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Computerising Church Accounts

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Computerising Church Accounts Powered By Docstoc
					 Community Accountants
  National Network Annual
        Conference


CHURCH ACCOUNTS
        Roger Pinchbeck
         January 2010
            OBJECTIVES
To provide an overview of:
•  Legal and financial framework for churches
•  Registration with the Charity Commission
•  Principles and format of church accounts
•  Property valuation
•  Annual Report
•  Independent examination / audit
•  Cash handling
•  Gift Aid
•  VAT
•  Employment
•  Association of Church Accountants and
     Treasurers (ACAT)
        LEGAL OVERVIEW

•   Can be different trust structures for
     different denominations:
           e.g. Church of England, Baptist,
                 Methodist, United
                 Reformed, Quakers, House
                 churches etc

•   However, the principles are common –
    based on the Charities Acts 1993 and 2006
    LEGAL OVERVIEW (cont)
•   Trustees not personally liable for church
      debts – but must act responsibly and
      collectively (not individually)
•   Churches have charitable status
•   Until 2008 churches not registered with the
      Charity Commission. From 2009,
      registration required where annual
      income exceeds £100,000
•   Check legal entity – e.g. Local Ecumenical
      partnerships (LEPS) etc
    LEGAL OVERVIEW (cont)
•   Statement of Recommended Practice
      (SORP) 2005 provides financial overview
•   Trustees are responsible for
      - keeping proper accounting records
      - preparing annual accounts
      - arranging examination
•   CANNOT delegate RESPONSIBILITY
•   MUST aggregate the accounts for funds /
      activities under the trustees’ CONTROL
    LEGAL OVERVIEW (cont)
Key changes from the Charities Act 2006
•   Where income > £100,000 pa – church must
      register with Charity Commission
      (England and Wales) – see separate note
      for Scotland and Northern Ireland
•   Trustees can be paid for goods and
      services provided (NOT services as
      trustee)
•   Simpler process to expend endowment
      (capital) funds
•   Audit threshold is where income exceeds
      £500,000 p.a. (previously £250,000)
 REGISTRATION WITH CHARITY
COMMISSION (ENGLAND & WALES)

•   Churches with income > £100,000 pa
     required to register with the Charity
     Commission (CC)
•   Dispensation may be granted where
     threshold exceeded by an exceptional
     item – e.g. a legacy or building grant
•   Registration does not affect trustees’
     responsibilities and accounting
     requirements
•   Must submit an Annual Return to the CC
 CHARITIES IN SCOTLAND AND
    NORTHERN IRELAND
Scotland
•  Office of the Scottish Charity Regulator
     (OSCR)
•  Excepted status does not apply – all
     churches must register

Northern Ireland
•  New Charity Commission established in
     2009
•  Excepted status does not apply – all
     churches will need to register
    PRINCIPLES OF ACCOUNTS
In terms of accounts, are you a small church?

Financial years ending AFTER 31 March 2009:

•    Annual income exceeds £250,000 -
           ACCRUALS ACCOUNTS

•    Annual income less than £250,000 -
           can be RECEIPTS AND PAYMENTS
           ACCOUNTS (accruals are optional)

•    Previous threshold - £100,000
PRINCIPLES OF ACCOUNTS (cont)

Fundamental concept for charity accounts

Must account for different types of FUND:

•   Endowment

•   Restricted

•   Unrestricted (including designated)
                 FUNDS
•   Endowment funds
      Capital funds where income can be
           spent
•   Restricted funds
      Purpose specified by the donor or the
           charity at the time of receipt
•   Unrestricted funds
      Available for general charitable
           purposes
•   Designated funds
      Set aside for specific purpose(s) –
           remain unrestricted
       RESTRICTED FUNDS
•   Do not necessarily need separate bank
    accounts for each fund
      • need proper controls

      • avoid too many bank accounts!!


