The number of charities surrendering their charitable status has jumped 176% since the start of the financial crisis says Wilkins Kennedy, the 21st largest accountancy firm.
According to figures from the Charity Commission, the number of de-registrations by large charities (those with a turnover of more than £500,000) has leapt from 96 in 2007 to 265 in 2011.*
Wilkins Kennedy says that the surge in charities de-registering happened as charities closed down or merged due to the challenging fundraising environment.
The lasting effects of the credit crunch and the impact of the Government’s austerity measures have hit the two major channels of support to charities: individual donations and local authority funding.
Michelle Wilkes, Partner at Wilkins Kennedy, comments: “The economic crisis has hit the charity sector hard. The difficulty in raising money has led many charities to close down, while others have had to look at alternative business structures to cut operating costs.”
According to Wilkins Kennedy, the annual gross income of charities has slowed from 8% year on year growth in 2007, to just 2.5% in 2011.
Explains Michelle Wilkes, “Rising unemployment and inflation has affected people’s ability to donate to charities. At the same time, the Government’s public spending cuts have resulted in a decrease in grants from local authorities.”
“Many charities have seen local authorities slash their funding or, in some cases, withdraw it entirely. Local authorities have been criticised for their approach to managing their budgets, with some in the voluntary sector arguing that local authorities are passing on disproportionate cuts to charities.”
Wilkins Kennedy warns that although the Government is increasingly expecting the voluntary sector, including charities, to fill the breach left by public sector cuts, charities are struggling just to keep themselves afloat.
Michelle Wilkes says: “The Government positioned charities as being the cornerstone of the Big Society project; however, without the necessary funding, charities that provide vital services are being forced to sack staff or even shut down entirely.”
Charities that have had their funding cut include those who provide care for the elderly, like Age Concern and groups that help homeless people. Even established organisations, like Citizens Advice Bureau (CAB) are suffering – with some of the bureaux facing funding cuts of up to 50%.
Cutting costs through merging back-offices Wilkins Kennedy says that to survive, many charities have been forced to cut costs by reducing campaign budgets and staff numbers.
Michelle Wilkes comments: “In some cases, the need to a cut costs drastically has severely limited a charity’s ability to operate effectively, which has forced them to them to merge with other organisations in order to continue their charitable work.”
“In this respect, mergers can help a great deal in reducing overheads, for example, by allowing them to combine back-office roles.”
In the Autumn Budget, the Chancellor announced that not-for-profit organizations may now be exempt from VAT when using shared services.
“Despite the pain of the cuts, the Government has helped charities save some money by enabling them to be exempt from VAT when they share the costs of back office functions, such as IT and HR, with another charity.”
“We expect to see many more charities taking up this option as they attempt to balance their own books and make up for the deficit caused by the reduced levels of funding.”
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