Our North East Member Firm Advises on Biostore Limited Sale

Biostore Limited Sale

We are delighted to announce that our North East member firm, Tait Walker Corporate Finance acted as exclusive M&A advisor to the shareholders of Biostore Limited on its sale to leading UK business-critical software provider, IRIS Software Group.

BioStore is a principle provider of identity management and cashless catering solutions to UK schools and businesses. Over 3,000 UK schools and sixth form colleges use Biostore’s identity management and cashless catering solutions to improve and streamline access control and how catering services are delivered.

Michael Smith and Lucy Elliott from Tait Walker’s Corporate Finance team structured and negotiated the deal. Graham Dotchin helped get the business ready for sale and used data analytics to support the business valuation and due diligence process.

The acquisition further extends IRIS’ offering in the running of a modern education facility by adding Biostore’s identity management and cashless catering solutions to its portfolio. The acquisition extends the IRIS education portfolio, providing solutions to manage all aspects of school management, including finance, assets and communications. Its ability to deliver a step-change in school efficiency and achieve value for money in the use of resources is a prime objective of many Academy and Academy Trusts.

Kevin Dady, CEO of IRIS Software Group, said:

“BioStore has developed some game-changing technology for the education sector and I’m delighted to welcome the business to IRIS. Our mission is to help all education establishments become more efficient and productive by reducing administration and delivering services that benefit schools, colleges, students and parents. This acquisition is yet another step in helping us achieve this goal.”

Commenting on the deal itself, Nigel Walker said:

“BioStore is a leader in providing innovative identity management and cashless catering solutions to schools and businesses for many years. We’re delighted to be part of IRIS Software Group where we can create even tighter integrations between our respective award-winning portfolios and innovate further. Together with IRIS we can offer schools and businesses an end to end solution, which creates value by making budgets go further.”

The IRIS Education Division now provides solutions for nearly 11,000 schools, over 60% of UK Academies and 82% of large Multi-Academy Trusts.

Other advisers on the deal were Muckle (Biostore), PWC, Cooleys and Lighthouse Advisory Partners (IRIS).

If you have any questions or if you would like to speak to us about your business, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Corporate Finance team.

This article originally appeared on the blog of our member firm, Tait Walker.

Large and Medium Company Reporting

Company Reporting

In July 2018, the UK Government approved the Companies (Miscellaneous Reporting) Regulations 2018 that will come into effect from 1 January 2019.

These regulations require all “large” companies to set out how they are acting in the interests of shareholders and its employees. For those companies with more than 250 employees, this includes additional reporting responsibilities in the directors’ report, including:

  • A summary of how directors have engaged with employees
  • Details on how the directors have had regard to employee interests, and their effect
  • A description of action undertaken to maintain or develop arrangements to consult employees on their views

In addition, large companies must contain a statement summarising how the directors have had regard to the need to foster the company’s business relationships with suppliers and customers.

There is clearly a move by the Financial Reporting Council to see more clear and meaningful reporting and it is therefore important that some early thought is given to reporting over the coming year.

If you have any questions or if you would like to discuss your company reporting with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our team.

This article originally appeared on the blog of our member firm, MHA Moore & Smalley.

Research and Development Tax Relief

Research and Development Tax Relief

If your company is involved in research and development (R&D), the Government’s R&D tax credit incentive could provide a valuable source of tax relief. In order to qualify, a company must be subject to UK corporation tax and involved in R&D, which is the attempt to resolve technological or scientific uncertainty and incurring costs on these projects.

Even if your project was last year, it’s worth noting that a company has two years from the end of its accounting period to submit a claim for qualifying expenditure identified during that period. Therefore, returns already submitted without an R&D claim can be amended.

In the last tax year, 21,865 small and medium-sized enterprises (SMEs) made a claim for research and development tax relief, and the average amount of tax relief obtained was over £60,000. For R&D purposes, an SME is a company which has fewer than 500 staff, less than €100 million turnover and less than €86 million in gross assets. However, larger companies who exceed the above limits can still claim research and development tax relief, but at a reduced rate.