•   Where a church is seeking funding for a
    project, suggested clause for inclusion:
       “any surplus monies will be applied
        for the general purposes of the
        church”
    ACCOUNTING PRINCIPLES

•   Current year figures for each type of
      fund
•   Comparative figures for previous year
•   Identify material items (or describe in
      Annual Report)
•   Receipts and payments must be shown
      gross. Only exception - repayment of
      expenses paid on behalf of another party
•   Balance simplicity with sufficient detail
    RECEIPTS AND PAYMENTS
Requirements

•   Receipts and payments account(s)

•   Statement of assets and liabilities

•   Notes to the financial statements

•   Annual report

•   Independent examiner’s report
               ACCRUALS
Requirements

•   Statement of financial activities (SOFA)

•   Balance sheet

•   Notes to the financial statements

•   Annual report

•   Independent examiner or auditor’s report
    RECEIPTS AND PAYMENTS

RECEIPTS AND PAYMENTS ACCOUNT

•    It is a cash book summary
•    Only include amounts actually received
        and paid (inc cheques issued but not
        cleared)
•    Must not be called “Income and
        Expenditure” – implies accruals basis
    RECEIPTS AND PAYMENTS

RECEIPTS AND PAYMENTS ACCOUNT

Potential formats

•   Separate account per fund

•   Columnar format (see appendix)

•   Columnar format recommended
 RECEIPTS AND PAYMENTS
STATEMENT OF ASSETS & LIABILITIES
• Purpose is to show:
     • assets for which trustees are
            responsible
     • liabilities to be met from funds

     • funds to which both assets and
            liabilities belong
• Recommended columnar format per Receipts
     and Payments account
• Must not be called a Balance Sheet
   RECEIPTS AND PAYMENTS
STATEMENT OF ASSETS & LIABILITIES

Headings

• Cash and bank balances - to agree with
     Receipts and Payments Account(s)
• Other monetary assets - e.g. Gift Aid
     receivable, loans receivable
• Investment assets – e.g. stocks and shares
     valued at year-end date
   RECEIPTS AND PAYMENTS
STATEMENT OF ASSETS & LIABILITIES

Headings (continued)

• Assets for church purposes (e.g. property,
     furnishings and equipment)
     Valuations not necessary unless figures
       are essential to description

• Liabilities (e.g. creditors, loans payable)
  PROPERTY VALUATIONS

         CHURCH OF ENGLAND

• Consecrated and benefice property
       (churches and vicarages) – NOT to
       be included in Parochial Church
       Council (PCC) accounts

• Church halls and other property – must be
       included (with an appropriate
       valuation where appropriate)
  PROPERTY VALUATIONS
         OTHER DENOMINATIONS

• All properties in the ownership of the trust
   should be included in the Annual
   Accounts (at a valuation where
   appropriate)
• Could possibly use:
         - historic cost (see next slide)
         - estimated market value
         - insurance value (may provide a
                                guide)
     PROPERTY VALUATIONS

EXAMPLE OF HISTORIC COST

                                       £

Cost of building the church in 1908    76,000

Cost of Church extension in 1992      430,000

Historic cost                         506,000
    ACCOUNTING PRINCIPLES

•   Keep financial statements simple – include
       the detail in notes (e.g. terms of any
       restricted funds)

•   Financial statements should state basis
       upon which they have been prepared
       (e.g. in accordance with Charities
       Acts 1993 and 2006)
          ANNUAL REPORT

Until Charities Act 2006, “charity” defined by
 Charitable Uses Act (1601) -

  •   advancement of religion
  •   advancement of education
  •   relief of poverty
  •   other purposes considered beneficial to
       the community
          ANNUAL REPORT

•   Under the Charities Act 2006, there are 12
      charitable purposes, including religion,
      education, relief of poverty, arts,
      amateur sport etc

•   The presumption of public benefit has been
       removed from all categories

•   The Annual Report should demonstrate
       public benefit
           ANNUAL REPORT

“CONCISE BUT COMPREHENSIVE REVIEW”

