Consultation outcome

Revisions to the Annual Return 2023-25: consultation response

Updated 21 December 2022

Introduction

The Charity Commission registers and regulates charities in England and Wales, to ensure that the public can support charities with confidence and that charity can thrive and inspire trust. Earlier this year we conducted a 12 week public consultation proposing changes to the questions we ask of charities in the Annual Return.

We had a high level of engagement from the sector in responding to the consultation, as detailed at Paragraph 18. This gives us a broad and detailed set of feedback which we can use to ensure the Annual Return collects the right information and allows the Commission to regulate the sector as efficiently and effectively as we can.

The Annual Return is an important route for the Commission to collect data that allows us to respond to risks in the charity sector appropriately and fulfil our statutory functions and objectives. The Charities Act 2011 (section 169) allows the Commission to prescribe the form and information collected in the Annual Return in a set of Regulations.

We have not made major changes to the Annual Return since 2018. Since then, we have refined our understanding of the data we require and the way in which we use it. In the consultation we explained that we intend to use the data collected via the Annual Return to:

• build regulatory decision-making processes around the right data so that we can make greater use of analytics, intelligence and information sharing and proactively deal with emerging issues rather than reacting to the consequences;

This supports our statutory objectives relating to public trust and confidence, and promoting charity law compliance by trustees, and our general statutory duty to use our resources in the most efficient, effective and economic way.

• ensure availability of reliable information about charity activities, governance and impact; providing access to this information is likely to support public trust in charities.

This supports our statutory objectives relating to public trust and confidence, and enhancing charities’ accountability to donors, beneficiaries and the general public, as well as the Commission’s duty to act proportionately and transparently.

We also have an important role in making information on the charitable sector available to decision-makers in government and wider stakeholders, as well as helping the sector to learn from what we know. This supports our statutory objective to promote the effective use of charitable resources.

The Commission has a duty to ensure our engagement with and regulation of charities is proportionate and benefits the sector, beneficiaries and the public. Our consultation proposals followed on from research conducted with people who complete the Annual Return. Charities had emphasised the need to make the questions easy to complete, particularly through additional clear and simple guidance. As a result, a core aim of the Annual Return consultation proposals was to make the Annual Return simpler and more accessible.

Consultation proposals

Our consultation sought feedback from charities, their trustees and representative bodies, policy makers and funders as well as the wider public. We wanted to know whether people supported the proposed revisions to the Annual Return for 2023-25.

At consultation stage, we proposed introducing 22 new questions to the Annual Return, taking the maximum number of questions a charity could be asked to 52. A core set of 30 questions were to be asked of all registered charities who are required to complete the Annual Return (i.e. those with an income of over £10,000, and all Charitable Incorporated Organisations). A maximum of 22 subsidiary questions could be asked of any charities who had relevant data or activities to report on associated topics. For example, charities reporting income outside of the United Kingdom would be asked questions on how funds were transferred.

We particularly invited comment on whether respondents:

• agreed that the proposed changes to the Annual Return questions were relevant and proportionate, considering our statutory duties, objectives and functions

• were confident that charities of all types and sizes would be able to understand all questions proposed, and collate and submit the right data

Consultation responses and outcome

Responses overall were supportive of the Commission’s intentions to revise the Annual Return. The majority supported the aims set out in Paragraphs 4 to 6 above, and felt that the questions proposed were justified with these aims in mind. Most understood why the Commission would collect the data we were proposing to and what we would do with it. There were some exceptions to this, particularly for smaller charities. We have explained how we have addressed this in our discussion around proportionality in Paragraph 21.

We received a substantial amount of valuable feedback on the specific structure, wording and applicability of the questions to each respondents’ circumstances. This feedback allowed us to identify where and how the proposals could be improved. In particular we were able to:

• test our understanding of the likely impact on the charity sector of the proposed changes. This allowed us to identify that, for a minority of the proposed questions, reporting the additional data would have been more complex for charities than the Commission intended. This has informed our decisions on what questions are asked in the Annual Return;

• decide how the questions should be re-worded to ensure charities understand what information we are asking for, and what guidance can be provided to help.

