A glossary of key terms used by the RAF Sports Federation:
Annual General Meeting (AGM)
Requirements to hold an AGM will be stipulated in the charity’s governing document. The matters to be covered, the way in which the meeting is to be run and the rights of the members may also be stipulated in the governing document.
Articles of Association & Memorandum of Association
Articles of Association is the constitution for a company which may also be charitable. The document is written by the charity, setting out its purpose and rules/regulations for how it is run. This may include: how trustees are appointed, how expenses are paid, how to close the charity etc. The Articles of Association are a subsidiary document to the Memorandum of Association, which sets out the basic details of the charity, for example name, members/trustees, registered address etc.
Assets refers to anything that has economic value that is owned by the charity, including property, equipment and money. Fixed assets are assets that are expected to be used for more than one accounting period which is normally 12 months (often referred to as ‘capital expenditure’ items). As fixed assets are usually valuable, they should be recorded on an asset ‘register’, including details of the asset’s cost or value, date of purchase and where it is located. All trustees have a duty to protect the assets of a charity.
In the context of charitable governance an audit is the detailed scrutiny of an organisation’s accounts by a specialized company. Broadly speaking, an audit is needed where the gross income exceeds £500,000. An audit will also be needed if total assets (before liabilities) exceed £3.26m, and the charity’s gross income is more than £250,000.
A balance sheet is prepared at the end of each reporting period as part of the charity’s accruals accounts. It shows the charity’s financial position at the end of the accounting period and includes all assets and liabilities.
Capital expenditure – or CapEx – refers to funds that are used by the charity to buy an asset, or repair, update or maintain an existing asset, e.g. a building or piece of equipment. These costs are different to ‘everyday’ expenses in that they are usually a one-off cash outlay to update or improve a long-term (or a fixed) asset.
Charities Act [The]
All charitable law is enacted through acts of parliament and are known as Charities Acts (CA). The CA 2011 was a consolidating act and is the main piece of UK legislation that governs charity law. The Act sets out the rules for how charities in England and Wales are registered, operated and regulated.
The Charity Commission is responsible for regulating and registering charities in England and Wales. Its purpose is to provide charities and trustees with guidance on their legal duties and responsibilities, as well as investigating accusations of wrongdoing. The Commission also has the power to take regulatory action if required, eg. issuing official warnings, disqualifying trustees or establishing a scheme of administration for the charity.
Charitable Incorporated Organisation (CIO)
The Charitable Incorporated Organisation is a relatively new type of legal structure specifically designed for charities. It enables the charity to operate in its own name, thereby limiting liabilities put upon trustees. CIOs are similar to companies limited by guarantees (CLGs), but CIOs are only required to register with the Charity Commission, whereas CLGs must register with the Commission and also Companies House.
Charity trustees are the individuals nominated to be in charge of the general management and administration of the charity. They may also be referred to as board members, directors or committee members.
Code of Governance
The Charities Code of Governance is a tool developed by a formal steering group that advises on how to ensure good governance within a charity, and encourages them to set aspirational standards. The Code draws upon, but is different to, guidance issued by the Charity Commission. Adhering to the Code is not a legal requirement, but can help trustees establish high standards of governance with the organisation.
The Companies Act (2006) is the main piece of UK legislation that governs company law. It is therefore relevant to charities that are companies limited by guarantee. The Act sets out the rules for how companies in England and Wales are registered, operated and regulated.
Companies Limited by Guarantee (CLGs)
Companies limited by guarantee are commonly formed by non-profit organisations, such as sports clubs, charities and membership organisations and were the primary means by which a charity could obtain incorporated status prior to the introduction of the CIO. The main purpose of creating a CLG is to protect those running the organisation from personal financial liability. CLGs are required to register with both the Charity Commission and Companies House.
A constitution, as set out in the Oxford English Dictionary is ‘a body of fundamental principles or established precedents according to which a state or other organisation is acknowledged to be governed’. The fundamental principles that are contained within a charity’s constitution are essentially its purposes, powers and the rules on its governance. The constitution of a charity will take a different form, depending on the type of legal form the charity takes – but all types of constitution will cover the same types of content, no matter what the type of organisation.
Depreciation refers to the gradual reduction in the value of an asset over time.
Donations involve benefaction on the part of the donor; they are freewill contributions to the charity, made without receiving anything in return.
Excepted Charities have historically been excepted from registration either by regulation (Statutory Instrument) or by Charity Commission order. These include some religious charities, scout and guide groups and some armed forces charities. Excepted charities are not obliged to register with or submit annual returns to the Charity Commission, but in all other respects must abide by charity law.
Financial planning and budgeting
The process of financial planning and budgeting are essential to achieving long-term sustainability. A financial plan should link to the charity’s strategy and aims and objectives, and the budget is a tool to assist the charity in meeting its objectives. Budgeting makes it possible to plan day-to-day costs and expenses and to ensure there will be sufficient funding available.
Financial accounting refers to the process of keeping records of all financial transactions undertaken by the charity. This includes any paper or digital records into which transactions are entered, together with invoices, receipts, vouchers or other relevant documentation. These records are used to prepare the charity’s annual statement of accounts.
General Data Protection Regulation (GDPR)
General Data Protection Regulation is a set of minimum standards for the processing of data in the EU designed to give citizens more control over their personal data. Organisations operating within the EU must comply with very strict rules for how they collect and manage personal data, including protecting data from misuse and/or exploitation.
Gift Aid is a tax relief scheme that allows UK charities to reclaim an extra 25% in tax on every eligible donation made by a UK taxpayer (at no cost to the taxpayer).
