New guide explores 10 common charity myths & how to dispel them

A guide has launched revealing the top ten charity myths, along with recommendations to help charities try and dispel them.

Dispelling Common Myths About Charities is published by the Institute of Chartered Accountants in England and Wales (ICAEW), which is urging charities to work to dispel them in order to build public and donor trust in the sector.

The guidance covers how charities are run, carry out their work, are funded and staffed, whether they are liable for tax, and their vulnerability to fraud, among other issues. As well as offering practical recommendations for charities to help dispel them, it also explains why it is important for a range of stakeholders, including donors, to understand not only what charities do, but how they operate, the need for a professional approach, and the funding of core activities.

Kristina Kopic, ICAEW Head of Charity and Voluntary Sector, ICAEW explained:

“People’s goodwill and generosity remain the lifeblood of the sector, but this is at risk if the public misunderstand what charities do and how they operate. We hope that by tackling the 10 most common myths about how the voluntary sector operates, we will encourage charity trustees, staff, and advisers to be transparent, in areas where misconceptions are prevalent.

The 10 myths

The ten myths are:

• Charities spend too much money on fundraising
• Charities should not make a surplus or build up cash reserves
• Charities spend too much on high paid executives
• Charities should not undertake commercial activities
• Charities should run and staffed cost-free by volunteers
• Charities spend too much on overheads
• Charities don’t have to pay taxes so need less money
• You need professional qualifications to become a charity trustee
• Charities are less vulnerable to fraud than other organisations
• Charities should not engage in campaigning and political activity

Recommendation – two examples

1. Too much money spent on overheads

The guidance references the UK Civil Society Almanac 2022, which states that 86% of the sector’s expenditure related to activities directly linked to a charity’s purpose.

It suggests that trustees ask if their charity is making sufficient investments in important infrastructure, including legal and regulatory compliance, management skills and technology, but says that while it is important to understand the composition of a charity’s cost base, this is not an indicator of its effectiveness.

It says that charities should be able to explain how administration and other related costs will increase efficiency and improve impact, transparency, governance, and leadership, to understand where savings or investment could be made.

2. Charities and tax

The guidance states that while charities are not exempt from tax, they do qualify for some exemptions, and that this can lead to a mistaken belief that charities do not pay tax.

It says that charities are, however, exempt from income or corporation tax on most types of income if they use the money for charitable purposes. In addition, charities can claim tax reliefs on business rates, legacies, and eligible donations. However, charities are subject to payroll taxes and the VAT regime (with certain charity exemptions), and they pay business rates, although at reduced rates depending on the property’s usage.

The guide advises charities that they should explain their tax contributions and the relevant tax reliefs and exemptions they have been granted. They should also review their tax strategy to ensure they are claiming relevant tax reliefs and exemptions so they can maximise the funds available for their work. This is a complex area and charities may need to seek professional tax advice to optimise their tax affairs.

The working group that co-ordinated the guide included charity practitioners from BDO, Crowe and RSM, and was chaired by Pesh Framjee, who has led several not-for-profit teams within accountancy firms. He commented:

“There are many negative misconceptions created by the myths that abound about charities. As someone that has worked with and for charities for over 35 years, I too often see the negative consequences that impact on charities. It is incumbent on all of us who recognise the important work that charities do to actively try and dispel these myths and ensure that the popular narrative focuses on the facts and reality.”

from UK Fundraising https://ift.tt/0YFxL3a