Based on the consultation feedback, we have decided to proceed with changes to the Annual Return because we need to update the data that we collect from the sector. However, the consultation feedback has allowed us to make significant revisions to the final Annual Return questions. In summary, the main changes are that we:

• will not introduce 5 of the questions proposed in the consultation;

• will amend the wording of 13 questions to improve their clarity, and in some cases reduce the data-gathering or input required;

• will create income thresholds for 4 of the new questions that we are introducing, to ensure that the regulatory burden on the smallest charities is proportionate;

• will remove 6 questions in 2024 where we have identified that it is essential to collect the data in AR23, but alternative means have been identified to collect similar data in the longer term. We will continue to assess the opportunity to remove further questions where other developments allow.

• have reviewed all explanatory notes and the glossary for both the existing and new questions to promote consistency and clarity.

Implementing the changes

We have set out details of the further changes we will make to the revised Annual Return, explaining the feedback we have considered for each Annual Return question in the results and analysis section of this response, which is contained in Annexes 1 to 6.

Annex 8 contains the full list of the revised Annual Return questions that will be set out in the Charities (Annual Return) Regulations 2022 that will come into force on 1 January 2023. A copy of the Regulations is provided at Annex 9.

The changes to the Annual Return will apply to charities’ financial years ending on or after 1 January 2023.

In early 2023 a guide to the new question set will be released to provide additional details on what we are asking, why we are asking it and how the data we collect will benefit the sector. This will complement the Guidance and Glossary (Annex 10), which we have substantially revised and improved based on consultation feedback. These documents will be available as part of the digital service to help charities respond to and navigate completion of the Annual Return.

The revised digital service which charities will use to submit their Annual Return will be released later in 2023. Consultation feedback on the Annual Return digital service will be considered when designing the new service. The service will also collect user feedback once live so that this can be considered as part of efforts to continually improve it over time.

Summary of feedback received and recurring themes

We received 456 responses. 423 responses were through our online tool, with 16 responses providing additional written feedback.

52% (262) of respondents provided feedback on behalf of a charity with a further 37% (155) received from trustees sharing their own personal opinions. 8% of the feedback was provided by people who work with or represent a sector body. The breakdown of respondents who utilised the online tool were as follows:

Role	Proportion
Charity trustee responding for myself only (personal view)	37%
Charity employee responding on behalf of my employer/charity	33%
Charity trustee responding on behalf of my charity (collective view of the trustees)	19%
Other person involved in the charity sector not falling into the above categories (for example, a professional advisor, lawyer, or accountant)	5%
Responding on behalf of a charity sector representative organisation or umbrella body	3%
Member of public	0.5%
Unknown	2.5%

296 charities also shared their views on the readability of the Annual Return through a separate testing exercise. The feedback from this separate testing exercise aligned with feedback from the consultation on clarity of question wording.

Themes emerging from consultation feedback

The proportionality of our additions to the Annual Return, including regulatory burden for the smallest charities.

Question 23 in the consultation invited charities’ views on this directly; however we have also taken into account feedback received on individual sections of the Annual Return. 54% of respondents believe that the question set proposed was proportionate, but 22% felt that it was not. 24% were not sure. Most respondents appreciated the importance of collecting and using data about the sector to increase transparency, identify risks that can impact trust and confidence in charity and inform a more effective regulatory response.

Summary Table 1 – feedback on proportionality and burden, and our response

Respondent concern	Our response
Time taken to complete questions	• We have decided not to introduce 5 of the new questions proposed in the consultation • We have modified most of the proposed new questions to reduce complexity – (for example by allowing charities to round values to a greater degree, such as to the nearest -£100 rather than £1) • By improving our guidance to increase understanding and accuracy of the data we collect, charities will spend less time determining where to look and what data to provide to us
Unnecessary burden for charities in preparing data	• We have revised some questions to increase alignment to the data collected under the charity accounting framework, for example making sure we ask charities to provide the same values in the Annual Return as they already provide under the charity accounting framework if they also complete Part B of the Annual Return
Impact on small charities	• We have introduced income thresholds for certain questions so that smaller charities answer fewer questions

We have addressed the responses that did not think the approach was proportionate by simplifying and clarifying the question set. We have also carefully considered whether any questions did not justify the additional regulatory burden some respondents identified. Following this exercise we have reduced duplication, improved guidance, and revised some questions to address unnecessary complexity. The Annual Return will now be simpler to complete and will take less time than was proposed at consultation.

