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Netting of expenditure against income - charity accounts

I work for a homelessness charity: we pay for temporary accommodation (usually B&B) for rough sleepers as part of a new contract with our local council, then we have to claim housing benefit from the council. Can I net off our expenditure against the income? This is an issue for us this year as we will be very close to the £1m audit threshold and an income of over £1m affects our ability to bid for funding. This would enable us to stay under the threshold for the current financial year - as of next year we are aware that we will exceed the threshold and be subject to audit and have planned accordingly.

Answers

  • davealucasdavealucas LondonMAAT Posts: 71
    It would appear to me that you are actually collecting rent from the homeless person (a charity cannot claim housing benefit). On that basis, the charity should be treated as a landlord and as such all of your income would have to be declared.

    Trying to hide your income would not only be immoral but would probably result in an investigation by the Charity Commission into the conduct of your Trustees.
  • dsm2019dsm2019 MAAT Posts: 3
    Thank you for a very unhelpful and accusatory cmresoinse. You are incorrect in some of your assumptions and particularly judgemental that we are trying to hide money and would be subject to investigation by the CC. If we were trying to hide money, I would not be asking for advice on this forum. I will discuss this with our accountants if this is typical of advice here. Netting off income and expenditure is not a crime and perfectly acceptable in many situations - I was just trying to establish if this was one of those situations!
  • dsm2019dsm2019 MAAT Posts: 3
    Should read: ‘Accusatory response’
  • CSan89CSan89 MAAT Posts: 207
    dsm2019 said:

    Thank you for a very unhelpful and accusatory cmresoinse. You are incorrect in some of your assumptions and particularly judgemental that we are trying to hide money and would be subject to investigation by the CC.

    First point, replying to comments in this way is unlikely to get you much help, especially as @davealucas has some valid points.

    Second point, I would assume (with my limited knowledge on charity accounts) that if you are receiving grants from local councils this would have to be recorded as 'restricted income' with the temp accomodation put as expenses.

    My thinking is that of the VAT thereshold.
    If a builder buys materials and sells to the customer at cost, this is still included in the threshold figure even though they make no 'profit' from the material.

    The reason you want to net it off is to reduce your income below the audit threshold. As a charity, being transparent is key so this seems counterproductive.

    AAT Level 2&3 - 2016
    AAT Level 4 - 2017
    Personal Tax, Business Tax and External Auditing

    ACA/CTA -
    Certificate Level - Jan 2019
    MarieNoellefedemenniEllis
  • davealucasdavealucas LondonMAAT Posts: 71
    edited February 2019
    @CSan89 You have quite correctly made my point.

    @dsm2019 You are required by the Charities SORP to record your income as the actual amount received. There is no scope for "offsetting" any income for the purpose of reducing any thresholds. This is confirmed by section 5 of the SORP which deals with recognition of income.

    Paragraph 5.9 of the Charities SORP states "All income must be reported gross when raised by the Charity (or by volunteers working at the Charity's direction) or its' agents. Any fee charged for fundraising by a third party and deducted from the amount collected before it is remitted to the Charity must not be offset against fundraising income recognised in the accounts but be reported as a fundraising expense..."

    That paragraph specifically mentions fundraising but the principle applies to all Charitable Income.
    mskaatCSan89fedemenni
  • fedemennifedemenni AATQB Posts: 64
    Working for a charity myself I can confirm the above.
    MarieNoelle
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