Charity SORP – FRSSE SORP v FRS 102 SORP – what’s changed?

Charity SORP – FRSSE SORP v FRS 102 SORP – what’s changed?

What’s changed with the latest charity SORP?

This is designed to act as a brief synopsis of the changes arising from the implementation of the two new versions of the Charities Statement of Recommended Practice (SORP). These are designated as the Charities SORP (FRS 102) and the Charities SORP (FRSSE).

Charity SORP mplementation dates

Both the FRS102 and FRSSE SORPS are effective for accounting periods commencing on or after 1 January 2015. So for example, a charity with a March year end will have its first set of accounts prepared under the new framework for its year ended 31 March 2016.

Consideration should also be given to the 2015 comparatives, since it is likely they will need restating under the new FRS 102 SORP. An opening balance sheet will also need to be prepared at 1 April 2014; which is known as the transition date.

FRSSE SORP

Note that the FRSSE SORP makes only limited changes and, as such, a number of changes appearing in FRS 102 SORP do not appear in the FRSSE SORP. To be eligible to use this SORP the company must meet the size criteria that define a small company or small group under the Companies Act 2006.

A charitable company currently qualifies as small if it meets two of the three criteria in both the current and preceding financial years: annual turnover < £6.5m; balance sheet total < £3.26m; average no of employees < 50.

Company

The FRSSE SORP requires fewer detailed disclosures than the FRS 102 SORP and also removes the inclusion of a mandatory cash flow statement (optional under the FRSSE SORP, mandatory for ‘large’ charities under FRS 102 SORP). In addition, many charities participate in multi-employer pension schemes and where the share of liability cannot be identified then the existing policy can be used (this is not permissible under the FRS 102 SORP).

The other significant change is that under FRSSE SORP goodwill has a rebuttable presumption that it has a finite useful life of no more than 20 years if the entity is unable to make a reliable estimate of its useful life.

Under FRS 102 SORP this finite life falls to 10 years.

FRS 102 SORP

Some key changes are highlighted below; please note that many are also applicable under the FRSSE SORP:

Trustees’ Annual Report

  • There is now a greater emphasis placed on identification of the risks and uncertainties faced by charities and how those risks will be managed.
  • Trustees will be required to compare the level of reserves to the policy put forward and explain how the current reserves will be brought into line with that policy.
  • The arrangements for setting the remuneration of key personnel must now be disclosed (benchmarks, conditions etc.).

Primary Statements

  • Governance costs are now included within support costs.
  • The headings for the Statement of Financial Activities have been simplified under the new SORP which will change the presentation.
  • Heritage assets should now be disclosed separately on the balance sheet where possible.
  • Social investments should be disclosed separately on the face of the balance sheet (where applicable).

Policies and Disclosures

  • Income should be recognised in the financial statements when it becomes ‘probable’ (previously ‘virtually certain’ under the old SORP 2005). The ‘measurement’ and ‘entitlement’ criteria remain unchanged. We anticipate that this will impact charities who achieve a large amount of income via legacies.
  • A liability should now be recognised in the balance sheet for unpaid holiday entitlement.
  • Goods that have been donated for resale should now be recognised when the charity first receives the goods as a gift unless impractical.
  • The going concern assessment requires a greater degree of consideration and disclosure in the accounts.
  • Financial instruments need to be classed as either ‘basic’ or ‘non-basic’ with ‘non-basic’ instruments requiring measurement at fair value at each balance sheet date.
  • The definition of related parties has now been expanded to include key management personnel.

More from our charity experts

You can find all of our latest charity sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Simon Bladen Partner

Simon Bladen is the partner responsible for looking after the firm’s legal clients and has worked at Hawsons throughout his career. For more information or advice on anything covered in this article, please contact Simon on [email protected] or 0114 226 7141.[/author_info]

Cuts in public funding to hit small charities hardest

Cuts in public funding to hit small charities hardest

Cuts in public funding to hit small charities hardest

New research has shown that the smallest charities in the UK – those with annual incomes of between £25,000 and £1m – have been the worst affected by the recent cuts in public funding.

Smaller charities the hardest hit

Recent research published by the Lloyds Bank Foundation highlights the impact that these funding cuts have had on smaller charities. The report shows that between 2008/09 and 2012/13 charities with annual incomes of between £100,000 and £500,000 have lost 44% of their income from local government.