Whilst the number of businesses claiming research and development tax relief is on the up, there’s still work to be done as this valuable relief is under-utilised.

So What is R&D?

One of the biggest misconceptions is that research and development tax incentives are only for those who carry out scientific research in a laboratory. HMRC’s definition of R&D doesn’t help:

‘Research and development … takes place when a project seeks to achieve an advance in science or technology … through the resolution of scientific or technological uncertainty.’

This has created confusion because it’s not always easy to relate real projects to this terminology. What the definition really means is that, if a business isn’t sure whether a project is scientifically or technologically possible, or they don’t know how to achieve it in practice, it could be carrying out R&D. R&D can be found widely in various everyday activities dealing with manufacturing, engineering and software development, as well as the more commonly thought of areas such as the pharmaceutical and scientific sectors.

The definition, whilst confusing, is deliberately broad so that it can be applied to any industry, not just laboratory-based ones. As a bonus, the R&D project doesn’t need to have been successful to qualify for enhanced relief.

Why is the Relief so Beneficial?

In short, for every £100 spent on R&D, the deduction from the company’s taxable profit is £230. If your company has made a loss for the year then the full R&D credit of £230 can be surrendered for a repayment at a rate of 14.5%; i.e. cash in the bank of £33.35 for every £100 spent.

What Costs Qualify?

Broadly speaking, as long as a cost has a link to the R&D project being undertaken, then it will be a qualifying cost for the purposes of the tax relief. This incorporates:

  • Staffing costs, including wages and salaries, employers’ National Insurance and employer pension contributions
  • Consumable materials used up in the R&D process
  • Utilities, including water, fuel and power
  • Externally provided workers and subcontractor cost (claimable at 65%)
  • Software costs

For the costs to qualify, the company must not have received any state aid for the R&D project. If a grant has been received then this can jeopardise the R&D claim (receiving a grant to cover your costs, and then obtaining valuable tax benefits as well, is too much like having your cake and eating it!). If you receive a grant to fund a project, you can still obtain tax relief, just at the reduced large company rate.

Our specialist tax team has extensive experience in appraising R&D projects and submitting R&D relief claims to HMRC.

If you have any questions or if you would like to discuss Research and Development Tax Relief with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Research & Development Tax team.

This article originally appeared on the blog of our member firm, Larking Gowen.

The Gatsby Benchmarks

Gatsby Benchmarks

The Gatsby Benchmarks may prove to be the turning point in careers guidance that many employers have long hoped for.

At or near the top of the worry list for almost every business is the difficulty they face in recruiting the skilled people they need to grow and prosper. Business owners and business managers have for decades been saying that they either can’t find people with the right skills, or they can’t even find the young people to train in those skills. The result? Great careers go begging and business growth (and even business survival) is called into question.

Part of that skills shortage can be attributed to the scarceness of good careers advice available in secondary schools. To say the problem runs across the board would be unfair, but up until recently, provision has been patchy, with no central resource to drive consistency or raise standards. The lack of a connection between subject choice as a means to following a career needs much more work.

The Gatsby Benchmarks

In December 2017, the Department for Education released a new career guidance strategy which puts the Gatsby Career Benchmarks front and centre.

The eight Gatsby benchmarks for good career guidance are:

  1. A stable careers programme
  2. Learning from career and labour market information
  3. Addressing the needs of each pupil
  4. Linking curriculum learning to careers
  5. Encounters with employers and employees
  6. Experiences of workplaces
  7. Encounters with further and higher education
  8. Personal guidance

Every school is now being required to begin using the Gatsby Benchmarks. Since September 2018, schools have been required by law to publish details of their careers programmes, as well as having a named “careers leader” to oversee the process. By the end of 2020, schools will be required to offer each pupil at least seven “meaningful encounters” with employers during their school career. In fact, by the end of 2020, schools must meet all eight benchmarks.

