Many churches give money to support projects overseas. It is rare that they consider themselves ‘involved in’ or ‘running’ the project but they do recognise the significant value that relatively small amounts of UK sterling can bring to the church elsewhere.
UK churches tend to be very relational in the way they develop and manage their mission; we tend not to consider written agreements to be a key part of what we do, especially when we have seen a project, understood what the desired outcomes are, and trust those doing it to make it succeed. However, there is a place for a greater formality when money is at stake.
This is for several reasons:
- Misunderstandings can occur – especially when there are cultural and language differences. We all want to serve God and help those in need, but …… being humans we do start from different understandings. Also, situations change and our assumptions about what then happens can differ. It’s not wrong or right – just different.
- Tax outcomes can be different. We don’t normally think about tax in churches, but when giving money overseas we really should. HMRC have to manage a lot of different situations and, for reasons that I won’t go into here, the tax rules require written documentation depending upon the amount given and the circumstances. More on this below.
- Regulators recommend it, especially in some circumstances. This comes from years of experience of seeing ‘mess-ups’ and their desire to prevent naivety creating more of them!
Starting with ‘misunderstandings’
For example, in Britain we assume that if we give money expressly for a particular purpose it will only be used for that purpose. However, in some cultures that is not the case. A person to whom money or other resource is entrusted has a major say in how that money or resource will be used. If money is there, and another more urgent and equally legitimate requirement arises, then it is considered that the right (and obvious) thing to do is to use the money that is there (given for one purpose) for the different purpose that has arisen without telling the grant maker.
Moving on to tax
HMRC have set some specific guidance and regulations in place when charities pay money overseas. It is here in Section 9. Section 9.6 specifically refers to “guarantees or assurances that have been obtained from the overseas body that the payment will be applied for the purpose for which it was given (such as a partnership or other written enforceable agreements)”, and some examples indicate the sort of documentation expected. It is not enough to ‘trust’ that those at the other end will do what is expected.
In the 2023 Charity annual return questions, the Charity Commission asks in question 3.2 (Delivering charitable activities outside of the United Kingdom)
“Did your charity deliver charitable activities outside of the United Kingdom in the financial period of this return?”
This includes giving/granting money to organisations who work in that country. And unless the amounts are trivial, the next question is:
“Does your charity have formal written agreements in place with any partners delivering charitable activities on its behalf outside of the United Kingdom?”
It is good practice for charities to formalise in writing any agreements with partners or third parties delivering charitable services on its behalf. Where some written agreements are in place but not in all cases, you should answer ‘in part’.
They then go on to describe what they consider to be ‘formal written agreements’ as: “Usually in the form of a binding legal contract setting out the nature of the relationship and the respective roles and responsibilities of the charity and the partner. Find further guidance on written agreements with partners outside the United Kingdom and a template agreement."
It should be noted that the Commission explain, “There is no specific legal requirement to enter into a partnership agreement, but it is the main way, particularly where risks are high, that trustees can show they have properly protected the charity's legal position and have acted in its best interests. In some cases, unless trustees ensure one is in place, they may not be able to show they have met their legal duties.”
They go on to say, “A partnership agreement is usually a binding legal contract, although it will depend on how it is drafted. It usually sets out the nature of the relationship between a charity and the partner and outlines respective roles and responsibilities. Trustees may need to obtain professional advice before signing a legally binding agreement and should ensure it is signed by someone with an appropriate level of authority. The charity should also check the person signing the agreement on behalf of the partner has legal authority.”
The Commission go on to outline the issues that are covered (as a minimum good practice):
- about how the partnership will work,
- expected outcomes and deliverables, timelines and milestones,
- how much funding will be provided by the charity,
- when the work will be done,
- how results will be demonstrated and reporting and monitoring arrangements will work.
It also does not necessarily have to be in the form of a full-blown ‘partnership agreement’ – it does very much depend on what role the UK charity has in the work being done. If it is not in determining the shape of the project, being the main project funder or sending or receiving personnel for the project then ‘less may be more’. This is often as much about mutual understanding as clear legal documents, especially when the recipients aren’t used to legal contracts in how they do business.
When the nature of the work is less involved or amount of funding is small, we still recommend, as a minimum, a short ‘grant agreement’. This sets out what the funding is to be spent on, a guarantee that the funds will be refunded to the UK charity if not used in the way agreed, what reporting back is required and by when. This also helps to meet the HMRC requirements that they outline.
The Commission guidance does say, “If the amount of funding involved is very small, the arrangement is minor or insignificant and/or with very low risks involved, it may be proportionate not to have a written legal agreement.” But we would always recommend a clear e-mail trail on what the gift/grant was for and notes of key conversations or visits.
Alongside of this guidance we would also recommend reviewing the Charity Commission guide “Charities: how to manage risks when working internationally”
Relationships and trust
When introducing written agreements, one of the issues that can come up is the sense from the group overseas of “don’t you trust us?!” and sometimes, that this is like the colonial past when European ways of working were ‘imposed’ on overseas colonies.
This can be difficult and normally requires facing it early in the process as an understanding that this is not about ‘personal trust’ but it is about the legal and tax implications without which the gift becomes smaller, more difficult or impossible.
Legal documents in no way replace clear human communication and relationship but they certainly can help.
This is important to reduce misunderstandings, save tax, ensure the right thought has been put in place and demonstrate that the charity has done what it could to protect its investment (of money, time and reputation).
The work UK churches and charities do in sharing in the mission of Jesus, bringing His goodness to those across the globe and helping those in need is worth doing as well as we can. Written agreements are an unexciting but important support in achieving this vision.
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