In the same period, charities with annual incomes of between £500,000 and £1m have lost 40%.

In terms of central government funding, charities with annual incomes of between £100,000 and £500,000 have lost 26% of their funding, whilst charities with annual incomes of between £500,000 and £1m have lost 32% of their central government funds.

Department for Communities and Local Government (DCLG) funding cuts

The table below shows the real change in a selection of the hardest hit departmental budgets between 2010/11 and 2015/16.

The DCLG has taken the biggest hit of any department budget (in percentage terms) since 2010/11 – a staggering 51%.

Department funding cuts smallest charities

Sources: IFS

The communities-focused part of the DCLG’s government budget was reduced by 50% and direct grants to local government fell by 27% in real terms between 2010/11 and 2015/16. The department is now also facing further funding cuts.

As well as some of the other government departments (including the Department for Transport and the Department for Environment, Food and Rural Affairs) the DCLG recently agreed to cut 30% from its budget over the next four years after reaching a deal with the Treasury. The impact of more funding cuts for small charities cannot be understated.

Comment

Paul Wormald, Partner at Hawsons, commented: “Cuts to local authority budgets have in many ways been the silent killer for a lot of smaller charities across England and Wales. Charities are set to be subject to even tighter public funding and, although the challenges are not insurmountable, many smaller charities in particular are facing a difficult future.”

“The recent Lloyds Bank Foundation report found that 23,000 charities closed between 2008/09 and 2012/13, with many of those being organisations with annual incomes of less than £500,000. Without funding, a lot of smaller charities are struggling to stay open.”

“Smaller, local charities often fill niche gaps in community needs and provide invaluable support provisions for disadvantaged people. A lot of these organisations are facing major financial challenges, even in spite of their ongoing efforts to diversify their income streams.  Sourcing and sustaining new funding streams is getting harder; public trust in charities, for example, is at its lowest level since 2007 and of course this is having implications on fundraising and revenue streams.”

More from our charity experts

You can find all of our latest charity sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]

Rail electrification update – where now for CP5?

Rail electrification update – where now for CP5?

Rail Electrification update

You may recall that we have published two articles on the electrification and modernisation of the UK’s railways over the last six months – first when the plans were put on pause and, again, when the plans were re-commenced just three months ago.

In the latest development, Network Rail has confirmed it is planning to raise as much as £1.8bn through the sale of ‘non-core’ assets in order to complete its major infrastructure investments in CP5 (Control Period 2014-2019).

In this article we look at the details behind the need for additional funding, what the Network Rail is proposing and the possible implications for businesses, both directly involved in the transport and logistics sector and indirectly impacted by the outcome (such as retailers and hotels).

A new Network Rail report

Network Rail published a detailed 44 page report on the replanning of its investment programmes in November 2015.

The report found that additional funding is much-needed to meet the increased costs of projects -which are set to be hundreds of millions of pounds more than initial estimates – stating that “the core business plan for operating, maintaining and renewing the rail network has also needed to be updated as Network Rail is unable to achieve the savings assumed for the five year period.”

The report added that “it is clear that some of Network Rail’s early cost estimates, particularly for electrification schemes, were inadequate” and that it has undertaken an “extensive review of the cost and deliverability” of the investment programmes.

The Network Rail report in summary:

  • Initial cost estimates were inadequate;
  • An extra £2.5bn is required to complete CP5 projects;
  • The Department for Transport has granted a £700m increase in the borrowing limit;
  • The additional £1.8bn will be funded through the sale of ‘non-core’ assets;
  • There will be a reduction in renewals activity;
  • Additional funding will enable delivery of the vast majority of projects committed to in CP5;
  • Trans Pennine line to be completed by 2022;
  • Midland Main Line (Kettering/Corby) improvements to be completed by 2019;
  • Route to Sheffield to be completed by 2023.

The Network Rail’s saleable ‘non-core assets’ could include retail units at major stations, but the additional £1.8bn will mainly be funded through the sale of depots and land under railway arches. A small number of longer projects have seen costs escalate over budget, which the report put down to a range of factors including poor costing, inadequate planning, over-optimism of timescales and lack of skills and experiences within the workforce.

Promising signs, but a tricky future ahead for the rail freight sector

Investments related to freight activity will continue, mainly focusing on the international market. The Northern ports involved in container traffic and the switch to biomass as a fuel for power stations will also benefit the UK rail freight industry.

