In Scotland, most charities are small. SCVO’s State of the Sector research shows that 75% of Scottish charities have incomes under £100k. But whilst they may be small, they have a huge impact on the lives of individuals, communities and causes across the country.
This week it’s time to celebrate them during Small Charity Week where there’s lots going on. On Tuesday it’s Big Advice Day and we thought it would be a good time to highlight our very own SCVO Free Legal Advice Service which for over a decade has given nearly 1,500 hours of professional expertise to organisations who may otherwise have been unable to access legal, VAT and tax advice.
The SCVO Free Legal Advice Service deals with enquiries ranging from charity, property and employment law, to VAT and tax. As well as providing one to one advice, our partners in the service also run regular webinars. We have two planned in the next few months with Azets our VAT and Tax specialists. The first on 16 August will help you understand the pros and cons of VAT registration, what is exempt, when you can and can’t recover VAT, and what reliefs are available for charities. The second on 20 September will look at how to set up a trading subsidiary to generate income for your charity.
Money’s tighter than ever right now and any successful charity should have a diverse range of funding sources. Income generation through trading can be an attractive prospect, but there are some key issues to consider before you start to trade. It’s easy to stray away from charitable objectives and fall foul of tax law, so you need to be aware of all the pros and cons. Charity law imposes restrictions on the nature and level of trading activity charities can do, and there are also various financial and governance implications to consider. Come along to hear our legal partners Gillespie Macandrew and Azets discuss when a charity can and cannot trade, the various legal structures available, governance and risk management, tax implications and Gift Aid.
If trading is something you are looking at, here are four key issues to consider:
Before starting any new activity you need to check your governing document to see if what you’re planning is in line with your charitable purposes, and if you have the necessary investment powers to finance your plans. If you don’t, then you’ll need to change your constitution.
A major consideration for trustees is to safeguard existing charity assets. Any trading activity, by its very nature, will have a certain amount of risk associated with it. So, even if the trading activity fulfils your primary charitable purposes, you may still want to set up a separate trading subsidiary to minimise risk.
As well as the money you need to invest at the start of a new business, you also need to consider any ongoing financial requirements. If the parent charity is going to loan the trading subsidiary money, then there needs to be a formal loan agreement in place. It’s essential to get professional financial advice.
If you set up a separate trading subsidiary, then you need to think about how it will be governed. While a proportion of the trustees from the parent charity can also be on the trading subsidiary board, there needs to be a level of independence to avoid conflicts of interest and you may need to bring in trustees with specialist areas of expertise.
We know that running a charity can be tough, and there’s never enough money in the kitty, so remember it’s not just this week that you can get free advice if you’re a SCVO member. Over the years, users of the Pro Bono Service have praised the clear and comprehensive advice on offer which has given them the confidence and reassurance to make difficult decisions, one even described it as a ‘lifeline’ for themselves and their staff.