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Charities – What action can you take in time of crisis?

Many charities are facing a significant reduction in their income at a time when the demand for their services for the needy and vulnerable is at its highest.

So can you, and how do you, weather the storm?

Are you able to draw down on reserves?

Some charities may have unrestricted reserves that they can draw down on, but the emphasis for charities in the past has been to spend their funds on charitable purposes, with a reserves policy covering a limited number of month’s expenditure for the worst-case scenario. That worst-case scenario may now be here.

Do you have restricted reserves that may be repurposed with the approval of donors or funders to allow the charity to financially sustain itself?

Where you have service agreements with local authorities, can you talk to them re supporting your business continuity?

The government recently issued procurement guidance to contracting authorities to encourage them to support their suppliers, including charities. This includes informing suppliers that they will be paid as normal even if the scope of their services is reduced as a result of Covid-19. The guidance also encourages local authorities putting in place payment measures to support supplier cashflow, varying if appropriate payment by results and possibly redeploying supplier resources to other areas. The full guidance can be found here.

Can you take advantage of the government’s financial support measures?

  • If your charity is registered for VAT, seriously consider deferring this quarter’s VAT payment until the end of the financial year
  • Can you delay other payments to HMRC under agreed Time to Pay arrangements (including PAYE/NI)? We are aware of some particularly hard-hit charities doing this to aid cash flow, but you need to contact HMRC direct and have a plan of when you will be able to resume payments. Interest will be charged on overdue amounts
  • Can you furlough any employees under the government’s Job Retention Scheme? The government has clarified that charities are covered by the scheme. Many charities have questioned whether they can really furlough staff that are needed in their continuing service delivery, or where the team are covering a variety of different roles in the charity. In addition, there needs to be clarity over whether contracts with local authorities (ie public funding) are ineligible for the Job Retention Scheme. There has been lobbying for further support from the government for charities, including possible relaxation of the furloughing rules, so watch this space…
  • Can you apply for a Cornavirus Business Interruption Loan? The government has made it clear that charities are eligible for the scheme, so you should contact your usual banking contact. You can read our separate article on loans here
  • From 4 May there is the Business Bounce Back loan scheme, with loans of up to £50,000.The scheme is capped at 25 per cent of turnover and promises a streamlined application process, a response to criticism that not enough struggling businesses are able to access the current Business Interruption Loan scheme. See our separate article here.
  • On 8 April the Government announced a package of £750 million support for charities, with £360 million going direct from government departments to identified charities, and £370 million being made available as grants to small and medium sized charities “at the heart of local communities which are making a big difference during the outbreak, including those delivering food, essential medicines and providing financial advice.” More information will be released in the coming weeks.

We are running regular fortnightly online forums via the Third Sector Strategy Group (TSSG). These allow trustees and executives of charities and not-for-profits to keep in touch and share ideas and best practice.

If you would like to join us online, please email richard.miller@dafferns.com.

Useful links for charities:

Coronavirus (COVID-19) guidance for the charity sector – click here

NCVO guidance for charities – click here