We have previously reported that the Annual Return 2023 will have more compulsory questions than in previous years, but not as many as originally proposed following feedback from stakeholders (see ICAEW’s consultation response). The updated Annual Return (AR23) will apply to charities’ financial years ending on or after 1 January 2023. In this article, we are looking at the new questions in more detail.

The new AR23 questions will provide more information to the Charity Commission in nine key areas, including income, expenditure, organisational structures, staffing, governance and risk. Here, we examine which charities need to answer the new questions, what information they need to have to hand, and how the Commission will utilise the additional insights.

Who? All charities, now including those with gross income below £500k.

What? Confirm the total value of the following income streams: donations and legacies, charitable activities, other trading activities, and investments.

Why? The Commission believes that this will help identify charities that are dependent on a single income stream and susceptible to financial risks from reduced income and other economic changes.

What else? Charities with income above £100k also need to declare the value of the single highest value donations received from a corporate donor, an individual, and a related party donor. This will allow the Commission a greater understanding of financial dependencies and potential conflicts of interest.

Who? Charities that mainly carry out their purposes by making grants to individuals or organisations.

What? Confirm the value of grants to individuals, other charities and non-charitable organisations.

Why? The Commission believes that this will help determine financial risk and act as an early warning sign of financial instability in the charity sector.

What else? Charities also need to declare details of grants made to related parties.

Who? Charities that spend money outside the UK. This excludes non-cash adjustments such as depreciation of assets

What? Confirm the value of money sent abroad using a method other than the regulated banking system.

Why? The Commission believes that the question will promote compliance with trustees’ legal obligations and help the Commission identify new forms of transfer methods which will help the regulator respond to evolving risks.

What else? Charities also need to confirm how money was transferred (if outside the regulated banking system), selecting from several options such as IVTS, MSBs, cash couriers, cryptocurrency etc.

Who? All charities.

What? Confirm whether the charity has any trading subsidiaries or has dissolved a trading subsidiary during the period.

Why? This will form part of assessing risk to the ongoing operations of the charity.

What else? Charities with trading subsidiaries are asked how many of the charity’s trustees are also directors of the trading subsidiary.

Who? All charities.

What? Confirm whether the charity’s public address on the Register of Charities is correct and whether it is the same as the charity’s administrative headquarters.

Why? To enhance accountability, keep the Register up to date and help the Commission act in a targeted manner when geographical risks are identified.

What else? Unincorporated charities are asked to confirm whether any of the charity’s properties were held by holding or custodian trustees on behalf of the charity.

Who? All charities.

What? Confirm whether the charity is part of a wider group structure with a parent body and subsidiary bodies and explain the charity’s position within the group.

Why? The Commission will use this information to identify and help prevent common risks across certain categories or groups of charities.

What else? Charities are asked if they have members, other than trustees, who are entitled to vote under the charity’s governing document.

Who? All charities.

What? Confirm the number of employees with a breakdown of those on permanent contracts, fixed-term contracts and self-employed people working for the charity, and state how many of these people work outside of the UK on behalf of the charity.

Why? The Commission will use this information to assess the resilience of the sector and to understand impact on employment in the sector.

What else? Charities are asked to state the total amount spent on employee payroll, the number of employees falling into defined income brackets (for those with total employment benefits of £60k+), and the value of the total employee benefits provided to the charity’s highest paid employee.

Who? All charities (except subsidiary charities).

What? Confirm which of 13 suggested policies and procedures the charity had in place at the end of the return period.

Why? The Commission will use this information to encourage and facilitate better administration of charities.

What else? The Commission does not expect all charities to implement all 13 suggested policies and procedures as relevance will depend on the charity’s size, nature and activities. However, the Commission expects most charities to have policies and procedures on:

• internal charity financial controls
• financial
• risk management
• trustee expenses
• trustee conflicts of interest
• serious incident reporting policy

The Commission also asks trustees to consider policies on:

• investing charity funds
• engaging in political activity
• bullying and harassment

Who? All charities.

What? Confirm if the charity has provided services to children and/or adults at risk in the return period.

Why? The Commission will use this information to better target charities that have an increased safeguarding risk with communications and guidance.

What else? Charities answering affirmatively are also asked if they have obtained the required level of DBS checks for all relevant roles. Charities may also be asked about the positive and negative impact of significant external events (such as the COVID-19 pandemic) on income streams, costs, staffing and volunteering, demand and activities.

In total, charities will need to answer between 26 and 49 questions in AR23 depending on the charity’s size and operations. It will apply to charities’ financial years ending on or after 1 January 2023. These new questions will undoubtedly take up more of the trustees’ valuable time, so will it be worth it? The Charity Commission clearly believes that the additional information will provide valuable insights that will help the regulator identify areas of risks and other trends, and to target communications better and improve public trust.

But what’s the benefit for charities? While not the main purpose of the Annual Return, some of the new questions may prompt trustees to re-examine their risks and risk management. They can then add to their risk register and to introduce new policies and procedures to manage risks in their charities’ operations and governance, which will ultimately benefit charities navigating challenging times. The additional information may also provide valuable insights about trends and developments in the charity sector.

• Find more information on preparing a charity annual return, including the questions for previous return periods.