The Charity Commission for England and Wales has produced an updated Charity Annual Return, for financial years ending on or after 1 January 2023. The 2023 Annual Return contains 19 new questions, introduces income thresholds to reduce the burden on smaller organisations, and is accompanied by updated guidance.
With this revision, the Commission aimed to make the Annual Returns more straightforward and accessible. In a consultation, the majority of respondents felt that the proposed set of questions was proportionate – despite a significant increase in the total number. Encouragingly, the Commission has also sought ways to use Annual Returns more flexibly, with year-on-year adjustments to avoid requesting static data several times over.
In the long-term, the Commission hopes to be able to share data with other regulatory bodies, as well as ‘scrape’ data from charities’ own public-facing reports. In the meantime, completing the Annual Return will remain a time-consuming task, particularly for those organisations where resources are in short supply.
Each year, charities with a yearly income of £10,000 or more, and all charitable incorporated organisations, must complete an Annual Return informing the Charity Commission about their activities. Following a consultation, the Commission has released an updated set of questions for the 2023 Annual Return (for financial years ending on or after 1 January 2023) which seeks to make the process simpler and more accessible for charities of all sizes.
When revising the Annual Return, the Commission has a careful line to tread: gather the information necessary to fulfil its regulatory function and to assess risk, whilst avoiding placing undue burden on charities. Fundamentally, the information requested needs to be proportionate, the rationale for requesting it needs to be clear, and the supporting guidance needs to make filling out the Annual Return understandable.
Of 456 people who responded to a consultation on the proposed changes for 2023, which included increasing the total number of questions from 30 to 52, a slim majority (54%) stated that the suggested set of questions was proportionate, slightly under a quarter (22%) felt it was not and another quarter or so (24%) were not sure. In response, the Commission slightly reduced the total number of questions in the final version (to 49), reworded 19 questions to improve clarity, and reviewed and updated the accompanying guidance and glossary. It is also releasing a further guide which will cover why the Annual Return asks for specific data points and how this data will be used in support of the sector.
The question of proportionality and burden is particularly pertinent to smaller charities, which may be reliant on the time and expertise of a reduced number of trustees and volunteers. It is positive that certain questions about donations and the reporting of serious incidents are now subject to income thresholds, and these should continue to be strategically applied in future Annual Returns. New questions about financials have been adjusted so that the data required is in the same format as that provided elsewhere, such as under accounting frameworks, which is a logical step enabling charities to avoid further calculations.
81% of consultation respondents felt that the Annual Return could be used more flexibly, and in a welcome move, the Commission has taken steps to begin embracing this principle. Six questions will be removed from the Annual Return between 2023 and 2024, where there is important – but static – information to be gathered. Additionally, the Commission can now choose to ask charities what impact a pre-determined notable event (such as a pandemic) has had on various organisational priorities, including income, expenditure and service demand. Including such a question will enable the Commission to better understand the risks facing the sector, and therefore adjust its priorities and policy proposals accordingly. However, the Commission must consider carefully the choice to deploy this question and, particularly, the choice of the event to which it refers (which will vary year on year). In selecting one major ‘year-defining’ event, it is possible that the Commission could simply reinforce pre-existing narratives about risk in the charity sector, rather than gathering insight and thinking more holistically about risk – and opportunities – from new angles.
We would have liked to see one further question included, asking whether charities are (voluntarily) applying the Charity Governance Code, which supports charities in achieving higher governance standards. Adding this as a simple ‘yes / no’ answer to the existing Governance section of the Annual Return (which is currently a straightforward list of policies to tick), would not require any significant additional effort from respondents. Rather, it would increase awareness of the Code and would signify a promising degree of commitment to governance from the regulator.
Over the long-term, more effective data sharing between the Commission and other bodies would enable the Annual Return to be further streamlined, as certain data points are also captured by bodies such as HMRC and the Fundraising Regulator, or even grant-making bodies. Furthermore, a significant proportion of charities publish annual reports and accounts which cover much of the information requested in the Annual Return. Whilst the Commission rightly points out that it would not be a good use of its resources to manually comb through these, it may be that, in time, there is a possibility for this ‘data scraping’ to be automated, and for relevant parts of the Annual Return to be auto-filled to accelerate the completion process. In the corporate sector, the development of electronic ‘tagging’ of annual reports is now a fact of life for larger companies and it may be that there are lessons that can be learned from the implementation of this change. For now, completing the 2023 Annual Return will still require a significant time commitment, but will hopefully be a slightly more straightforward and accessible process.