Charities cannot now report Gift Aid from their trading arms in their accounts until they actually receive it, unless they have a legal agreement in place, after changes were made to the Charities SORP.
It is one of a number of changes made by UK charity regulators to accounting rules this month and follows recommendations from a review by the Financial Reporting Council in December 2017. Charities will need to comply with this change for accounting periods beginning on or after 5 October.
The SORP committee published a bulletin published on 5 October saying that Gift Aid payments should not be accrued in the accounts of the parent charity “unless a legal obligation for the subsidiary to make the payment exists at the reporting date”.
It used to be common practice for both the charity and its trading subsidiary to accrue the Gift Aid payments arising from the trading subsidiary profits in the year that the profits were realised, even when Gift Aid payments were actually made after the year end.
Such Gift Aid payments were considered by some charities and auditors to be constructive obligations, accrued as liabilities in trading subsidiary accounts, and accrued as income by charities in their consolidated accounts.
But now, unless charities and their trading arm have a legal agreement such as a covenant in place, it is considered that there is no legal obligation and Gift Aid payments must not be recognised until they are paid to the charity.
The bulletin includes other changes to the SORP, which have all been made following the triennial review of FRS 102, produced by the Financial Reporting Council in December 2017.
One of these is a change to the standards for measuring the value of an investment property that a charity leases to a subsidiary.
This valuation used to be the price charities paid for a property, but charities will now be able to choose whether they value the property at the same price, less depreciation and impairments, or at fair value.
However, for properties held by a charity in fixed assets for their own use, there is no change.
*Article updated on 17 October to clarify scope of property valuation change