What Employers Should do

For industry, the priority has to be around connecting with schools, sixth Forms and FE Colleges to influence the careers debate and help teachers, to understand the opportunities that exist for their students.

Some teachers have no experience outside of the classroom, so reaching out, offering visits or having the opportunity to put a stand up at a careers fair can go a long way. The schools will be striving to meet their Gatsby obligations, so hopefully the process of engagement will be a lot simpler than it has been so far. By engaging, we can help our schools to link their curriculums to careers before GCSE choices are made, which should help to improve the available talent feeding through to the work place with the kind of educational attainment the industry needs.

Visit Careers & Enterprise for more information on careers guidance and the Gatsby system.

If you have any questions or if you would like to discuss the Gatsby Benchmarks with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Manufacturing team.

This article featured in issue 3 of our manufacturing and engineering newsletter series. Read the full newsletter here: The Engine – Issue 3

Authorised Economic Operator Scheme

Authorised Economic Operator Scheme

There has always been economic pressure on certain sectors of the British and World economies to proactively respond to change, whether that be refinements to manufacturing processes, streamlining logistics operations or wholesale diversification. Brexit is one more economic imperative which, depending on the evolving negotiations, may put further pressure on the logistics sector to be resilient, innovative and flexible.

In 1474, Gebruder Weiss was founded and up until the early 19th century delivered letters and goods over the Alps to Milan and was the formative logistics company and today remains the oldest courier service in the world. Of slightly younger vintage is the oldest US trucking company, Jones Motor Group which was founded in 1894. Both companies are still operating successfully, having diversified and studied innovative ways of remaining in business in a changing world.

Brexit may mean that to address the common challenges the logistics sector face, to assure and secure their ‘just-in-time supply chain’, companies will need to evaluate what works for them and the most cost-effective solutions, ahead of a yet unknown customs environment. Key elements of international trade in goods, and on which the customs declarations are based (essential for the calculation of customs duties), are the tariff classification of the goods, their origin and their value.

One important factor emerging from the UK’s various proposed new customs arrangements and which has a significant impact if ‘no deal’ is struck; companies will have to be readily able to assist to prove the origin and routing of items they carry, to satisfy customs authorities of the correct ‘rules of origin’ on behalf of customers. Hence, efficient processes that track and secure the items will be a major factor post EU exit.

A customs tool such as the Authorised Economic Operator Scheme (AEO) may be considered by companies wishing to demonstrate the integrity and speed of their supply chain and benefit from the proposed improved frictionless movements from many global fiscal authorities. HMRC considers UK applications for AEO status. The authorisation process tests the applicant’s tax and customs compliance, commercial and transport record-keeping standards, financial solvency and practical standards of competence within the scope of their business activity. The authorisation process takes up to 120 days to finalise.

AEO certification provides a reassuring ‘kite mark’ to potential and existing customers, that the company is sufficiently skilled and knowledgeable in customs and supply chain issues to keep their items moving, whether this is across the USA or over the Alps.

Recognising the need to consider and realign a company’s day to day customs operations may be a key part of planning for the future, not just from 29 March 2019 or up to 31 December 2020, but well beyond these dates.

If you have any questions or if you would like to discuss Capital Allowances with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Manufacturing team.

This article featured in issue 3 of our manufacturing and engineering newsletter series. Read the full newsletter here: The Engine – Issue 3

Capital Allowances for Manufacturers

Capital Allowances for ManufacturersCapital allowances provide tax relief across a wide range of capital expenditure. Despite the relief being very valuable, many businesses are missing out by failing to identify and maximise claims to which they are entitled. Relief for the capital expenditure is given as a deduction against the business’ profits. The rate of the tax relief depends on the nature of the asset purchased, the type of business activity being carried on, and when the expenditure is incurred.

