Consolidation and registering as a group

 consolidating and registering as a group image

Posted on 5 July 2016

Under the new reporting standards, charities reporting under Tiers 1 to 3 are required to assess whether they control another charity, or are controlled by another charity. The definition of control is “the power to govern the financial and operating policies of another entity so as to benefit from its activities”. This concept can be a bit challenging so there’s more information on our website to help.  If you determine that there is a control relationship, then a consolidated performance report or set of financial statements* will need to be prepared for the charity that has the control over the other entities. NB: This rule does not apply to Tier 4 entities who are the controlling charities. 

For example, a charity might have set up a trust specifically to handle the fundraising activities of the charity, and registered it as a separate charity on the register. The activities of the trust are completely controlled by the board of the main charity. Up until now, each of these registered charities would have had to supply its own financial statements with its annual return.

It is likely that under the new reporting standards, the board of the charity will identify that there is a control relationship over the trust and therefore for financial years ending on or after 31 March 2016, the main charity will have to file a consolidated performance report or financial statements which includes its own activities plus those of the trust. Additionally, the trust will also have to file its own performance report or financial statements which will just detail its own activities.

This requirement has got a lot of people thinking, and we have had several questions about how charities can make things simpler for themselves especially if they have multiple related charities registered separately on the Charities Register.

One way to simplify things would be to apply to Charities Services to make the multiple registered charities into a group. If we took the example above, if the application was accepted, instead of requiring a performance report or set of financial statements for each of the registered charities, there would be one group and the charity would need to file only one consolidated performance report or set of financial statements. It is important to note that the grouped charities still retain their own registration number, but the reporting process is streamlined. More information on the group registration process can be found on our website.

The key things to consider are:
  1. Performance reports submitted as part of a charity’s annual return are publicly available on our website. If your charity only files a consolidated report, will this satisfy the needs of your stakeholders, or would it be better for the public to be able to access individual reports for each part of your group?
  2. Charities Services can only approve reporting terms and conditions that align with the new reporting standards i.e. there must be a control relationship as per the definition of control in the standard. Therefore, you need to first carefully consider the relationships between your entities to decide where the control lies.
  3. Although charities electing to follow the Tier 4 reporting standard are not required to consolidate, you may decide that it is more efficient to do so if you have multiple Tier 4 registered charities with a control relationship. If you decide to consolidate then you must opt up to the Tier 3 standard so consideration needs to be given to the benefits and costs of such an action.
  4. It is up to your charity, not Charities Services to decide whether there is a control relationship. This is because you are in a much better position to assess the way your organisation operates.
There are also some practical issues that need to be addressed before a group can be approved:
  1. Each member of the proposed group must be up to date with their annual return filing; and 
  2. All of the members of the group must have the same end of financial year or balance date. If they don’t, this will need to be changed both with Charities Services and also with any other registers the charity is on e.g. the Incorporated Societies Register.   

Charities Services are here to help and make things work for you, so if you have any questions please do not hesitate to contact us on 0508 CHARITIES or

* The Performance report is the new name for the financial and non-financial information prepared by Tier 3 and 4 charities in accordance with the new reporting standards that you upload as an attachment to your annual return. Tiers 1 and 2 prepare financial statements. For more information please see our website.

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