Gift aid payments in charitable groups
Accounting for gift aid payments in charitable groups truly is the gift that keeps on giving (!) and is a topic that we’ve covered in previous blogs, notably in September 2018.
Here’s a quick reminder of the basics, which were established last year:
- When subsidiary profits are gift-aided to a parent charity these are deemed to be distributions (akin to dividends) for legal and accounting purposes;
- A distribution is only allowed where there are profits for the purpose;
- The payment is presented in the statement of changes in equity (SOCIE), rather than in the profit and loss account of the subsidiary;
- If the payment is not made in the year in which the profits are made, an accrual cannot be made at the year-end by the subsidiary unless a deed of covenant is in place; and
- The tax benefit is anticipated in the year end profit and loss account of the subsidiary in the year in which the profits are made with no corresponding deferred tax adjustment.
In January 2019, the charity SORP committee produced a useful paper called INFORMATION SHEET 2 to clarify how the accounting should work.
Highlights in Information Sheet 2 are:
- A reminder that any adjustment to back out previous accruals made in error must be booked immediately because this is a correction of a prior period error;
- Any adjustment to change the tax treatment will be a change in accounting policy not the correction of an error and will not be mandatory until periods beginning on or after 1 January 2019;
- A reminder that, for some charities and their subsidiary undertakings, action will not be needed as they might already have been adopting the accounting treatment now required;
- A strong – and contentious – steer towards the need for symmetry in the books of the parent charity (i.e. if the subsidiary can’t accrue the payment, the parent can’t accrue the income); and
- Very helpful worked examples showing the presentation in the statement of income and retained earnings (SOIRE) of the subsidiary.
With this issue attracting a lot of attention last year, it’s one that some charities have already cleared up, but many haven’t – so with 31 March 2019 year ends looming large it’s an issue that needs looking at right now.
It’s a topic that we will be covering in detail on forthcoming Insight Training charity accounts courses and workshops, but, in the meantime, Information Sheet 2 is essential reading and can be downloaded from https://charitysorp.org/.
Peter Herbert
February 2019