The rate of tax relief can be as much as 100%, effectively providing a full write-off of the cost against taxable profits in the year of purchase. Where 100% relief is not available, writing-down allowances are provided instead. These too give relief on the full cost of the capital expenditure, but relief is spread over a number of years. Currently, writing down allowances can be given at rates of 18% and 8%.

Capital allowances are flexible in approach and it is not necessary to have to claim the relief. Provided care is taken to follow the rules, it is possible to pick and choose what to claim, and in some situations, when to claim. This can be very useful from a  tax planning perspective.

Capital Expenditure

Capital allowances are evolving all the time, with relief being provided across a wide range of assets. For most businesses, allowances are typically available on plant and machinery and also fixtures within buildings.

To claim these allowances, you must be carrying out a qualifying activity and incurring qualifying expenditure. ‘Qualifying activity’ encompasses all taxable activities other than passive investment. That means capital allowances can be claimed by the self-employed, partnerships, companies, and furnished holiday let landlords. ‘Qualifying expenditure’ is spending on the majority of plant and machinery used for the purposes of the trade, and fixtures contained within the business premises. Certain assets such as goodwill are specifically excluded.

Examples of assets that can qualify for capital allowances are computers, office furniture, machinery, tools, kitchens, heating, lighting, carpets, ventilation systems, vans, motor vehicles, and many more. Capital expenditure incurred on qualifying costs is added to one of three pools, with allowances given at the pool level rather than separately for each individual asset. The three pools, together with the rate of relief they attract, are:

  1. General Pool: 18% writing down allowance
  2. Special rate Pool: 8% writing down allowance (6% from April 2019)

  3. Single Asset Pool: 18% or 8% (6% from April 2019) depending on the asset

Most plant and machinery expenditure incurred on assets used exclusively for the business are included within the general pool. The main exception is cars with a C02 emissions figure exceeding 110g/km – these enter the special rate pool. Single asset pools are intended for assets used within unincorporated businesses, where there is both business and private use. Here the capital allowances are reduced proportionately to reflect the private use.

Finally, elections can be made to treat particular assets, or in some cases groups of similar assets purchased at the same time, as entering their own single asset pool. These are known as short-life asset elections and can be advantageous for assets that have a low useful economic life within minimal disposal value.

Annual Investment Allowance

The annual investment allowance (AIA) is the most versatile and generous capital allowance, providing 100% tax relief in the year of purchase. It is available on qualifying expenditure incurred on both new plant and machinery, and fixtures within buildings, but specifically excludes cars.

The AIA is currently set at £200,000 for a whole year, but will increase to £1m from 1 January 2019. Where a chargeable accounting period straddles the increase in the AIA, the total amount available will be time apportioned, but with relief restricted depending on the timing of the additions. This is important for tax planning purposes.

For example:

A company with an accounting period ended on 31 March 2019 will have a total AIA available for the year of £400,000:

Period 1 April 2018 to 31 December 2018: £200,000 x 9/12 = £150,000

Period 1 January 2019 to 31 March 2019: £1m x 3/12 = £250,000

However, the AIA available on capital expenditure incurred before 1 January 2019 will be restricted to £200,000 as this was the rate in force at that time. It may then be preferable to delay expenditure until on or after 1 January 2019. Once the AIA has been used, or if a decision is taken to make only a partial claim, any balance of the qualifying expenditure will attract writing down allowances at the appropriate general pool or special rate pool rate.

It is not mandatory to claim the AIA allowance, and it will not always be beneficial to do so. Claims can be tailored to help preserve personal allowances or where there aren’t enough profits to utilise the allowance. You can also choose not to claim the AIA where the asset is going to be disposed of in the near future and claiming the AIA would trigger a balancing charge in the future.

First-Year Allowances

Like the AIA, first year allowances (FYAs) allow a 100% deduction against in-year profits. Currently, they are only available for certain types of assets, including low-emission new cars, new vehicle electric charge points, new zero-emission goods vehicles, certain new energy-saving and water-efficient equipment, and certain new gas refuelling equipment.

