Posts tagged ‘Remuneration’

Well it really depends on what you mean by paid.


your time is a valuable resourceIt is true that a Trustee can not be paid for the time and skills committed to assisting the charity.  This is to prevent conflicts of interest when a Trustees personal decisions are not necessarily in line with those of the charity, and ensures that the charity sector doesn’t ruin the trust it has built with the public with media stories of fat cat bonuses, like the banking sector are still trying to shrug off.


California StreetA Trustee should not however, be out of pocket.  It is one thing to donate your time, thoughts and energy to the cause, but to be financially worse off as a result is recognised by the Sector, after all attracting highly skilled people to take on the time commitment and huge responsibility of Trusteeship is difficult enough.

It is therefore considered acceptable to reimburse such as travel to Trustees meetings and specifically identifiable telephone call charges.

It is imperative however that the governing document (usually a Memorandum and Articles of Association, a Trust Deed or a Constitution) allows this.  Many of these documents have not been revised since the origin of the charity and more often than not prohibit any payment of charity funds to Trustees.

If expenses are allowed then Trustees should be careful to ensure adequate controls have been designed and fully implemented so that their governance of charitable funds is not questioned.  Your auditor should be able to advise whether the systems in place constitute “adequate controls”.


In the Charities Act 2011 which was implemented in phases between 2006 and 2011, it was acknowledged that in some circumstances it is perfectly logical and commercial for a Trustee to tender for work to be carried out for the charity.  For example, if a surveyor was a partner in a Chartered firm and a Trustee, it would be nonsense to engage the services of a different firm to offer advice regarding properties held, when the Trustee already knows the objectives of the charity, the opinions of the Trustees and the properties involved. He may even offer his professional services at a preferential rate.

Once again the Governing document may prohibit this, but assuming it doesn’t, the board must ensure that they are using charitable resources in the most effective manner and the Trustee in question must be removed from any decision making process in respect of his firm’s appointment.


This is bound to be a focus point of Charity Commission scrutiny, so make sure you read the guidance on their website and liaise with your auditor before considering this.

It is also possible to obtain the Commission’s approval, which I would recommend if the amounts involved are substantial or relate to non-commercial circumstances such as compensation for loss of earning because the Trustee was required to attend a meeting.

The Commission also has the power to override the governing document, which may be useful if time does not allow for the document to be amended and approved.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

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Along with the England flags and hopes of World Cup success the emergency budget is becoming a distant memory, but if you are in business you shouldn’t be so hasty.

Here at George Hay, we regularly advise on the advantages of incorporation and strongly believe that for the majority of small businesses it is the most tax efficient structure, as remuneration (profit distribution) for the owners/directors can be carefully planned to benefit their personal tax circumstances.  These savings can be particularly advantageous if you are operating as a family business.

Corporation Tax reduction

One of the main headlines of the budget was the reduction in the Corporation Tax rate by 1% making the Small Companies rate 20% from April 2011. This was good news for business owners but of course it only applies to those which are incorporated. Those who operate their business as either a sole trader or partnership are subject to Income Tax and National Insurance on their business profits so will instead be hit by the rise in National Insurance rates from April 2011.

The changes in the Corporation Tax rate and National Insurance rate along with forecast reductions in the basic rate threshold for individuals poses the usual question of should those in business consider incorporating and is it beneficial for everyone to do so?

Indicators do strongly suggest that it is widely beneficial for most owner managed businesses to incorporate and when doing the sums at the new rates from April 2011 the tax savings as a result of incorporation increase even more.

Risky Strategy?

There have been many attempts to try to curb the incorporation trend in the past due to the significant tax savings that can be achieved.  Gordon Brown aired his view that business owners are not paying the ‘right amount of tax’,  and we are sure HMRC will continue their expensive and difficult case in the courts.   But I personally have been advising on incorporation for over 10 years and it continues to be a successful strategy, so why not take advantage whilst the regulations allow it?  It is not something that can not be withdrawn from if circumstances change.

