Charity FDs face funding headache

Finance directors working in the charity and voluntary sector are set to face a funding black hole at a time when public demand for their services is on the rise.

As the government spending cuts begin to bite, Charles Scott, group finance director of Age UK, has warned that FDs are facing a financial headache as the result of being stripped of £5bn in government funding over the next four years.

“We are worried because we have a number of partners who operate locally that depend on local authority funding,” Scott told Financial Director. “The ability to deliver direct line services will undoubtedly be hampered.”

With an inevitable squeeze on government grants, FDs will need to look for alternative forms of funding. According to Scott, Age UK is in a much healthier position because it does not rely predominantly on state funding.

“We generate our own income from fundraising, sponsorships and our own revenues. The funding we are given by the government is minimal,” he said.

In 2009, Age UK received income of £91.2m from a variety of sources, including £23.5m from supporters in the form of donations, gifts and legacies, £15.8m from trading to raise funds, £43.6m from other activities including investment, and only £8.2m from grants.

But it is not just direct cuts in funding that is causing concern for FDs working in the voluntary sector. According to figures from the Charity Tax Group, the increase in VAT will cost non-profit organisations about £140m.

“Why do charities have to pay VAT? The cost and tax environment that we operate in could be easier,” said Scott.

At a time when charities are being asked to do more as part of the Big Society initiative to supplement and replace provision of social welfare and other services by the government, Scott says it is important that FDs are proactive in engaging with the government on issues around the tax treatment of charities.

“We are a lot more effective as we do engage with the government on areas of pension reform and tax,” he said. By achieving concessions on VAT relief, the charity sector on the whole would be made much more efficient.”

A full interview with Charles Scott about the role of FD in the non-profit sector and the merger between Help the Aged and Age Concern to form Age UK will be available online at www.financialdirector.co.uk from Monday 31 January