•   Milestone
•   Chance to take stock
•   Celebrate successes & achievements
•   Reflect on difficulties & challenges
•   Explain the vision
•   Detail how the vision will be realised
•   Identify the resources needed
           ANNUAL REPORT

•   It is the trustees’ report (i.e. not a report by
         the minister)

•   The whole of the body of trustees is
       responsible for it

•   Though legally a separate document SORP
       requires that it be attached to
       Financial Statements when they are
       distributed.
          ANNUAL REPORT

SECTIONS

•   Reference and administration
•   Structure, governance and management
•   Objectives and activities
•   Achievements and performance
•   Financial review
•   Funds held as custodian trustee
     APPROVAL OF ANNUAL
    REPORT AND ACCOUNTS
GUIDELINES
1. Approve at trustees meeting prior to Annual
    Church meeting - copies to trustees prior
    to the meeting
2. At meeting all trustees must approve
3. Appoint somebody to sign on behalf of all
    trustees (e.g. minister and ANO)
4. At end of Statement of Assets and
    Liabilities and Annual Report insert -
       “Approved by the trustees on (date)
       and signed on their behalf by (name
       and position)”
INDEPENDENT EXAMINATION / AUDIT

 Income
 less than £500,000          Examination
     (over £250,000 – qualified accountant)
 Over £500,000               Audit

 Assets and income
 Assets over £3.6m and
 Income over £250,000       Audit
    INDEPENDENT EXAMINATION
• Less detailed and onerous than audit
• Examiner:
      - must not be connected to trustees
      - need not be qualified accountant
            (unless income > £250,000) but
                  must possess relevant skills
and         experience
• Trustees responsible for ensuring Examiner
      has appropriate skills/experience
• Useful for trustees and examiner to exchange
      letter of appointment
• A fee can be paid
    INDEPENDENT EXAMINATION


• Examiner must carry out inspection per
     guidelines in the Charities Act
• Examiner must issue report to the church
     per The Charities (Accounts and
     Reports) Regulations 2005
• Report must be attached to Accounts
     whenever they are issued
    WHICH BOOKS TO USE?


•   Columnar Cash Book
                or
•   Computer Spreadsheet
                or
•   Computer Package (e.g. Data
       Developments – “Finance
                            Co-ordinator”)
       CASH HANDLING ETC

MAIN FEATURES

•   Keep proper audit trails for all receipts
•   Keep supporting documentation for Inland
             Revenue claims (Gift Aid)
•   Receipts to be banked intact
•   Payments should be by cheque rather
             than cash
      CASH HANDLING (cont)

•   Two signatures for cheques
•   Do not sign blank cheques
•   Require an authorisation process if on-line
         banking is used
•   Always have supporting
         documentation for payments
•   If cash payments are required -
         use an imprest float
                 GIFT AID
Scheme from 01 April 2000
•   Separate schemes for covenants and Gift
       Aid replaced by ONE Gift Aid
       procedure

•   An individual makes a declaration to -
       “treat ALL my donations as gift aid
       donations, until I notify you otherwise.
       I will inform you if the tax I pay is
       less than the tax to be reclaimed.”
          GIFT AID (cont)
General principles
• Applies only to those who pay tax
• Either Income Tax or Capital Gains Tax
• Must pay sufficient tax in the relevant
      year
• Interim claims can be made during year
• From April 2010 time limit of 4 years
      to make a claim (previously 6 yrs)
• Donations must be freely given gifts,
      with no benefit in return
          GIFT AID (cont)

General principles (continued)
• Higher rate taxpayers can claim back
     their marginal rate (20%) thereby
     able to increase their donation
• Make the most of occasional services
     (weddings, baptisms, funerals) and
     visitors
• Potential benefit from sponsorship and
     other fund raising events (check the
     detail!!)
          GIFT AID (cont)

