Tag: Expenses

Payments To Charity Trustees: What The Rules Are

Pay a trustee to be a trustee

When you become a trustee, you volunteer your services and usually won’t receive payment for your work.

Generally, charities cannot pay their trustees for simply being a trustee. Some charities do pay their trustees – they can only do so because it’s allowed by their governing document, by the Charity Commission or by the courts.

Trustee expenses

The law entitles charity trustees to claim legitimate expenses while engaged on trustee business. No separate authority is needed in the charity’s governing document or from the Commission.

Expenses are for out-of-pocket payments trustees have to make in order to carry out their duties, for example:

travel to and from trustee meetings
overnight accommodation
postage, telephone calls and broadband time for charity work
childcare or care of other dependants while attending meetings

Your charity should have a written agreement setting out what is classed as an expense, plus how to claim and approve expenses.

Some types of payment are often confused with expenses, when they are actually trustee benefits which HMRC will consider can be taxed as income. They can only properly be paid out of charity funds if there is suitable authority for doing so.

The following are all examples of payments which are not expenses, and which the Commission might need to authorise:

compensation for loss of earnings whilst carrying out trustee business
allowances: for example, a personal clothing allowance
honoraria (small or token sums not intended to reflect the true value of the service provided)
payment for use of a trustee’s property (or part of it) for storage and use of charity equipment

Pay a trustee to provide goods or services to the charity

Trustees could be paid for:

work such as plumbing or painting and any associated materials such as paint or plumbing parts
providing specialist services, such as estate agency or computer consultancy
providing premises or facilities for occasional use, for example as a meeting room
administration or secretarial work
supplying stationery to the charity

Pay someone who is connected to the charity

If someone is connected to a trustee, they are known as a ‘connected person’. For example:

a spouse or partner
siblings
a brother- or sister-in-law
parents
business partner
businesses connected to trustees
If a connected person is to be paid or employed by the charity, the trustee or trustees they are connected to must not be involved in any part of the process.

Buy a leaving gift for a trustee

You may decide that it is appropriate to use the charity’s money to buy a small gift as a leaving or retiring present for a trustee.

Small gifts usually do not need the Commission’s authority, provided that:

the value of the gift is minimal
the trustees agree it’s in the charity’s best interest

When to get Commission consent

If your governing document doesn’t allow you to pay trustees, you may need to get the Commission’s consent before you:

employ a trustee, or a connected person
pay a trustee for serving as a trustee
pay a trustee’s expenses or replace lost income
pay a trustee or connected person for providing goods or services to the charity

More detailed guidance can be found here

Don’t forget to prepare your budget!

Budgets are vital to run your charity effectively!!

So what is a budget?

A budget is:

a financial evaluation of an organisation’s planned services for the coming year
a forecast of income and expenditure which can be used to monitor financial performance in the year ahead
a financial plan which may be required by funders

Why budget?

A budget is prepared to:

ensure that the proposed plan of services to members can be achieved within the finances available
ensure that best use is made of finances
establish a method of checking and monitoring financial performance
report planned and actual performance to the Management Committee

How is the budget prepared?

The following model makes these assumptions:

The charity has no plans to alter its activities and apply for new grants.
Any grant funding received is repeat funding and there is complete certainty it will be received.

You should prepare the budget in the following four stages, always making sure that it is approved by a full Management Committee at least one month before the commencement of the financial year.

1. Expenses

The starting point for a budget is the Expense Headings which will usually be fairly obvious:

Example:

Wages	Who is employed and at what rate?
Rent, rates	How much and when do we pay?
Heat and light	How much will it cost to heat the premises?
Maintenance	Are we responsible for maintenance of the building and are any major repairs necessary?
Telephone, etc.	How much and when do we pay?
Expenses	What is the likely cost of Management Committee members and employees’ expenses?
Sundries	Make a reasonable judgement about these small amounts, e.g. Petty cash items.

You now have a list and a forecast value of expenses which you should compare with the previous year’s Actuals to ensure that they are reasonable, and that you have not left anything out.

2. Income

You must now construct the Income side of the budget.

This will comprise Guaranteed Income, i.e. income which has already been agreed by a funder or funders, and non-guaranteed income, i.e. income which you plan to raise.

