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Gifts to members: church as charity and as family, simple?

By Alan Hough | 30 August 2017 | Comments (4)

 Gifts to members - a blog from Stewardship

Church as family and church as charity

We believe that church is a family and families often give to each other. However, most churches in the UK are also charities and as such are governed by Charity Law.  Now for much of what we do as churches these two concepts overlap each other.  Church operating as a family meets the legal requirements of church operating as a charity, but…

There are legitimate times when church wants to act as a family, but in so doing they are not acting in accordance with the legal requirements of a charity. There is no longer an overlap: the church is not acting as a charity and in murky waters.

Regardless of the nature of the charity, all charities can only spend money in pursuit of one of the 13 recognised charitable purposes. Spending money on activities which fall outside these prescribed purposes means that such expenditure is not charitable at all and as such may have serious tax and legal ramifications for the church.

 

What type of expenditure can cause problems?

  • Gifts given in recognition of a celebration (birthday, marriage, etc.)

As family we all love a good birthday party or marriage celebration, and the desire to give gifts is a natural one, but before we can pay for such gifts from the charity we need to be sure that the real purpose of the gift is for the charitable purpose of the church and not to celebrate with friends.  Celebrations where for example the primary reason is evangelism may be OK, but a simple straightforward birthday gift is unlikely to be charitable.

  • Thank you gifts

Once again it is understandable for churches to want to say thank you to people who have contributed to the running of the church, but doing so with money can introduce serious problems:

  • First, there is an issue of fairness: how do you decide who receives a gift and who does not?
  • Second, there may be a legal issue if the recipient is also a trustee;
  • Third, and particularly where gifts are regular, there is a danger of turning volunteers into employees with all the potential legislation which that brings; and
  • Fourth, returning to our central theme, is the gift charitable?

Some gifts are charitable, e.g. making a gift to someone coming to preach at a church service is recognised by both the Charity Commission and HMRC, so long as the amount paid is reasonable, but many gifts are not.

  • Favouritism

As churches we may be accused of using government subsidy (Gift Aid) to look after our own members, but ignoring those people in the community in greater need. There may be good reason for doing this, and there may be controls and procedures that you can put in place to help, but it does require a well-thought-through policy.

 

So what can you do?

One solution which we are seeing some churches adopt is to set up a separate fund kept outside of the church charity to pay for the types of family-but-not-charity  activities touched on above.  Such an independent fund will not form part of the charity accounts, cannot be topped up with money from the charity, and donations to it will not attract Gift Aid; but the fund itself would be of no consequence to either HMRC or the Charity Commission.  In essence, it is a group of friends supporting other friends with private gifts from private funds.

There are still issues of accountability, fairness and administration to deal with but holding this type of fund separate from the church charity can allow a church to continue operating as family in circumstances where it is not acting as a charity.

 

Conclusion

We want churches to be places of strong bonds of love and affection where there are no needy people, but we also want them to be models of good governance. Our briefing paper provides for a more in depth exploration of this area as you seek the best way for your church to move forward.


Read more...

What you can and can't do with your charity's money

What is an independent examination? 

Receipts and payments accounts; you might want to give it another look 

 

Briefing papers

Gifts to members

Making sense of fund accounting



 

comments:

Chris

September 6, 2017 9:55 AM
Would taking Church money outside the Charitable structure, to use for noncharitable activities not be fraudulent?

If it is Church's money and is not being disclosed to Charity Commission, Companies House and HMRC are you not actively making false disclosure to your regulatory bodies?

If it is not the Church's money and you are asking people to donate to it from within the Church then you are using the Charity to generate funds for a non-charity, which is outside of its Charitable activities causing the same problem you are trying to avoid?

Finally if a separate entity was formed to control the funds for noncharitable activities would this not fall under common control rules and be a subsidiary of the charity, therefore meaning that the Church would have to present group accounts which disclose this income, which could be taxable as It would be an income stream not being of a Charitable nature? As well as increasing any relevant Examination and Accounts preparation costs?

The issues raised are accurate issues but I cannot see how the solution suggested is legal let alone morally acceptable?

Chris

September 6, 2017 9:43 AM
Would taking Church money outside the Charitable structure, to use for noncharitable activities not be fraudulent?

If it is Church's money and is not being disclosed to Charity Commission, Companies House and HMRC are you not actively making false disclosure to your regulatory bodies?

If it is not the Church's money and you are asking people to donate to it from within the Church then you are using the Charity to generate funds for a non-charity, which is outside of its Charitable activities causing the same problem you are trying to avoid?

Finally if a separate entity was formed to control the funds for noncharitable activities would this not fall under common control rules and be a subsidiary of the charity, therefore meaning that the Church would have to present group accounts which disclose this income, which could be taxable as It would be an income stream not being of a Charitable nature? As well as increasing any relevant Examination and Accounts preparation costs?

The issues raised are accurate issues but I cannot see how the solution suggested is legal let alone morally acceptable?

Kevin Russell

September 6, 2017 3:52 PM
Thanks, Chris, for your comments. You raise some important points and some clarity is needed.

The key points are that:

- monies being raised should NOT be under the control of the church trustees and, as such, do not belong to the church;
- there is transparency.

So a church leader says something along the lines of:

"Bill and Jean are celebrating their Golden Wedding Anniversary next month, and Fred would like to organise a collection for them amongst their friends to help them celebrate. This is not a church thing but something that Fred thought that the church family may like to be involved in. If you would like to contribute, speak with Fred or John".

Neither Fred nor John are church trustees.

This is quite acceptable. It is a private collection amongst friends. Any monies raised are not part of the church's income and it has no interest in those funds. There is no fraud (which is a form of deception) involved and, as the trustees of the church do not have control over the funds, there is no question of them having to account for those funds.

For the frequency, and amounts involved, there would be no question of setting up a separate entity. It would just not be worth it. But again, the question to be asked would be who is in control of that entity.

That there is brief mention of the collection in a church setting should not taint the funds - it merely an expression of Christian love and, as such, the mention of the collection is an activity incidental to the charitable activities of the church.

I hope that helps to bring the clarity needed. As ever, with these things, it is important to get the detail right!

Kevin Russell

September 6, 2017 4:36 PM
Thanks, Chris, for your comments. You raise some important points and some clarity is needed.

The key points are that:

- monies being raised should NOT under the control of the church trustees and, as such, do not belong to the church;
- there is transparency.

So if a church leader says something along the lines of:

"Bill and Jean are celebrating their Golden Wedding Anniversary next month, and Fred would like to organise a collection for them amongst their friends to help them celebrate. This is not a church thing but something that Fred thought that the church family may like to be involved in. If you would like to contribute, speak with Fred or John". Neither Fred nor John are church trustees.

This is quite acceptable. It is a private collection amongst friends. Any monies raised are not part of the church's income and it has no interest in those funds. There is no fraud (which is a form of deception) involved and, as the trustees of the church do not have control over the funds, there is no question of them having to account for those funds.

For the frequency, and amounts involved, there would be no question of setting up a separate entity. It would just not be worth it. But again, the question to be asked would be who is in control of that entity.

That there is brief mention of the collection in a church setting should not taint the funds - it merely an expression of Christian love and, as such, the mention of the collection is an activity incidental to the charitable activities of the church.

I hope that helps to bring the clarity needed. As ever, with these things, it is important to get the detail right!

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