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Dear All,

I was engaged by a client last year that operates in the charity sector.  I helped the said client to set up a company limited by guarantee for it's charitable objectives and it has managed to open up both a current account and a savings account for its operations.  Upon further and subsequent discussions, I discovered that the client have actually opened up and operated a community type account with a major high street bank prior to the setting up of the company limited by guarantee.  In terms of turnover, the client had received funds in the tens of thousands (GBP) from it's members but had not registered with any of the requisite regulatory bodies (i.e. HMRC, Charity Commission, etc).  I have advised the client to close down the account immediately (two months ago) and suggested that they (the client, that is) send out correspondence to the stated regulatory bodies stating out the history backed up by comprehensive/complete documention depicting every transaction that has taken place to date.  Furthermore, the client's lack of historic disclosure was primarily due to a total lack of awareness of the need to fulfill the requirements stated within.  I now sense some hesitation on the client's part to take my advise.  Kindly comment on what subsequent actions you would suggest that I take going forward.  Much appreciation in advance. 

Replies (6)

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By Matrix
02nd May 2024 18:10

You would need to find the law which the client has broken if you believe it is running illegally.

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By paul.benny
02nd May 2024 18:12

What due diligence did you do on the client and the principals before onboarding? And what is now causing you to doubt this?

I'm not seeing any obvious illegality in the scenario you describe. What's the basis of the fund raising from members? And indeed what does "membership" mean? Do members think they are joining a club of some sort or do they think they are making donations?

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By Dougscott
02nd May 2024 20:33

There are loads of unincorporated charitable organisations operating out there and many are not registered with the Charity Commission and nor do they need to be. You say that the organisation had charitable objectives so I presume you are referring to the constitution when the organisation was set up. Provided that the organisation was operating in line with its charitable objectives before it became limited by guarantee then there is effectively no change in it's status as a charitable organisation and no liability to pay corporation tax. It should of course seek confirmation from HMRC that HMRC agree it is a charitable organisation (based on its constitution and how it operates) but normally I would expect you to do that as the organisations accountant. To be honest it sounds like you don't know enough about charity accounting to represent this client properly?

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Replying to Dougscott:
By Matrix
03rd May 2024 05:45

Surely it would be exempt if it is a charity yet it hasn’t registered as a charity nor is it obliged to do so. What are you asking HMRC? You may be looking at the taxation treatment of a members club, so mutual trading.

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Replying to Matrix:
By BrianL
14th May 2024 10:03

"Charities required to register with the Charity Commission
Charities have to register with the Charity Commission if:

the charity has, or expects to have, an annual income of over £5,000
the charity is not an exempt or excepted charity. These organisations don’t have to follow all or some of the Charity Commission’s rules.
Find out if your charity is exempt on the Charity Commission’s website.
Find out if your charity is excepted on the Charity Commission’s website."

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By bettybobbymeggie
02nd May 2024 20:59

Call in the FBI immediately.

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