Current topics
• Tax rate reduced from 22% to 20% from
     06.04.08
• 3 year transitional scheme to pay the
     difference
• Claim at the rate of 20% tax rate – HMRC
     to add the difference (to 22%)
• Donations £10 and under can be
     aggregated up to a total of £500
         GIFT AID (cont)
HMRC Audits

They will want to see:
• Correctly worded Gift Aid declarations
     with full name, address with post
     code and date
• Evidence of payments being made,
     e.g. weekly envelopes with figures
     written on them, or bank statements
     with details of standing orders
         GIFT AID (cont)
HMRC Audits (continued)

Keep evidence for six years (plus current
     year) of the following:
  • Sample of weekly envelopes – e.g all
     current year and one month per year
     of remainder
  • All bank statements
  • All one-off donations
        VALUE ADDED TAX

•   In general VAT cannot be reclaimed

•   Improvements or alterations to a listed
       Church - ZERO rate for VAT

•   New build work for ALL churches is
      ZERO rated

•   Listed Places of Worship Grant Scheme
    VALUE ADDED TAX (cont)

•   Construction work for disabled access/
            facilities can be ZERO rated
            for ALL charities

•   ALL charities - 5% VAT on Fuel and
            Power

•   ALL charities– all advertising should be
            ZERO rated
      VAT – LISTED PLACES OF
      WORSHIP GRANT SCHEME

•   ONLY applies to LISTED churches
•   VAT paid to the contractor – refunded
            by grant
•   Net 5% VAT rate – 01.04.01 to 31.03.04
•   ZERO VAT – from 01.04.04 (i.e FULL
            VAT refund)
•   Scheme extended until 31.03.11
       VAT – REPAIRS GRANT
          SCHEME (cont)
•Principally relates to the FABRIC of the
building (walls, roof, floor, doors windows)
• Includes services RELATING to repair works
(e.g. plumbing, electrical)
•   For work AFTER 22.03.06 includes -
    pipe organ            clocks
    fitted pews           investigative works
    bell frames, bells &  professional fees
           ropes
               BUT – check the detail
        VAT – REPAIRS GRANT
           SCHEME (cont)


Excludes –

•   floor covering
•   non-fixed pews
•   external work (paving, boundary walls etc)
•   categories on previous slide PRIOR to
        22.03.06
         BUDGET FORMAT
SUGGESTED FORMAT

•   Columnar lay-out:
       • Budget for following year

       • Latest forecast for current year

       • Actual for previous year


•   Summary of main assumptions

•   Should be adopted by Trustees - not
       just the Treasurer’s best guess!
      EMPLOYMENT ISSUES
•   Is the church an employer?
•   Contract of employment can only exist
         between two “legal persons”
•   A legal “person” can be:-
         • church officer (Corporation sole)
         • a body Corporate
•   In a “Church context” the Trustees will usually
         be the employer
•   Check status of employer (e.g. partnership of
         churches)
•   Check whether employee or self- employed
•   Is registration required re PAYE and NI?
•   Review pension requirements from 2012 –
         employer must make a contribution
       EMPLOYMENT (cont)

•   Lower earnings limit for NI and PAYE -
       £110 per week in 2009/10 (annual
       review)
•   Usually no tax charge for expenses
•   Watch where expenses paid with a fee,
       etc
•   Minimum wage - £5.80 per hour
•   Recommended “living wage” - £7.00 per
       hour
   ASSOCIATION OF CHURCH
ACCOUNTANTS AND TREASURERS

 •   National charity with over 10,000
        members
 •   Comprehensive handbook
 •   Quarterly newsletters
 •   Annual conference
 •   Training events
 •   Help-line for advice
 •   Annual subscription £12.50
                 REVIEW
•   Legal and financial framework for churches
•   Registration with the Charity Commission
•   Cash handling
•   Principles and format of church accounts
•   Property valuations
•   Annual Report
•   Independent examination
•   Gift Aid
•   VAT
•   Employment
•   Association of Church Accountants and
        Treasurers (ACAT)

				
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