Tony Sinclair: Charities may need to mergeto survive this crisis

WITH three out of four charities expecting competition for resources to increase, while four out of five expect the financial situation to worsen for the Scottish voluntary sector this year, half of all Scottish charities are focusing on business development while a fifth are planning a restructure.

Were small charities sharing similar objectives to collaborate in order to apply for funding for a particular project together, they might stand a better chance of securing the requisite finance.

There is a growing interest in mergers in Scotland’s charitable sector as they offer organisations the potential to realise significant cost savings in staffing, accommodation or both.

Granted, any charity considering collaboration or merger would have to ensure there are no past reputational issues regarding their proposed new partner that may impact on the reputation of the organisation.

With most charities being affected by a fall in donations, many are now seeking ways to widen the scope of the income they receive by embarking on a trading activity, such as establishing a shop as a means of generating an additional income stream.

Charities should seek advice on the tax implications of such activity because, while they are not liable to taxation, any income from trading activity may be liable to tax should it exceed £50,000.

Charities can, however, avoid a tax liability by establishing a subsidiary through which all trading activity goes with an agreement in place that this company makes a donation of its profits to the charity.

Another way of raising funds is through a Social Impact Bond, a contract with the public sector in which a commitment is made to pay for improved social outcomes resulting in public savings.

With the Chancellor’s autumn statement revealing austerity is set to remain in place for some time yet, those charities best placed to tackle the challenges of 2013 are those already confronting the government’s welfare cuts head-on by restructuring and considering the various development opportunities at their disposal.

• Tony Sinclair is a partner at French Duncan Chartered Accountants specialising in charitable organisations.