Cars do not attract the AIA, so the only way to secure a 100% capital allowance for a car is to buy a new low-emission car. Where expenditure is incurred on or after 1 April 2018, a low-emission car is one with CO2 emissions of less than 50g/km. The figure was 75g/km for expenditure incurred between 1 April 2015 and 31 March 2018. FYAs are only available for a new car. Second-hand cars don’t qualify, even if the CO2 emissions are below the threshold. From April 2020 the FYA available on energy-saving and water efficient equipment will be abolished. If investment on these types of assets is planned for the future, it could be advantageous to bring that capital investment forward to access the FYA and accelerate the relief.

How we can Help

Our approach is based on being able to provide a fully integrated service consisting of:

  • Accounting advice to ensure the accounting treatment optimises the relief;

  • Tax advice to identify and capture the optimal basis of tax relief;

  • Surveying of assets to identify the maximum qualifying expenditure;

  • Tax compliance services to ensure that claims are processed accurately and are progressed by HMRC as quickly as possible;

  • Entitlement reviews;
  • Transaction advice – understanding pooling and fixtures requirements.

If you have any questions or if you would like to discuss Capital Allowances with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Manufacturing team.

This article featured in issue 3 of our manufacturing and engineering newsletter series. Read the full newsletter here: The Engine – Issue 3

The Engine – Issue 3

Our Manufacturing & Engineering team have worked together to provide a national outlook on the issues facing the manufacturing and engineering sectors. The Engine – Issue 3 is available now!

Our publication is just one of the ways MHA member firms help manufacturing and engineering businesses and individuals. This issue contains information on: Capital Allowances that are currently available, the Authorised Economic Provider Scheme which should be considered by businesses that export goods and the Gatsby Benchmarks and how they can be used to address the skills gap.

Read the full newsletter here: The Engine – Issue 3

We hope you find our publication useful and if there is anything that you would like to discuss further or if you would like to speak with a member of our Manufacturing & Engineering team, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with your local representative.

MHA Manufacturing & Engineering Survey Report 2018/19

Our annual 2018/19 Manufacturing & Engineering Report will be launched in February 2019. Here’s our 2017/18 Manufacturing & Engineering Report.

Succession Blog Issue 4 – Planning Your Exit and Retirement

RetirementIn the previous blog we explored the importance of advisers in assisting to control the MBO process and achieve a successful buy out. This blog focuses on the optimum amount of time you need to plan for your retirement.

There is an argument that you don’t need to plan as it is a distraction from doing what you love, which is running the business and servicing your customers. However, this makes it difficult for the day when you have to retire through incapacity or death.

One of the many problems with this approach is that it means that your loved ones have to sort out the mess that may ensue. If there is a forced sale of the business at this stage, there will be a big reduction in any value attributed to goodwill. At the very least, if you do follow this ‘head in the sand’ approach, then take out critical illness cover or a life policy to make up for the loss in goodwill.

Is One Year Before Your Retirement Date Sufficient Time to Start Planning?

Probably not. Most business valuations are based on the last three years accounts, so one year only allows for minimal planning and business improvement. For example, any new recruits will need a period of time to be found and settle in before they make improvements to profit.

What About Two Years?

That is more like it, but some matters need more that two years to address. For example, the recent budget announced that shares would have to be held for a minimum of two years before Entrepreneurs’ Relief would apply, and so allow a 10% rate as opposed to a 28% rate of tax on the capital gain. Even that is an over simplistic summary of the relief!

Surely Three Years Must be Enough?

In short, this is probably the right amount of  time in most situations. The serial investors and those in private equity who buy and sell businesses many times over always start to plan their exit before they even purchase the shares in the first place. Any MBO team looking for private equity funding needs to consider the eventual exit in their business plan.

Conversely, if you are approached by a potential buyer and you are unprepared, you run the risk of either missing out and the buyer invests in one of your competitors or of being attracted to sell at a price that is below your true potential.