A few respondents requested further reassurance that the Commission was only collecting data that it needed in order to regulate effectively. We gave this feedback careful consideration and as a result have reduced the number of Annual Return questions, as compared to the consultation proposals, by 5.

We noted that small charities are particularly concerned about any increase in burden or complexity. They said their reliance on a limited number of trustees or volunteers could generate costs if they had to spend money on outside advisers to respond. Some called for income thresholds to be introduced for certain questions.

We have to balance our need for data on a wide range of charities against the regulatory burden on charities of producing this data. Data on smaller charities is valuable, given that risks do not sit solely in larger charities. Where we consider data on smaller charities to be necessary to identify emerging risks, we have not introduced an income threshold. However, where the burden on smaller charities would not justify the collection of data, we have introduced appropriate income thresholds. Following our consultation, we have additionally decided to introduce a minimum income threshold on the questions related to donations, as explained in Annex 1.

We understand that some charities find it frustrating that the Annual Return duplicates some information reported in their accounts and annual reports. We have carefully considered these responses and concluded that we still need to collect this information through the Annual Return because:

• Fewer than a third of charities (just over 40,000 of 168,000) are required to complete accounts and reports that contain the information we are collecting in the Annual Return.

• Information in charities’ accounts and reports is in a form that is not easy to identify and analyse for regulatory purposes. It would not be a reasonable use of the Commission’s resources to inspect and analyse all accounts and reports manually. We are continuing to explore options that would allow us to analyse data from charities’ accounts using technology and software in future, but it is not possible to implement this in the short term.

We received feedback that some of our proposed questions asked for financial data in a format that is different from the standards used in charities’ annual accounts. We accept this and have therefore redrafted several questions to align with charity accounts more closely. For example, we have amended a number of questions to ask for values rather than percentages so that charities do not have to undertake the additional step of producing the data in a different format. We will signpost in accompanying guidance where this data maps to existing charity accounting requirements. We will then be able to carry out our own analysis to re-interpret the data, reducing the regulatory impact upon charities.

Making sure the Commission and sector have a shared understanding of the Annual Return questions so that accurate, clear data is collected

Almost all respondents agreed that it was important to have a clear explanation for each Annual Return question on ‘why’ the Commission is asking for the data and ‘what’ the Commission intends to do with it. This will help charities understand whether they are providing the right data. The explanation for why the data is being collected and how it will be used was set out in the consultation and is set out again below in the relevant section of this response. A guide to the question set, to be released in early 2023, will also provide greater detail on how we will use the data collected.

We received positive feedback about the clarity of the majority of the guidance, and the wording of the questions. However certain terms seemed to cause confusion amongst a significant minority.

Summary Table 2 – feedback on clarity around required data, and our response

Respondent concern	Our response
Clarity and specificity around data required	• We have replaced confusing wording in the questions with more recognisable terms and used existing data categorisation to promote consistency, for example aligning income, spend and employee data descriptors to the accounting framework • The Glossary and Guidance have been simplified and shortened
Avoiding complexity	• We have removed requirements for charities to calculate proportions and percentages, and asked for values instead • We will signpost to charities where they might use existing data to complete the Annual Return

How the Annual Return relates to other data collection mechanisms, including the flexible use of the question set

We welcome the fact that 81% of respondents to the consultation agreed that we should use the Annual Return in a more flexible way. This includes the proposal that if certain questions were not needed in later years, we could remove them from the question set. In the consultation we set out that this flexibility would take the form of:

a) removing questions in the future, if we can employ other less burdensome means to extract the data from other sources as our processes improve

b) creating a question to gauge positive and negative impacts on the wider sector where a sector-wide significant risk arose during the preceding year. This question would be asked in the event that there was a relevant risk and the most proportionate way to collect data on the impact was through the Annual Return. More detail on this question is in Annex 5.