Real life example

In 2007 I was recommended to a small business that was earning very handsome profits due the unique nature of its trading activity.  On engagement I quickly did some sums (good old Excel!) and explained the value of Incorporating.  The owner immediately understood and asked me to incoporate the business without delay.  By involving his wife in the business strategy, she was able to take a ‘very nice’ Company Car and between them they saved and continue to save over £15,000 per annum in Tax and National Insurance.  If only they had sought advice years before…..

It’s not all about tax

Careful consideration should be given to incorporation and expert advice sought. It is not always the right choice for everyone and other factors come into play such as legal liability, increased regulation and therefore costs, disclosure of financial information and future business plans such as sale of the business but it is always worth thinking about.

For further details on the key announcements in the ‘Emergency Budget’ download a copy of our budget summary.

Disclaimer: This article is for general guidance only.  All taxation planning should only be undertaken after appropriate professional advice.  George Hay Chartered Accountants are registered to carry on audit work and regulated for a range of investment business activities by the Institute of Chartered Accountants in England and Wales.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

Fraud is often associated with loss of assets, but the non-financial impact can be far more damaging particularly in the 3rd sector where trust is paramount.

In a previous post I wrote about indicators of fraud, in this post I would like to address the impact it can have on an organisation, with particular emphasis on the not-for-profit sector.

Breach of Trust

Morale and trust can be severly altered by the discovery of fraud.  In a charity environment where income and assets are donated rather than earned through commercial activity, reputation and trust in paramount to survival. 


Charities are often considered to be more vulnerable, but are they?  In fact the incidence of fraud amoung the 3rd sector remains very low in comparison to commercial sectors.  In a survey conducted by The Fraud Advisory Panel, just 7% of respondents reported that their charitable organisations have been the victim of fraud within the previous two years.  In my opinion this incredibly low figure could be as a result of less fraud being detected or a culture that discourages whistleblowing, but never-the-less, 7% is remarkably low.

So why the perception?

  • Reliance on goodwill, generally being too trusting allows less ethical individuals to take advantage
  • Lack of supervision, particularly where the public are involved, for example during small fundraising events
  • Lower levels of management expertise or financial control
  • Less frequent or indepth training of staff and volunteers
  • Lower levels of remuneration

In my experience, many of these views are unfounded in most organisations, as the survey results confirm.

Financial Impact

Obviously the loss of assets is the easiest way to measure fraud, but have you considered the following?

  • The cost of management time dealing with the event and the resulting communications
  • The possible increase in insurance premiums, warranties etcetera
  • The cost of replacing the assets/cash
  • The loss of donations/sales resulting from the damage to goodwill
  • The cost of recruiting and training the staff/volunteers to replace those that have been removed due to their association with the event and those who have chosen to leave because of the emotional impact of the event.

Non-Financial Impact

Clearly the impact is difficult to quantify but should not be underestimated

  • Increased stress and negative affect on morale of internal and external stakeholders
  • Less favourable and/or negative messages in the Media
  • Loss of public trust, inherent goodwill and general interest in supporting the organisation
  • Lack of committment by volunteers and/or decline in numbers willing to volunteer
  • Exposure to further incidences of fraud as the organisation may be seen as vulnerable –  ‘an easy target’

I hope this information has provoked thought, in the next of this ‘fraud’ series, I intend to look at ways to reduce the risk of fraud occuring.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

During an economic downturn both individuals and organisations can suffer from adverse pressure, increasing the motivation for fraudulent behaviour.

Organisations are at risk from fraud both internally from employees and shareholders, and externally from suppliers, contractors and other organisations.

According to KPMG  (data: July 2009) more than 160 cases of serious fraud, worth in aggregate £636million came to UK courts in the first half of 2009, the highest number of cases in the 21 year history of the KMPG Fraud Barometer.

stationary thief

Research from BDO Stoy Hayward suggests fraud cost UK companies nearly £2.1bn last year, an increase of 76% from the previous year. 

