England & Wales Charity Commission consultation on Annual Return

Article Experience

The Charity Commission has recently launched a consultation on significant changes to the questions asked in the Annual Return – the annual filing for all registered charities. This is in line with the Charity Commission’s strategic aim to make better use of data in identifying risks, helping the public to make informed choices and providing visibility of the sector for stakeholders.

The proposed Annual Return 2023 (for financial years starting on or after 1 January 2023) introduces 23 new questions alongside 29 questions retained from the existing return. This brings the minimum number of questions up to 32 (from 16), with a further 20 questions depending on the charity’s operations. It is clear that if these proposals are implemented, many charities will need to devote significant extra time and
resource to collate the necessary information and answer the large number of extra questions.

Some of the new questions relate to the following:

  • Diversity of the charity’s income streams – there are five questions looking to identify whether the charity has an over-reliance on any one income stream which can, in some cases, suggest that a charity is more financially unstable. One question looks at income from connected parties where there is a risk of conflicts of interest.
  • Grant making – a new question asks grant makers for the split between grants to individuals and organisations, as well as whether any grants were to connected parties to the charity. The Charity Commission considers that it will be helpful to have visibility of those charities which directly support individual beneficiaries as any financial instability at a charity level would have a greater impact on individual beneficiaries.
  • Agreements with overseas partners – the Charity Commission has added an additional question to ask whether the charity has formal written agreements in place with overseas partners. The rationale being that it will “assure the Commission that partnerships are appropriately governed and identify where [the Commission] may intervene if good practice is not being followed”, with the regulator being particularly concerned about safeguarding vulnerable individuals overseas.
  • Premises – at the moment, the Register of Charities only collects details of the charity’s office address. A new question will ask for more details about the premises from which a charity delivers services or undertakes operations. The Charity Commission hopes that having more data about where charities operate will help them to identify any localised risk.
  • Property held on behalf of unincorporated charities – trusts and unincorporated associations cannot hold property in the name of the charity, instead property is held by holding or custodian trustees. The annual return has previously asked about property held by the Official Custodian, but a new question will look at property held by individual or corporate holding/custodian trustees. The Charity Commission notes that this is a common source of disputes.
  • Members – the Annual Return will now seek to identify charities with a membership body who have constitutional rights. The Charity Commission says that this will help “target communications to charities, advising on roles and responsibilities to assist with charity management and good governance.” This may include advice on how charities should be dealing with their membership following confirmation by the Supreme Court in its recent decision that members of a charitable company owe fiduciary duties to the charity.
  • Wider organisational framework – a new question will ask whether the charity is part of a federation, consortium or similar.
  • Headcount and payroll – interestingly, the Annual Return will ask for more details on headcount and total payroll. The Charity Commission says that this is “relevant information for the public or other stakeholders to consider when looking at charities’ use of resources and ability to deliver certain activities.” Given that charities sometimes come under fire for their staff costs, we would hope that there is appropriate messaging that charities do need to employ staff to be able to deliver their services.
  • Impact of external change – finally, the Charity Commission proposes to introduce an additional question on the impact of an external change on the sector. This question would be included if there was a significant external event during the year in question – the examples given by the Charity Commission include the Covid-19 pandemic and the crisis in Ukraine. As the questions for the Annual Return are set out in Regulations, those Regulations would need to be amended in order to introduce new questions. The Charity Commission hopes this additional question will enable them to be more proactive and risk-led without having to amend the Regulations again.

The Charity Commission proposes to publish information which it considers will promote transparency, increase public trust and confidence in charities or enhance accountability of charities to donors, beneficiaries and the public. At present, the majority of the responses to the Annual Return will not be made public, including the questions described above on the diversity of income, impact of external change, overseas partners and grant making. Looking at the questions described above, the answers to the questions on headcount, total payroll and premises will be made public. In relation to the other questions, whilst the Charity Commission may have no plans to publish, given that the regulator is subject to FOIA, it is possible that the information could be disclosed as part of a FOIA request or that the Charity Commission changes its approach in future.

We would strongly recommend all clients read the full consultation and respond. The Charity Commission is particularly interested in receiving responses from charities directly as it wants to understand whether the questions can be answered using information which is already gathered.

The consultation is open until 1 September 2022 and more details, including the questionnaire to complete, are available here.

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