Responses to the consultation identified that some proposed questions were likely to generate the same responses each year (either for most individual charities or at a sector level). In those cases respondents questioned whether the time burden imposed by returning to this each year would be proportionate to the value of the longitudinal data. We have considered this and made the following changes:

Summary Table 3 – feedback on relation to other data collection mechanisms, and our response

Respondent concern	Our response
Reducing the collection of static data	In some cases we have identified that a data point is unlikely to change each year but that we also have a valid requirement to collect the data at least once, and there is no existing mechanism. 6 questions will therefore only be asked once in the Annual Return and will then be removed. We will seek alternative means to collect the data afterwards.

We will continue to monitor whether the Annual Return is the most appropriate method to collect each data point. If a more appropriate or proportionate method is identified or developed, we may remove additional questions with the aim of reducing burden.

Suggested opportunities to collect new data

We also received responses that suggested using the Annual Return to collect other data that was not included in the consultation. In particular we considered whether we could collect data on diversity in the sector, specifically personal and demographic characteristics of charity trustees. Respondents also suggested collecting data on cyber-security, and participation in the voluntary Charity Governance Code.

We agree that these areas represent important issues for the sector. We have carefully considered whether it would be appropriate for the Annual Return to collect this data. We can only request data that promotes our statutory objectives and functions. We then balance this against the overall burden imposed on charities by additional data collection. We must have close regard to the proportionality of adding further questions, and a high level of confidence that the Annual Return is the optimum mechanism for data collection if we are to add an entirely new topic.

With regard to diversity, we agree that an understanding of the trustee population, including the backgrounds and characteristics of trustees, is important. However, we think there are significant challenges to collecting this through the Annual Return. In particular, we have an obligation to ensure we are collecting accurate information. Given that in the majority of cases a nominated respondent completes the Annual Return on behalf of charities (some of which have a large trustee population), we think there is a significant practical risk to requiring a nominated respondent to gather and share special category demographic data about others, which they may not currently collect, rather than trustees having the opportunity to self-certify and declare this data about themselves. We will continue to consider whether there are other opportunities to collect information on the trustee population.

Increasing clarity around how the Commission uses data obtained through the Annual Return

The final questions have been subject to a thorough internal and external review process to ensure we only gather data required to regulate effectively under our statutory obligations. Each Annual Return question has a direct link to the functions of the Commission, and we only ask for information that we will use. Broadly, there are three main ways in which we will use the information.

We will use the information to increase knowledge about the sector, how it operates and the risks it faces by:

Publishing relevant information on the charity’s page on the Register or collectively about the sector. This is with the aim of:

• supporting public trust and confidence by increasing public engagement and understanding of charities,
• increasing accountability of charities to donors, beneficiaries and the general public.

Assessing levels of risk across the sector, in subsectors or at an individual level through analysis of subject areas. For example:

• We will use data collected through the Annual Return to inform our priorities ensuring we take a targeted and proportionate approach to sector regulation. For example, we could use data on the numbers of charities operating in certain countries and overall levels of compliance with legal requirements to inform our regulatory actions.
• We will also use Annual Return data to understand sector trends and risks. Where proportionate, we will publish findings to inform the sector’s own understanding of relevant issues. This will also support charities to mitigate risks and encourage and facilitate the better administration of charities.
• Data collected through the Annual Return will also allow us to better understand the impact of policy proposals or implementation on the sector so that we can use our resources in the most efficient and economic way.

We will use the information to promote compliance by trustees with their legal duties and good practice by:

• identifying charities with characteristics that may indicate a risk so that we can provide appropriate advice and guidance, send alerts, issue warnings or invite to outreach events.
• producing reports which focus on good and poor practice to inform the wider sector.

We will use the information to help us assess risk in the decisions we make to take action relating to particular charities. This can range from providing guidance and support, to exercising our powers to identify and investigate potential misconduct and mismanagement.