Is this what a charity is for?

Age UK, a registered charity, (a recent amalgamation of two similarly named charities), is in the lucrative retiree market that we IFA’s spend a lot of time courting.

According to its last published accounts on the Charity Commission website, they got half their  income from insurance commission (presumably from its trading arm Age UK Enterprises Limited Age -  a FSA Regulated business).

So I would see that as an insurance broker who does a bit of charity on the side. Which I do without the tax advantages of being a registered charity.

How can that be fair competition?

Comments

 Yes, it is what a charity is for.

jpcc1 | | Permalink

 

Yes, it is what a charity is for.

Age UK is a charity. It’s objectives are entirely charitable and it assists over one million beneficiaries.

It raises money from different sources and, as you say, a major factor is by trading, as you do.

 

It trades using wholly owned subsidiaries, that are subject to Corporation Tax, just a you are. Those subsidiaries do not pay Corporation Tax only because they donate all their profit to a registered charity (Age UK). You, too, could avoid all CT, by donating all your taxable profits to a registered charity.

 

The only trading tax advantage they gain over you is a relief from Business Rates.

As a tax payer and a council tax payer, I am happy that charities receive this relief. I would not be happy if commercial ventures, such as yours, whose objectives are commercial and profit making (ultimately for personal gain) received such a relief.

Paul Scholes's picture

"Not just for Christmas"

Paul Scholes | | Permalink

To my mind this is the acceptable face of capitalism and something that is happening in many areas of commerce, even "accountancy".

As traditional funding from public money drys up or is more difficulat to get and private benefactors draw in their horns, charities are moving into trading sectors to generate money for their charitable objectives.  This makes sense as many of their executives have come from the private sector plus many of the volunteers or semi-volunteers working for charities have their own skills in private commerce.

I don't see any unfair advantage at all, rather, because their ethos is to make the most of the money they have and care for their causes, they will tend to be far more resource & money efficient than a traditional commercial enterprise.  In other words, we should learn from them.

 

AnnaKournikovasKnickers's picture

Age UK

AnnaKournikovas... | | Permalink

All good tree hugging stuff guys. But paralogical I'm afraid. So why did the ICAEW have Rules regarding the amount of fees (commission) from financial services then? (20%)  Because they did not want their members to be insurance salesmen in the guise of, and with the kudos of, chartered accountants. That's why.

Paralogical ?

jpcc1 | | Permalink

 

You may not like it, but it’s not ‘paralogical’ at all. I think the ICAEW rules are to protect third parties from conflict of interest, rather than the institute not wanting to sell insurance per se,  but I’m not an ICAEW member, not in practice and not in financial services, so I could be wrong.

 

The issue seems to be that you have a chip on your shoulder that you do not have the same advantages that the charitable sector has.

 

Tough.

Society imposes more onerous demands on commercial trading organisations than charities because charities give more, and more directly, to society than commercial organisations do.

 

If you want to enjoy the advantages enjoyed by a charity become one, don’t draw a salary or other emoluments and use your profits for charitable objectives. If you don’t want to do that then trade on a commercial basis but stop whinging that the Great British Public think charities are more deserving of their largesse, in any form.

AnnaKournikovasKnickers's picture

Chip on shoulder?

AnnaKournikovas... | | Permalink

I went to the AGM of a local wildlife charity last week, and before voting on the accounts (together with the 100 or so others in the room) I read the accounts supplied  and also  the trading accounts, and asked a question*. Only to get a snotty e-mail the next morning from the charity telling me that I was a 'sad' person; ( apparently, anyone who actually reads the accounts before voting on them is 'sad' apparently). So I will now add 'chip on my shoulder' to my other shortcomings.

 

* Why was a 300% increase in DB pension contributions 'hidden' in the trading accounts was my question.

AnnaKournikovasKnickers's picture

Enjoying the advantages

AnnaKournikovas... | | Permalink

Are they as you say 'enjoying the advantages of a charity'? Or are they enjoying the advantages of hiding 5 series BMW's and final salary pension schemes

( remember those in the wealth creating sector of society?) hidden away in the trading accounts which they do not make available to 'the great British public " or their donors, or at least that part of it which is trusting and well-meaning and can be 'trusted' to not know where to look for the numbers? Selling clothes on the High Street under the Charity's name is pretty transparent and within the proper spirit of the tax law.. Getting involved in Regulated professional services under an unrelated name ( Look up 'AGE UK Insurance on the FSA Register) is avin a laff!

Paul Scholes's picture

Staying inside my pram

Paul Scholes | | Permalink

Anna you are absolutely right to question anything that smells funny or is not explained properly in charity accounts or activities.  Charities enjoy tax advantages but in order to do so the regs governing how they operate must be strict AND complied with.  There is a great temptation to cut corners or even to enter the charity sector with less than the best intentions and it's only by question & scrutiny that wrongs are discovered.

With regard to the commission rules for accountants, I can confirm that whatever the rules are, they are there to make sure that we do not get tempted away from best independant advice or practice because of the lure of generous commissions.  I'm old enough to remember pre 1986 (I think) when I was enabled to advise on and sell life assurance, pensions etc, but even then, if any commission came my way, it just came off my fee to the client with any surplus refunded to them.  Horses for courses, it was not my forte, nor did I want it to be.

Having said all that, and assuming that doubtful practices in the charitable (Third) sector are minimal (or no more than in the commercial sector),  It's plain old competition that determines whether Jack or Jill Smith take their services & goods from a charitable or non-charitable organisation.

