested emailed contributions to policy@charitycommission.gov.uk by 31 March 2020. The Charity Commission’s comments

"Trustees have a duty to maximise the financial returns generated from the way in which they invest their charity’s assets, but the Commission also encourages them to consider whether their investments are consistent with their charity’s aims. As public expectations and attitudes evolve, there are welcome signals that charities are thinking about how to reconcile achieving good returns with responsible investments that align with the charity’s mission and purposes. Many in and around the sector are championing this way of thinking and leading the way, but as the regulator we want to understand what is holding others back, and give more charities the confidence to follow suit where possible."

The Charity Commission have asked:

  • What are your experiences and current considerations around responsible investments?
  • What do you think are the barriers to more widespread responsible investments? and
  • What more could be done to support trustees to invest in a way that reflects the charity’s purpose and values?

CEO pay and procedures

In December 2019, a Charity Commission decision was published regarding the way in which the latest pay package was awarded to the chief executive of Marie Stopes International.

The examination was not around the value of the pay package but about challenging the consideration behind the award. The Charity's Trustees accepted that:

  • the written documentation around the decisions on the CEO’s pay package was inadequate;
  • it was not clear how the principles they were supposed to follow in setting this package were applied in practice;
  • there was not clear evidence that a proper and robust discussion took place either at full board or at the charity’s remuneration committee about the appropriate level of pay to be awarded to the CEO;
  • the trustees could not show that they had taken into account all the relevant factors, as required by the Commission’s guidance.

Although the Trustees stated that a robust discussion was held the lack of evidence was key in this decision and underlines the importance of good documentation of all the factors taken into account in decision making.

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