Fraud has many guises such as ineligible claimants of state benefit, money laundering and unauthorised sharing of databases or intellectual property.

Fraudulent expenses claims are more common that you might imagine and whilst it may seem petty, the occasional raid of the stationery cupboard is still theft of the employers assets.

Internal Fraud: Warning signs might include

  • Staff who have personal financial problems or have lifestyles not commensurate with their remuneration
  • Employees who regularly arrive early or work late or appear to be under stress without a heavy workload
  • Staff under pressure from unrealistic targets set by management or heavy emphasis on performance related pay.
  • Internal and/or external complaints about certain people/teams
  • Unwillingness to delegate and/or reluctance to take holidays
  • Over-friendly relationships with external stakeholders
  • New staff resigning quickly as they are uncomfortable with ‘unusual behaviour’ but do not wish to report it

External Fraud: Warning signs might include

  • Insistance on dealing with one individual
  • Cash only or high volume, low value transactions
  • Unusual/sporadic payment behaviour
  • Increased prices without explanation
  • High staff turnover and/or lack of management control

Obviously,  these are only indicators and you should not accuse anyone just because their behaviours fit one of these points!

In a future post I will provide ideas on how to reduce the risk of fraud to your organisation.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.

History and culture has fuelled belief that Trustees can not be paid for their time, expertise or services rendered.  Whilst they should not be paid simply for acting as a Trustee, Chapter 9 of the Charities Act 2006 includes a statutory power that allows trustees and connected persons to be remunerated for goods and services they provide to the charity, subject to specific safeguards being in place to prevent abuse.

The biggest stumbling block is the governing document. 

As many charities were formed prior to the 2006 Act, standard clauses are often included in incorporation documents, constitutions or trust deeds that specifically prohibit trustee remuneration.  Obviously, this needs to be overcome before any further consideration can take place.  Amendments to governing documents are often complicated and time consuming due to their ‘public’ nature and may need to be approved by the Charity Commission.  Read guidance.


Assuming such a clause does not exist, the safeguards specifically mentioned by the 2006 Act are:

  • The trustees must demonstrate that they have consulted Charity Commission guidance and have decided that it would be in the charity’s best interest for the services to be provided by the trustee/connected person.
  • There must be a written agreement between the individual and the charity recording the terms of the arrangement and specifically the amount of remuneration agreed.  The individual being remunerated must not be involved in any decisions or other matters related to this agreement.
  • The amount of remuneration agreed to be paid by the Trustees must be reasonable for the level of service being provided.  In other words, there needs to be evidence that the Trustees are utilising resources in a commercial manner.  This is a key principle of Trusteeship.
  • Only a minority of Trustees can be remunerated in any form.  So if there is a small Board, take care.

A charity trustee should not be in a position where any personal interest may conflict with their role as a trustee.  They should not benefit directly or indirectly from their position whether through payment in money or benefits in kind.

A working example

A small charity has a part time bookkeeper who reports to a practicing accountant on the Board of Trustees. 

In order to qualify for a grant, the charity has been asked to put together a departmental cash flow forecast and some projected profit and loss accounts.  Obviously the person best placed to do this would be the Trustee as they understand the organisation and the requirements of the grant making body and have the relevant competancies, but they do not have the time.  They are in business full-time and offer their experience and personal time as a Trustee, for emotional motives. 

In the past, the Charity would have no choice but to engage an accountant to carry out this task, incurring professional fees, probably at full market rate as well as investing time to properly seek out, appoint and brief the professional.

The 2006 Act, acknowledges that it would make sense to engage the practice that their Trustee is involved with as this would be efficient and fees may well be negotiable.

In my view, this is a positive step towards making the 3rd sector more commercially aware, something I am passionate about.

The information provided in this blog illustrates my opinions and experiences, it does not constitute advice and I do not accept responsibility for any actions taken or refrained from as a result of reading this post.