How about starting to plan your exit strategy now? Take advice on tax, corporate finance and private wealth management early to ensure you are well prepared and your business is resilient!

If you have any questions or if you would like to discuss this with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in contact with a member of our Corporate Finance team.

This article originally appeared on the blog of our member firm, Tait Walker.

Managing Conflict

Managing Conflict

What to do when Conflict Arises

… Exploring the impact conflict has on charities and the role of boards in using conflict, complaints and controversy as a way of ‘health-checking’ and improving their organisations…

Let’s face it, not many of us are good at handling conflict. However, is conflict always a bad thing in the context of charity governance, or can it assist boards in making good decisions which further their charitable objects and act as a catalyst for positive change?

The answer of course depends on a number of factors; not least being the root cause of the conflict, how long it lasts and what form it takes. Public confidence in charities remains at similar levels to 2016, despite trust in charities being badly knocked in 2016 and 2018, by controversies surrounding Age UK, Kids Company and more recently, the Oxfam scandal. High profile reputational conflicts and protracted controversies like these are almost always damaging and usually have serious consequences for the charities involved.

For example, as the Oxfam story unfolded, the charity lost thousands of its regular donors, and at its height, the issue even appeared to threaten the UK government’s commitment to spend 0.7% of gross national income on foreign aid. A quick glance at the articles in this publication confirms that conflict in the charity sector can come without warning and for very different reasons. However, given that most charities are involved one way or another with people and depend on volunteers, who are often passionate about the cause, then some degree of conflict may be unavoidable.

Managing Conflict

Managing conflict is almost always time consuming, it can be demoralising and is often damaging to key relationships. It can also, as in the case of Oxfam, be costly. Prolonged periods of conflict undermine confidence, unsettles trustees and diverts managers. Charities large or small, seldom in my experience flourish during times of conflict. Although, occasionally conflict may in fact be a good thing.

Charities are accountable to their beneficiaries and stakeholders and should listen to and value their feedback, even if at times it’s uncomfortable to hear. The stakeholder theory of governance recognises that a wide range of people and groups are likely to have valid and varying interests in charities and effective governance negotiates and resolves conflicts between them. To put it another way, challenges stemming from stakeholders expressing different opinions, if effectively managed, can be a driver of improvement.

Constructive Challenge

Although listening and responding to stakeholders is essential, it’s important to appreciate that people have mixed motives for being involved with charities, not always altruistic, and the challenge for boards and chairs in particular, is to recognise the difference between constructive challenge and damaging conflict.

Constructive challenge has its origins in creativity; it respectfully questions conventional wisdom, is values driven, and is focussed on mission. Whereas outright conflict frequently stems from individuals or factions seeking greater influence, is distracting from mission, is occasionally personality driven and can be costly.

Outcomes from charity conflicts and disputes that I’ve seen over more than 30 years in the sector include, disruptive and costly extraordinary general meetings (EGMs); chairs and chief executives’ resignations; senior staff being sacked; independent investigations; serious incidents being reported to the Charity Commission; key staff leaving; damaging publicity; lost contracts; funders withdrawing and large legal bills. Therefore, conflict should never be ignored, or treated lightly, it calls for skilful management and sound judgement.

The Role of the Board

Governance plays a vital role in a charity and effective governance includes successfully managing conflict. Importantly, as conflicts bubble-up it’s rarely clear at the outset what wider implications there might be; therefore conflict resolution requires timely attention by trustees and senior managers. However, monitoring conflicts and complaints and how they’re being resolved can provide boards with valuable insights into organisational morale and underlying cultural issues.

The health and social care regulator, the Care Quality Commission (CQC) is particularly interested in this aspect of scrutiny by non-executive boards – asking as part of their rigorous inspection process, what ‘line-of-sight’ does the board have from the board-room to front line services? How are trustees in practice ‘temperature checking’ the health and underpinning culture of the organisation? Is this organisation well-led?

