Advice for Charities in the COVID-19 Crisis
Charities find themselves in the teeth of a perfect storm during this Covid-19 crisis – an increased demand for their services at a time when income has “fallen off a cliff” as donors rein in discretionary spend on charitable contributions, and those that rely on income from shops find themselves with closed shops and no income. Added to this is a regulatory regime that opens charities up to greater scrutiny, being the price they pay for charitable status.
In this article we look at some of the issues that are cropping up in relation to charities’ financial arrangements at this time.
What should charities be doing to protect their finances?
As with any business, the advice has to be to review financial plans in the context of short, medium and long-term priorities. In the current situation, can a proposed project be cancelled or pushed back from a short-term to a medium or longer-term priority? Is the charity doing things that go beyond its core aims and, if so, should it continue to do so? Trustees must have a very clear focus on meeting the essential spend and ensuring that financial plans are adjusted where necessary to ensure that this can be met. The Charity Commission has issued guidance on what questions trustees should be asking in making these decisions.
Is there any government assistance available to charities?
On 8 April 2020, the Chancellor of the Exchequer announced substantial funding to help support the charity sector during the COVID-19 pandemic:
- £370 million will support small local charities working with vulnerable people; and
- £360 million will be provided directly to charities providing essential services and supporting vulnerable people.
Furthermore, the Chancellor also emphasised that charities can access the ‘Coronavirus Job Retention Scheme’ and that charities can therefore furlough employees and make a claim on the scheme.
It is also possible that charities may be able to apply for a loan under the Coronavirus Business Interruption Loan Scheme (CBILS). The scheme accepts applications for a government-backed loan of up to £5m from any viable business with a turnover of up to £45m. The government will cover the first twelve months of interest and fees, and will guarantee 80% of any CBILS loan.
Finally, charities may also be able to access other measures announced for businesses and more information is available on the Gov.uk website
Should charities include information on the impact of COVID-19 in their accounts?
Yes, trustees are required to take into account any changes to their financial statements that could be needed to properly reflect the impact of the virus.
Can charities make use of the charity’s reserves in order to survive the crisis?
Yes, a charity can spend its reserves to help it cope with the crisis, this is exactly the sort of situation for which charities are advised to have some reserves.
You could also consider whether any other funds might be freed up, such as restricted or endowment funds. First you need to review the terms under which your charity’s assets are held. For example, ‘designated funds’ have been allocated by the trustees to be used for a specific purpose, but the trustees could re-categorise these as general funds.
Check your governing document to see if you can change the purposes of any restricted funds, or perhaps release restrictions on the use of capital from a permanent endowment (under some circumstance the latter would require Charity Commission approval).
Please note that the Commission’s COVID-19 guidance does advise charity trustees only to consider accessing restricted funds if other options (such as spending reserves) are not possible. You should also consider the long-term impacts of deciding to access or release restricted funds on your charity’s financial resilience and donor relationships.
Can we do any fundraising during the crisis?
Under the current restrictions it is not possible to do any fundraising on the street (face-to-face), door-to-door or by collections on private sites, nor hold any events that involve people gathering in one place. You should review your contracts with any third-party fundraising organisations for activities or campaigns that have been cancelled.
You may be able to continue fundraising by adjusting your practices (for example, by fundraisers working from home) to continue direct marketing by telephone, email, text message or post. Please bear in mind the need for fundraisers to be respectful and ensure that GDPR rules are followed.
It may also be possible to organise ‘virtual’ fundraising events such as e-sports or gaming events, or virtual races that can be completed alone.
The Fundraising Regulator gives advice on issues to consider if a fundraising event has been cancelled or postponed.
Can we claim Gift Aid on event refunds?
Charities (such as theatres and other cultural venues) that have cancelled events because of COVID-19 can claim Gift Aid on the value of tickets sold, if patrons agree not to receive a refund for the cost of the ticket, for that amount to be treated as a donation, and if they make a valid Gift Aid declaration.
In addition to the above linked guidance notes, various other bodies have published guidance on aspects of the running of charities during the pandemic which you may find useful:
Rix & Kay has a long-established reputation of working in partnership with charities and not-for-profit organisations. The firm is recognised as a leading practice in the charity sector by independent research directory, the Legal 500.