charities accounts and reports regulations | AccountingWEB

charities accounts and reports regulations

I am a highly skilled and well paid self-employed plasterer. But in way would I call or consider myself a 'professional' like you guys on this site. I regularly do my bit for charity by plastering for free things that need to be plastered. I have noticed a line in many charity accounts: 'Donated Professional Services'. Now where a charity employs modestly remunerated staff doing 'touchy feely stuff' , I assume that  since these 'services' would have no market value in the commercial world outside and hence no chargeable time could be attached, that is why no recipients of this largesse need to be identified.Unless it is computed purely upon time recharge basis. 

Now, why a charity which pays no tax on its profits would want or need to reduce those profits by phantom charges is not immediately obvious to me other than it makes them look more altruistic and 'big society' and therefore more worthy of public largesse.

So my question guys is this: is there anything in tax, accounting  law or accounting standards to stop me reducing my profits by putting a similar line in my own self-employed plasterer accounts? Since I can't ascribe time costs to my own work as a non professional, only if money changes hands?

DMGbus's picture

Contra / double entry

DMGbus | | Permalink

The debit (expense side) of value of free donated labour would need to be balanced by a credit (income side).

So, no net effect on the bottom line.

As I see it the idea / concept behind recognising (showing) the value of free donated time in charity accounts is the show how dedicated those who support the charity are.    I don't think all charities recognise a figure for donated free labour in their accounts - for example the local preservation light railway that my son works for free for doesn't have any such figures in its accounts (for a small charity like this one I doubt that they'd really want to start having to keep timesheets for volunteer labour then have to evaluate for annual accounts).

Turning to a commercial enterprise (such as a plasterer) accounts need to be drawn up on double entry principles (as a painter/decorator uncle once told me "for every debit you need to show a credit").  So, there are two tenable (justifiable) ways of showing your involvement with doing things for free or at less than cost for a local charity.

OPTION ONE (which I think is what most businesses do): Show nothing.  Time spent does not come in as income.  The books show no income nor expense.  The charity has received the benefit of free services.

OPTION TWO (watch the VAT!):

Show an income (value of free labour / services provided) then on the other side an equivalent deduction for donation to local charity.

EITHER WAY: Same effect on profit as in nil - just watch the VAT with OPTION TWO if you're VAT registered as HMRC would like a 20% piece of the action!!

It may be misleading not to show 'Donated Professional Services'

ringi | | Permalink

Say a charity operates children centre and that most of the building labour that is needed for maintenance is donated.  In a future your they may need to pay market rates for this maintenance, so without showing something for 'Donated Professional Services' in the report the report/accounts would be misleading.

Likewise for donated accounting services…

So a good case can be made for showing the 'Donated Professional Services' as “income” and the costs of the services as spending, as to whether this should be in the accounts, a note to the account or elsewhere in the annual report is a different matter.  

Gift Aid

reilloc | | Permalink

Gift Aid is another good reason for showing "DPS" in accounts. As long as the donator is paying tax, then any services that they donate could be assigned a cash value to enable tax to be reclaimed.

Add comment
Log in or register to post comments