To shockingly illustrate the importance of boards being alert to these warning ‘signals’, as many as 1,200 patients died as a result of poor care at Stafford hospital, a small district general hospital in the West Midlands. Governance doesn’t get any more serious than this.

In his public inquiry report, Robert Francis QC made it clear that the board of Stafford Hospital was primarily responsible for the failure of leadership that enabled poor standards of care to go unaddressed for so long. In other words, it was a shocking failure of governance. However, at the time, conflicts between staff and mangers and crucially complaints made by distressed relatives were characterised by some senior managers as vexatious, or fault-finding, and were tragically brushed aside.

Practicing effective governance is demanding, but mature boards understand that in managing conflict and complaints, the ‘buck stops with them.’

Being an Effective Trustee

There are many similarities in the role and responsibilities between charity trustees and health trust non-executive directors and the Mid Staffs health inquiry provides vital lessons for trustees and charity boards alike. Regulatory and policy developments since Mid Staffs have been a valuable driver of improvement in all aspects of governance practice in the UK.

Being an effective trustee is not easy, in part because you’re dependent on others for information about what’s going on across the organisation. If a powerful chief executive tells her board that a conflict simmering between managers and volunteers is nothing for trustees to be concerned about, it can be hard to challenge that view. In order to be effective, trustees need to be as well informed as possible, they need to engage with their stakeholders and be prepared to constructively challenge the executive. In short, to create some respectful conflict of their own.

Recent research from Birmingham University and the Nuffield Trust highlights the value of a ‘restless board’ that seeks to constantly compare itself with others and find ways to improve. Trustees should regularly visit frontline services, they should encourage routine meetings with stakeholders and regularly engage with the life of the charity beyond the boardroom. They need to be curious, welcome dialogue with stakeholders and be vigilant when conflict and complaints arise.

If you have any questions or if you would like to discuss this with us in more detail, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with a member of our Not for Profit team.

This article is from our Using Conflict as a Catalyst for Change report, a guide to help you embrace, manage and mitigate conflict within your charity.

Conflicts Between Transparency and Your Charity’s Reputation

Transparency

Ensuring Your Reputation is at the Forefront of all Your Activities

We expect you well remember the ugly headlines generated by scandals at Oxfam, Save the Children and the Presidents Club Charitable Trust. The reputation of charities has taken a beating in the years since the collapse of Kids Company and these recent events, and the size and profile of the charities involved has sent shock waves through the sector. As the news about misconduct on Oxfam projects broke, the charity didn’t just come under fire over the actual events, but also how it handled the news once it became public. High profile casualties followed, with the CEO of Oxfam GB stepping down at the end of 2018 in order to allow someone else to ‘rebuild’ the charity (and public confidence). Whilst the original misdeeds are important, a main criticism of Oxfam from the Charity Commission was that, although Oxfam reported the incident to them, it didn’t provide enough detail of the full circumstances.

This all emphasises that, as a charity board of trustees, or as a charity leader, you need to think about how you will guard your charity’s reputation both with the public and with the Charity Commission. Often there is a conflict between wanting to keep things private and the expectation to be open and transparent, particularly with the Charity Commission.

Reputation with the Public – Different Expectations

If the public’s trust in charities falls, then it’s feared that a general fall in donations will follow. In the Charity Commission’s recent study into the key drivers of trust in charities, high up this list were transparency and good governance.

This is in stark contrast to the commercial world where transparency is not the norm. Aside from the biggest companies, there is no desire to disclose too much information – comparing the detail in the trustees’ report for a charity with £1 million income to the Directors’ Report for a similar size company shows the reality of this. The introduction of the Strategic Report for medium and large companies has gone some way to redress this balance, but the fact remains that the public judges charities more harshly than the commercial sector.