Again, when you have compiled these figures, you should compare them with the previous year’s Actuals to test if they are reasonable.

3. Comparing Income and Expenditure

Total income and expenditure should now be compared with each other to establish if there is a forecast surplus or deficit of income over expenditure.

It is sound Financial Planning to budget for a surplus of about 5%, i.e. to ensure that Income exceeds Expenditure by about 5%. This should ensure that any unforeseen expenditure can be met.

If there is an adequate surplus then you may proceed to phase the figures, i.e. to analyse the income and expenditure in the month they arise.

If, however, there is a Deficit it will be necessary either to:

seek additional funding
organise more fund raising
reduce cost by deferring proposed expenditure

However, BEWARE! It is not good practice to defer necessary expenditure, e.g. Maintenance – ‘buildings don’t get better’.

4. Phasing the budget

Phasing is a most important aspect of constructing a budget. It involves analysing both income and expenditure monthly. This is important because, whilst the total budget for the year may show a surplus, it is quite possible to have sizeable deficits in individual months.

If there is a phasing problem, i.e. if there is deficit in particular months, it may be possible to:

arrange for funders to pay half-yearly in advance instead of quarterly in advance or
defer expenditure to later in the year

In any event, this problem must be resolved before the budget is submitted for approval.

In due course, when a budget has been constructed showing an adequate surplus and a satisfactory phasing, you should submit the budget to the Management Committee for final approval.

Trustee Expenses and Payments

The concept of unpaid trusteeship has been one of the defining characteristics of the charitable sector, contributing greatly to public confidence in charities. This does not mean that a trustee can never receive any payment or benefit from his or her charity; there are sometimes good reasons why it can be in a charity’s interests to make a payment to a trustee. Trustee boards need, though, to minimise the risks to their charity’s reputation and operation.

Expenses are normally refunds by the charity of costs a trustee has had to meet personally (or which have been met on his or her behalf) in order to carry out trustee duties. In some cases, these expenses may be paid in advance. A refund of properly incurred expenses is not a trustee payment, nor does it count as any kind of personal benefit.

A charity can pay a trustee for the supply of any services over and above normal trustee duties. The decision to do this must be made by those trustees who will not benefit. They must decide that the service is required by the charity and agree it is in the charity’s best interests to make the payment and must comply with certain other conditions

More detailed information and guidance can be found in this document

Payslips and Deductions

Payslips

You must give your employees and ‘workers’ a payslip on or before their payday.

What to include

Payslips must show:

pay before any deductions (‘gross’ wages)
deductions like tax and National Insurance
pay after deductions (‘net’ wages)
the number of hours worked, if the pay varies depending on time worked

Payslips can also include information like your employee’s National Insurance number and tax code, their rate of pay, and the total amount of pay and deductions so far in the tax year.

Employers must also explain any deductions fixed in amount, for example repayment of a season ticket loan. This can be shown either on a payslip, or in a separate written statement.

Deductions from your employee’s pay

An employer is not allowed to make deductions unless:

it’s required or allowed by law, for example National Insurance, income tax or student loan repayments
the employee has agreed in writing
their contract says you can
there’s a statutory payment due to a public authority
they have not worked due to taking part in a strike or industrial action
there’s been an earlier overpayment of wages or expenses
it’s a result of a court order

A deduction cannot normally reduce their pay below the National Minimum Wage even if they agree to it, except if the deduction is for:

tax or National Insurance
something they’ve done and their contract says they’re liable for it, for example a shortfall in the till if they work in your shop
repayment of a loan or advance of wages
repayment of an accidental overpayment of wages
buying shares or share options in the business
accommodation provided by you as their employer
their own use, for example union subscriptions or pension contributions

Expenses and Benefits for Employees form P11D

By law, if you’re an employer you need to submit an end-of-year report at the end of each tax year to HMRC for each employee you’ve provided with expenses or benefits.

Examples of expenses and benefits include: Image result for expenses and benefits

company cars
health insurance
travel and entertainment expenses
childcare

There are different rules for what you have to report and pay, depending on the type of expense or benefit that you provide.

More details can be found by clicking here

Use form P11D to send the report to HMRC for each employee and director.

You should not complete a P11D if there are no taxable expenses payments or benefits to be returned for an individual, or if the expenses and benefits have been taxed through your payroll