Despite the promising infrastructure investments though, the future closure of all of the UK’s coal-burning power plants, in conjunction with the decline in British steel output, leaves an increasingly uncertain future for the rail freight sector. Rail freight operators have had a tricky few months with the drop in coal traffic and steel traffic and the potential impacts on revenues.

Real electrification opportunities for local businesses

Paul Wormald, Partner at Hawsons, commented: “It is good that measures have been taken to deal with the CP5 projects that were cast into uncertainty by the pause last summer. Hopefully the delivery timetable will be realistic enough to allow the supply-chain to plan ahead.”

The business impact of Network Rail’s projects and funding

Paul added: “It must not be forgotten that the modernisation of Britain’s railway network is not only vital for the growth of the transport and logistics sector, but also vital for the growth of the wider economy.”

“Retailers, pubs, hotels, restaurants, tourist attractions and many other crucial UK business sectors will be hoping for an uplift in sales and revenues as a result. These are sectors that, despite a good 2015 on the backdrop of increasing consumer confidence following the recession, face an uncertain future. Rising input costs, particularly with the introduction of the new National Living Wage (and auto enrolment), is a big financial burden for many of these sectors.”

We have detailed analysis on the National Living Wage’s impact in retail and leisure and hospitality here.

“The recent Christmas period – including Black Friday and Cyber Monday – highlighted once again the transformational shift from shopping in high street stores to shopping online. It could be that greater connectivity and transportation links bring consumers back onto the high streets.”

The sale of the National Rail’s ‘non-core’ assets – including retail units – may also provide opportunities for businesses, but the downgrading of renewal plans will be a blow to those businesses delivering these services to Network Rail. It is also hoped that downgrading will not be to the detriment of safety on the network.

Questions to think about for business owners

Paul added: “It is not completely clear what impact the sales of Network Rail assets and reduction of renewal activity will have on business, but it is something that must be considered. Could more small businesses have the chance to open in high footfall stations? What alternative revenue will those businesses that face contract cutbacks bring in?”

“Those businesses, particularly within the retail and hospitality sectors should also start to consider the future implications of the Network Rail’s investment programmes. Is the region a good place to open a new pub, for example? It is important for businesses that are affected – or are going to be affected – to take advice.”

“What is clear, however, is that Network Rail will heed to plan more effectively going forward. It is also interesting to see that Network Rail is contributing £1.8bn to the funding pot rather than the whole additional funding coming from the government’s coffers. Overall, regardless of where the additional funding is sought from, this is an exciting time for the Sheffield City Region and East Midlands area.”

More from our transport and logistics experts

You can find all of our latest transport and logistics sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Paul Wormald is a partner at Hawsons, working in the Doncaster office. He worked previously with two national firms of Chartered Accountants prior to joining Hawsons in 2001. For more information or advice on anything covered in this article, please contact Paul on [email protected] or 01302 367 262.[/author_info]

The looming care home bed supply squeeze

The looming care home bed supply squeeze

Rising demand but a falling supply of care home beds?

We have commented numerous times how the care home sector has an optimistic future, despite its uncertain present, and this has now been compounded by recent research. The UK has an ageing population and research suggests that the number of people aged over 65 is set to rise by 10% over the next 5 years and by more than 40% in the next 17 years. Yet, during the same period, the number of beds available in care homes is forecast to fall.

Research by property consultants Knight Frank indicated that there was a net loss of 189 elderly care homes during the 12 months to September 2015.  If current trends continue, Knight Frank predicts the existing care home bed supply of 456,000 will fall to 444,700 by 2020.

Care home bed supply aqueeze

Source: UK Healthcare Development Opportunities 2015

Similarly, research from thinktank ResPublica forecasts as many as 37,000 beds (around 1,500 care homes) could be lost by 2020. The findings underline the scale of the problems facing the care home sector.

The financial impact on care home bed supply

Many care home operators are facing major challenges and, although the National Living Wage introduction has to happen to pay employees a fair wage, care homes will be arguably the biggest hit sector (almost 51% of employees will be affected by the changes by 2020, compared to the average of just 23% across all sectors).

In conjunction with this, local funding cuts and the consequent squeezes on fees paid by councils have seen many homes’ income stagnate whilst their costs are rising.

Research by LaingBuisson consultants found that the cost of running a care home is £554 per week; £42 more than the average fee (£512) paid by English councils. There is a significant funding gap and it is putting the immediate financial viability of the UK’s smallest care homes under very real threat.