A charity’s governing document is a legal document. It works as a rulebook, setting out:
its charitable purposes (‘objects’)
what it can do to carry out its purposes (‘powers’), such as borrowing money
who runs it (‘trustees’) and who can be a member
how meetings will be held and trustees appointed
any rules about paying trustees, investments and holding land
whether the trustees can change the governing document, including its charitable objects (‘amendment provisions’)
how to close the charity (‘dissolution provisions’)
A grant of funds to a charity by a funding body are a form of donation. However, they are typically subject to conditions and often a grant is made for restricted purposes (rather than for the charity’s overall charitable purposes). Grants typically come from public sources or from other charities that are using grant-making as a way to directly fulfil their own charitable objects.
Charities and their trustees are required to demonstrate how the charity is meeting its purpose. Therefore, it is important to measure and report on the impact the organisation is having/has had by evaluating the charity’s objectives against its achievements. Impact measurement may also be useful in seeking/securing additional or new funding from donors.
Charity law requires those charities with a gross income of more than £25,000 to have some form of external scrutiny of their accounts. This threshold is subject to change from time to time as the regulations made under the 2011 Act are updated. The trustees may opt for an independent examination provided an audit is not required.
IR35 is a UK tax legislation designed to eradicate tax avoidance by people who supply services to a client via an organisation, such as a limited company, and where without this organisation they would be an employee of the client. Most charities are not affected by the IR35 legislation but if charities employ contractors, it should be aware of the rules.
Charitable status is conferred on an organisation because of the reasons why it is set up; it is not a description of a type of legal form or structure. The 3 types of legal forms for RAF Sports
Associations are: unincorporated members’ association; company limited by guarantee (CLG); and charitable incorporated organisation (CIO).
Liabilities refer to an organisation’s financial debt or obligations.
Management accounts give an overview of an organisation’s current financial performance that helps to inform its financial decisions. They usually include an income and expenditure account that shows actual spend versus budgeted spend, as well as a cash-flow forecast and financial projections.
The keeping of minutes of the board, general meetings and committees will often be a requirement of the constitution. It is also the clear recommendation of the Charity Commission that such records are kept for the lifetime of the charity. Minutes must be suitably detailed to record the discussions that led to a decision.
The older term ‘objects’ is often used in charity constitutions for what the Charities Act 2011 now calls ‘purposes’.
The purposes of the particular organisation must be for the public benefit in order for it to qualify as a charity. This principle is long established in common law but is now explicit in statute and trustees have a legal duty to ensure that their charity operates for the public benefit.
All charities registered in England and Wales must have one or more purposes that fall within the list of descriptions of charitable purposes set out in the Charities Act 2011.
A quorum is the minimum number of representatives (trustees or members) required to conduct and take decisions at a meeting. The charity decides on the number of attendees required, and it should be stated within the governing document. When a quorum is met a meeting is deemed to be quorate.
This refers to a charity that is registered with the Charity Commission for England and Wales (separate rules apply to charities in Scotland and Northern Ireland). It is a requirement that unincorporated charities, charitable trusts and charitable companies with a gross annual income of £5,000 or more register. If the charity’s gross annual income is less than this, they cannot register (unless they register as a CIO), however, if/when its income tips over this threshold, it should register in the following financial year.
Reserves refers to the money that is available to the charity that has not been spent, or committed/designated to future purposes. Reserve funding does not include tangible fixed assets owned by the charity, or restricted or endowment funding.
Risk management is an essential process of regularly reviewing (identify), assessing (evaluate impact) and planning for (solutions to) potential risks to the charity and its ability to conduct its work. Each charity is different, so trustees should tailor their risk management process and plans to the individual organisation.
Charities and their trustees are required to ‘safeguard’ (protect from harm) any individuals who come into contact with or benefit from the charity’s work. This includes staff, volunteers and beneficiaries. All charities should have safeguarding policies in place as part of their governance.
An organisation that operates as a business to specifically tackle social, financial or environmental issues. Unlike a charity, social enterprises are set up to make a profit that is then reinvested in the business to continue/further its programs or work.
Sponsorship is a cash and/or in-kind fee paid to an organisation in return for access to the exploitable commercial potential associated with that organisation. Unlike philanthropy (donations), sponsorship is done with the expectation of a commercial return.
Statement of Financial Activities (SOFA)
The Statement of Financial Activities shows a record of the charity’s incoming and outgoing resources over the financial year or specific reporting period. It is included as part of the charity’s general financial reporting.
Statement of Recommended Practice (SORP)
A Statement of Recommended Practice is a piece of sector-specific guidance on how organisations should report their finances and prepare annual accounts. The Charity Commission’s Statement of Recommended Practice for Charities is designed to help trustees meet their legal obligations, as well as seeking to set consistent accounting standards across the sector.
A charity may set up a subsidiary trading company to trade on its behalf as a way of generating income for the charity. A trading company can donate its profits to its parent charity’s main purpose, and there is no Corporation Tax due on these payments. The charity will not pay tax on the amounts it receives as long as it uses the money for its charitable purposes.
Trustees’ annual report
All charities must prepare a ‘trustees’ annual report’. The document, which should sit alongside the annual accounts, gives beneficiaries and potential funders an overview of what the charity does. It should include information about the charity’s work, how it is funded (eg. where the funding comes from), and how it has spent its money over the past year.
We provide a range of services and resources to our RAF sports associations colleagues and other charities. Please click on the links below to access our range of Easy Guides, documents and glossary.
We are constantly adding more resources to this section so if you cannot find what you are looking for, please contact us on firstname.lastname@example.org.