In recent cases where companies have disclosed frauds or inaccurate financial statements, aside from a couple of high profile resignations, it seems these can be largely brushed under the carpet. The impact for charities is more serious. Oxfam and Save the Children are having to work with their major institutional donors to rebuild trust in order to secure future funding. The Presidents Club Charitable Trust was wound up in light of adverse publicity and loss of reputation. The charitable sector needs to be taking action, and this is where the Charity Commission is acting.

Reputation with the Charity Commission – Report any Incidents

The regulator has been vocal in its criticism of the sector for not reporting serious incidents to them. When trustees have reported an incident, then the Charity Commission say they can add their support to ensure that appropriate action has been taken – as they were apparently unable to do with Oxfam.

Why Should you Report?

When an incident occurs, the onus is on a charity to take action quickly to reduce the risk of further harm and to show that it’s taking the matter seriously. This will demonstrate that it’s protecting its assets, reputation and beneficiaries. The Charity Commission is responsible for ensuring charities comply with their legal duties and manage the incident responsibly, and therefore needs to be informed of threats.

Telling them in a timely manner means that the Charity Commission may be able to offer advice or guidance which could help you. Where a matter is more serious, the Charity Commission may need to intervene (using protective powers) to help you get back on track. The act of reporting gives the Commission the information that they need to be able to manage the risks to you and the sector as a whole.

What Should you Report?

The Charity Commission needs to be told the details of a serious incident. This is broadly defined as any adverse event (actual or alleged) which causes significant loss of (or risk to) a charity’s assets or money, damage to a charity’s property or harm to a charity’s work, beneficiaries or reputation. Examples include frauds, theft, significant financial losses or safeguarding issues.

It’s worth noting that significant financial losses include ‘losing significant institutional donors, public funding or key delivery contracts and being unable to replace these in order to ensure the charity’s survival.’ It’s ultimately the trustees who are responsible for reporting serious incidents and there should be clear planning to make sure it happens. New guidance on this was issued by the Charity Commission last year (How to report a serious incident). This includes how to make the report and what to include.

Reports of serious incidents should be made as soon as possible after they come to light. Make sure that enough detail is included and that the actions taken are specified. The most important thing is to report on what has happened and what you have done about it. You need to report to the Charity Commission even if you have already told other authorities.

Take Action – Have a Plan

If something does happen, you need to have a plan in place to manage the incident and to communicate it. This should include:

  • How you will take immediate action and who is responsible for taking it.

  • Who is responsible for reporting the incident and what will be included in the report.

  • How staff, the public and the press will be informed and who will be responsible for this.

  • What form an internal investigation will take and whether additional skills will be needed.

  • What will be done to prevent it from happening again.

Before it Gets This Far

Prevention is of course better than cure and you can take steps to reduce the risk of incidents happening:

  • Review your governance – Charity Commission guidance called ‘Charity Governance, finance and resilience: 15 questions trustees should ask’ is a good starting point for this. This could lead to some interesting discussion at all levels. The Charity Governance Code is also well worth considering.

  • Consider fundraising practices – especially if you use third party fundraisers or dedicated websites. Trustees are responsible for the practices used by these agencies and you will need to make sure they comply with the Fundraising Regulator’s code and GDPR. Registering with the Fundraising Regulator yourself can send a strong message that you are committed to best practice.

  • Keep up to date – donors rely on your website and the public record to gather information about charities, so make sure that your details are up to date at the Charity Commission and Companies House.

This list is not exhaustive and this is certainly an area that all charities should discuss at board, executive and staff levels.

Further Reading

Public trust and confidence in charities​

How to report a serious incident in your charity

Charity governance, finance and resilience: 15 questions trustees should ask

Charity Governance Code

If you would like advice on any of these areas, or if you feel that your board or staff would benefit from training, please contact Hannah Farmborough or call on 0207 429 4147 to be put in touch with a member of our Not for Profit team.

This article is from our Using Conflict as a Catalyst for Change report, a guide to help you embrace, manage and mitigate conflict within your charity.