Justin Bowden, National Officer at the GMB union, which represents thousands of care home employees, said: “You are looking potentially at several Southern Crosses in the next 12 months if something drastic is not done.”

Opportunities for high performing care homes and new entrants?

The rising demand of care home beds and aging population presents good news and big opportunities for high performing care homes and new entrants into the market. Those homes that innovate, cut down costs and operate more efficiency and pragmatically will be the most likely to attract more private residents and reap the benefits of an optimistic future.

We have spoken in detail before about the opportunities for innovation and financial efficiency, including a well-designed website, renewable energy sources and the use of technology in and around the care home.

Those care homes that prepare for tomorrow’s service users today will be the ones who are best placed to overcome the challenges they will face over the next few months and years.

More from our care sector experts

You can also find all of our latest care sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]

The 2016/17 GP contract

The 2016/17 GP contract

The 2016/17 GP contract – a 1% funding boost, but more bureaucracy

As I am sure you will have read by now, the belated 2016/17 GP contact negotiations between the GPC and NHS Employers have now finally concluded and the details published. The headline news is that GPs will receive a 1% pay uplift, but what does the 2016/17 GP contract announcement really mean for GPs?

The 2016/17 GP contract in summary

  • An additional £220m investment into the GP contract (a 3.2% funding uplift)
  • The additional investment to deliver a 1% pay uplift and reimbursement to meet rising costs
  • A commitment to a national strategy to reduce bureaucracy and manage demand on GP services
  • A 28% increase to the vaccination and immunisation item of service fees from £7.64 to £9.80
  • No disruption for practices from annual contract changes, with no new clinical workload schemes or changes to the Quality and Outcomes Framework (QOF)
  • An end to the dementia enhanced service with a transfer of resources to core funding

The contract also includes additional requirements for GPs to:

  • Record data on the availability of evening and weekend opening for routine appointments (collected until 2020/21)
  • Record annually the number of instances where a practice pays a locum doctor more than an indicative maximum rate, as set out by NHS England

….is that it?

GPC chairman Dr Chaand Nagpaul said: “…these limited changes provide some immediate financial support which for the first time in years recognises the expenses being incurred by practices and resources needed to deliver a pay uplift rather than a pay cut….”

“However, these changes do not detract from GPC’s ultimatum to government demanding a clear rescue plan to sustain general practice in the immediate and longer term. We now need to focus on the real battle to revive general practice and which will require far broader solutions than tweaking the annual contract.”

The 2016/17 GP contract uplifts are fairly underwhelming

Scott Sanderson, Partner and Healthcare Specialist at Hawsons, commented: “I would echo those comments from Dr Chaand Nagpaul; these are very limited changes and, in truth, the 2016/17 GP contract uplifts will fail to deliver the sustained support that the sector is in desperate need of.”

“With the hike in CQC fees, the introduction of the new National Living Wage – which will still bring cost increases to some areas of GP wage bills (cleaning for example) and on supplier prices – and the rising indemnity costs and changes to employers’ national insurance, GP practices are facing a number of major financial challenges. The additional NHS investment will be quickly swallowed up.”

“Fundamental reform must surely follow”

“Even with a focus on providing additional investments and a pay uplift, the 2016/17 GP contract still imposes two additional requirements for GPs, which means more bureaucracy and more red tape.”

“That being said, the GPC have done well to strike any kind of deal which leads to an increase in GP funding and investment; those cost increases are coming whether GPs see a pay uplift or a pay cut, and this is the first above inflation pay rise GPs have seen for a few years. In the immediacy this is a good deal – a step in the right direction – but fundamental reform of the GP contract must surely follow.”

More from our GP practice experts

You can find all of our latest GP practice sector news and newsletters here.

If you are looking for advice in a particular area, please get in touch with your usual Hawsons contact.

Alternatively, we offer all new clients a free initial meeting to have a discussion about their own personal circumstances – find out more or book your free initial meeting here. We have offices in Sheffield, Doncaster and Northampton.

Scott Sanderson

Scott Sanderson Partner

Scott Sanderson began his career with Hawsons and trained as a Chartered Accountant, becoming a partner in 2015, specialising in the healthcare sector and small businesses. For more details and advice, please contact Scott on [email protected] or 0114 266 7141.[/author_info]