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Fundraising

Regulation and best practice to ensure that fundraising is effective and complies with the law.

Overview

Fundraising is a key source of income for many charities, and for some the only source. Fundraising is carried out in a number of ways such as organisation of special events, trading through charity shops, soliciting donations and street collections. All fundraising activities must be carried out in accordance with legal requirements and good practice.

The Charity Commission provides guidance in its publication CC20 Charities and fundraising.

Funds may be solicited in several different ways, for example by applying to public bodies or other charities for grants, or by mailshots (to existing donors or to people on a mailing list), by collections in public places (street collections), or by inviting members of the public to sign up to pay regular amounts to the charity by direct debit.

A form of fundraising that is of increasing interest to Government as well as the charity sector is social investment. This takes many forms but the main objective of ‘social investors’ (such as wealthy individuals and organisations) is to achieve certain social and environmental outcomes. One way of doing this is to provide funds to charities whose aims match the desired outcomes of the investor. Some, though not all, social investors expect a financial return on their investment, in the form of interest on money loaned.

Legal requirements

Fundraising must be carried out in accordance with applicable law and regulations and comply with any specific terms in the charity governing document. The Charities Act 2011, which is effective from 14 March 2012, doesn't replace the sections on fundraising in the Charities Act 2006 that haven't taken effect yet, such as those dealing with charitable collections in public places which can be found in Part 3 of the Charities Act 2006. The provisions of the 1992 Charities Act relating to control of fundraising for charitable institutions are still also in force.

Collections in public places (often referred to as ‘street collections’) are subject to local regulations made under the Police, Factories, etc (Miscellaneous Provisions) Act 1916, the Charitable Collections (Transitional Provisions) Order 1974 and the Street Collections (Metropolitan Police District) Regulations 1979. Under the regulations, a charity usually has to obtain a permit to carry out a street collection.

Fundraising by charities through trading and business activities may be subject to tax. There are VAT exemptions for charity fund-raising events.

Good practice

The Fundraising Standards Board (FRSB) is the self-regulatory body for the entire fundraising sector. The FRSB publishes Codes of Fundraising Practice developed by the Institute of Fundraising and a Fundraising Promise to which its members adhere. The FRSB was set up in 2006 and works with its member charities, suppliers and the wider charity sector to encourage commitment to and compliance with best practice in fundraising.

The Institute of Fundraising is the professional membership body for UK fundraising, supporting fundraisers through leadership, representation, standards-setting and education, and championing and promoting fundraising as a career choice.

Fundraising by means of inviting members of the public to sign up to pay regular amounts to the charity by direct debit (for example on the telephone or by calling at people’s houses) is referred to as 'face-to-face fundraising' or ‘F2F’. The Public Fundraising Regulatory Association (PFRA) is the charity-led membership body that self-regulates all forms of direct debit F2F.

Face-to-face fundraising is covered by a dedicated code of practice drawn up by the Institute of Fundraising, the Face-to-Face Activity Code of Fundraising Practice. All F2F fundraisers must abide by this code of practice, which is enforced by the PFRA through mechanisms such as a mystery shopping programme and a complaints procedure. The latter is mainly intended for use by local authority officers to report fundraisers who have breached site management agreements. However, PFRA will also respond, through the complaints procedure, to any members of the public who report an alleged breach of the F2F code of practice to it.

Grants vs Contracts

Grant

Defined by the SORP as “any voluntary payment (or other transfer of property) in favour of a person or institution. … [A grant] may be unconditional, or be subject to conditions which, if not satisfied by the recipient, may lead to the grant, or property acquired with the aid of the grant, or part of it, being reclaimed. Grants are therefore included under the ‘voluntary income’ heading in Part A of the Statement of Financial Activities’ in charities’ financial statements.

Grants may be restricted or unrestricted income, depending on any conditions attached to the grant, for example a grant for or towards the provision of specified services or the undertaking of a specific project will normally be treated as a restricted income grant.

Contract income

The difference between grant income and contract income is that the former is voluntary whereas contracts are normally legally binding between the payer and the charity: the payment is not then voluntary and is not a grant.

Contractual payments to the charity (for example, payment of invoices for the supply of goods or services) normally constitute unrestricted income. Contractual payments may be subject to VAT and there may be other tax implications.

More information on the definitions of grant and contract income, and the distinction between the two, is contained in the SORP.

Reporting

For charities with a gross income over £500,000 which are required to have an audit, the Charities SORP 2005 requires that the trustees comment on any fundraising activity undertaken during the year. Smaller charities might find this a useful activity to do as well.

The SORP contains specific requirements for the disclosure of “activities for generating funds” in charities’ Statement of Financial Activities (paragraphs 137 to 139). Care has to be taken about the provision of information by a charity in the context of a fundraising activity. A distinction has to be made and costs apportioned if necessary between publicity or information aimed at raising the profile of the charity which is associated with fundraising (costs of generating funds), and publicity or information that is provided in an educational manner in furtherance of the charity’s objectives (charitable expenditure) (SORP paragraphs 172 to 179).

In addition, the Institute of Fundraising Codes of Fundraising Practice include a Code for Accountability and Transparency in Fundraising.

Guidance and articles

New Gift Aid portal

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A number of British charities have been able to process over £100 million in charitable donations in the last six months and reclaim tax of over £25m, thanks to the new Gift Aid portal process introduced following the new HMRC guidelines.

How charitable family foundations spend

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Cathy Pharoah, Co-Director of the Centre for Charitable Giving and Philanthropy at Cass Business School, presents findings from the report “Family Foundation Giving Trends 2012”.