I realise it's tough if new entrants seem to be "flooding" the market but, as with "all those foreigners coming over here to take our jobs", it's not only life but may also reflect the fact that the encumbents have only themselves to blame in being unprepared to do the work effectively for a more reasonable market rate?

 

AnnaKournikovasKnickers's picture

Pre 1986

AnnaKournikovas... | | Permalink

We had a JMU compliance visit because of the high amount of commission generated by selling financial products ( the highest for any ICAEW Firm in the UK apparently). There is no shame in being very good at it. It doesn't follow that we are not excellent accountants as well.There was no question of 'conflict of interest' and we got a clean bill of health. In fact it was  mentioned that this was how all Chartered Accountants should operate to keep the mis-selling scandals at bay.

There was always a rule ( later a requirement of FSA regulated Firms) to disclose commission (even before 2006).If the charity thing was a 'few bad apples' as you imply, that would be not worthy of comment. But this is endemic.The Age UK example I quote merely because this is an example of egregious exploitation of vulnerable people. Why file abbreviated accounts of their trading arms? What commercial risk are they protecting themselves from by so doing?

Paul Scholes's picture

A bit mystified

Paul Scholes | | Permalink

Anna - not quite sure where you are going with this, was your question not about perceived unfair competition in the IFA market?

With regard to unprofessional or even rule breaking/bending practices the only judgment I was making was to assume that the level of this was no more or less in one sector than the other.  In my experience poor practice and conflict of interest is wider spread in the commercial sector, but even so I'd never say it was the norm or endemic, whereas you are saying (I think?) that it is endemic in the charitable sector?  

Really? Can you point us at the stats or evidence (other than Age UK), have you reported all the cases you've come across?

AnnaKournikovasKnickers's picture

Reply to Paul Scholes

AnnaKournikovas... | | Permalink

It is unfair competition for an undertaking to masquerade purporting to do one whilst actually existing to do another In my view, (you may differ). I am, in the context of 'unfair competition' only concerned with organisations carrying on Regulated activities without the scrutiny that would be focused on them if they fessed up to what they are actually in business for. This would apply to accountancy, legal services et al. I am not extending my comment to charities in general because they have none of my money not likely ever to have or that of anyone in my sphere of influence. They do not impact upon my activities.I think most informed people, would consider an organisation which gets 50% of it's t/o from one activity, to be in the business of that activity. Certainly the Companies Act would have something to say in the context of investments. Perhaps I should check Age UK' Arts & Mem to see if they are ultra vires? I'm not an accountant so perhaps you will. As to whether I have other examples. Lots, but I don't need them do I?. One 'class case' makes my point eloquently I think.

Misapprehension

WhichTyler | | Permalink

Wher do you get the 50% figure from? According to the 2009-10 accts you refer to, gross income from insurance is £33.5m out of total incoming resources of £160.7m (so 21%) and for what I would see as a better test of 'is this a charity selling insurance or an insurance company doing a bit of charity', its net profit from insurance is £18.8m compared to 'charitable income' (voluntary income plus income from charitable activities) of £55.6m.

 

there is always a risk of the fundraising tail wagging the charitable dog, but they seem to have a more balanced setup than you give them credit for.

 

 

Paul Scholes's picture

Still mystified

Paul Scholes | | Permalink

Anna - I'm really struggling to understand your problem.  You say that the organisation carrying on the business is FSA regulated and so, presumably is subject to the same rules & scrutiny as any other regulated business?  If so, unless you have evidence of wrong-doing, which you would obviously report, it seems your problem is not with the business itself but rather with it's owner, the registered charity, is that right?

Reviewing all your postings what you seem to be saying is that a charity should stick to being a "charity", your definition of which is something that is set up to say sell 2nd hand clothes (donated not bought) and/or operates entirely from voluntary donations? 

Also, taking the tone rather than content of your postings you seem to be implying that charities should know their place and maybe not encroach into areas already monopolised by "proper" businesses?  All my own words and guesswork but taking your comment: "they [charities] have none of my money not likely ever to have or that of anyone in my sphere of influence" I conclude you are not keen on them?

If I've guessed right then I would suggest you have gained little knowledge of what charities have been doing for the past 100+ years nor have you grasped the fact that, with obvious exceptions, what a business owner choses to do with the money s/he or it makes from its business is pretty much none of your business and this applies equally to all sectors.

Finally, with regard to your comment that chariities do not impact upon your  activities, you may be right in a short-sighted, blinkered kind of way, but expand you & your activities wide enough and, much the same as the emergency services, schools, local government etc etc, you will come across a charity.

I know I'm only repeating what I and others have said already but charities are there to raise funds and resources for public benefit and just like you or me, if they see an opportunity to run a business that will provide a good return on capital invested for their stakeholders, then they should (must) go for it and if they are more efficient and less costly than you or their business ethics are more in tune with their market then yours are then, using jpcc1's terminology, "tough".

 

No Scrutiny?

jpcc1 | | Permalink

AnnaKournikovasKnickers wrote:

I am, in the context of 'unfair competition' only concerned with organisations carrying on Regulated activities without the scrutiny that would be focused on them if they fessed up to what they are actually in business for.

Contrary to your asertion that the charity somehow escapes scrutiny, it will be in fact be regulated by the FSA and Charity Commission.

(Similarly as an incorporated charity it would also be subject to regulation from Companies House, in the same way as incorporated commercial ventures.)

And I'm sure that any informed person would consider Age UK to be a charity, making good use of its resources to increase its income, rather than a commercial company trying to gain illict tax advantages. 

 

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