Why Proper Planning Is Vital

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Una Murphy interviews Jenny Ebbage

Mary Portas revamping charity shops for a television series is the closest most people come to seeing charity and commerce collide. But as the UK officially goes back into recession, charities facing a big drop in donations and an increased demand for their services are thinking more about trading opportunities in order to generate cash.[divider][/divider]

Charities should watch out for the pitfalls is the advice from leading charity lawyer, Jenny Ebbage, Partner at Edwards and Company Solicitors, who organised a seminar on charities and trading issues at the new MAC building in Belfast.

“The dangers of drifting into trading without proper planning is my main message,” she said. Charities have to be very careful as they can only carry out trading activities in limited circumstances. Also the charity’s governance structure needs to be analysed, and if there is any risk to the charity you need to go back to the drawing board.”

She said that charities were operating in a challenging environment and there were traps for the unwary – with complex tax issues and complex legal issues as well. The articles of the trading subsidiary should be crafted to put in place safeguards to protect the charity and it was important to have a largely separate board from the charities’ trustees running the subsidiary – with people with commercial acumen and useful links in the business community asked to join.

It was important to have a distance between the two boards and hold separate meetings. It was not generally a good idea for the chairperson of the charity’s trustees to take on a similar role in the trading subsidiary – as there could be a problem with too much dominance by one person, Ms Ebbage said.

The rationale behind setting up the trading subsidiary was to remove risks from the charity and to make money for the charity, so the charity must be careful not to prop up a failing trading subsidiary, she said.

Senior representatives from large charities were among the invited audience who attended the ‘In Focus’ seminar. There was laughter from the audience when another speaker at the seminar, accountant Rosemary Peters-Gallagher OBE, from Moore Stephens, described VAT as “a nasty wee tax”.

“VAT is the tax that causes most grief not just for charities but for a lot of organisations” she said.

Jonathan McAlpin, of the Ulster Community Investment Trust (UCIT), said that the government’s ‘Big Society’ philosophy had pushed more public contracts into the charitable sector. UCIT finances social enterprise – “more than profit describes this sector better than not for profit”, he said.

Insurance expert, David Abrahams of Marsh Ltd, said that when setting up a trading entity, charities needed to think about the risks, including those associated with collaborating on joint ventures.

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