Publication

Atodiad 5: Ffurflen Flynyddol 23 - Asesiad Effaith Rheoleiddiol

Updated 8 March 2023

Applies to England and Wales

1. Annual Return 23 - Regulatory Impact Assessment costing and assumptions

1.1 Impact Assessment

Title: Charity sector annual return (CCEW - 2023)

IA No:

RPC Reference No:

Lead department or agency: Charity Commission for England and Wales (CCEW)

Other departments or agencies: Department for Culture, Media and Sport

Date: 25/5/2002

Stage: Development/Options

Source of Intervention: Domestic

Type of Measure: Strategic Improvement

Contact for enquiries: ARconsultation@charitycommission.gov.uk

1.2 Summary: Intervention and Options

Cost of preferred (or more likely) option (in 2019 prices)

• Total net present social value: £m
• Business new present value: £m
• Net cost to business per year: £m
• Business impact target status: non-qualifying provision

CCEW has identified high-priority gaps in the data we hold, as compared with the information we have determined would best support us in delivering our statutory objectives. We collect much of our data about charities through a set of questions completed by those charities legally required to complete an Annual Return. However, these questions are not currently optimised to effectively develop intelligence about the charity sector and therefore better focus our regulatory and supporting activity. The last strategic review of the CCEW Annual Return was for the 2018 submission. Five years on, the sector, and its operating context, has changed dramatically. As we enter the post-pandemic phase CCEW has an excellent opportunity to better understand, regulate and support the charity sector.

In our highest risk areas, we have proposed seeking additional data to give early and appropriate sight of evolving risks to the sector, donors or beneficiaries. This would be for the purpose of preventing and dealing with wrongdoing and harm in an increasingly proactive fashion in addition to our reactive remit; ensuring we hold current and relevant information on charity activities, securing appropriate levels of transparency and accountability of this data to the public and building on the influence research shows this has on increasing levels of public trust and confidence; securing oversight of trends associated with both risk and impact across the sector, allowing for increased understanding of how charities operate which will help support the work of relevant policymakers, including Government and associated bodies.

The production of an Annual Return and accounts is a statutory requirement for all charities with an income over £10,000 as well as for all CIOs. Charities covered by the proposal remain the same as in the current Regulations. Updating the Annual Return is part of the CCEW’s wider data collection framework, including setting the groundwork for future proposals relating to the charity SORP. Doing nothing, by maintaining the question set from 2018, would mean a continuation of existing levels of information, which has proven insufficient in recent situations – such as the pandemic response and would act as a barrier to advancement in how data about the charity sector can be utilised to support our aims and objectives. All improvements are intended to be user-led. This includes the development of a new question set; the development of an updated digital services; the development of interactive and accessible data for the sector and other stakeholders. With the introduction of a new question set, the Commission will seek to keep the same questions for at least 3 years, providing consistency for charities.

Will the policy be reviewed?

It will be reviewed.

If applicable, set review date:

Annual – 2023 through 2026

Is this measure likely to impact on international trade and investment?

• No

Are any of these organisations in scope?

• Micro: Yes
• Small: Yes
• Medium: Yes
• Large: Yes

What is the CO2 equivalent change in greenhouse gas emissions? (Million tonnes CO2 equivalent)

• Traded: N/A
• Non-traded: N/A

I have read the Impact Assessment and I am satisfied that, given the available evidence, it represents a reasonable view of the likely costs, benefits and impact of the leading options.

Signed by the responsible:

Date:

1.3 Summary: analysis and evidence

Description: Full economic assessment

Price base year 2021

PV base year 2021

Time period years 1

Net benefit (present value (PV))(£m)

• Low: optional
• High: optional
• Best estimate: TBC

1.4 Costs(£m)

Total Transition, constant price years 1

• Low: £1,980,497.90
• High: £9,902,489.50
• Best estimate: £4,951,244.75

Average Annual, excl. transition, constant price

• Low: £0
• High: £1,980,497.90 (year two)
• Best estimate: £0

Total Cost (present value)

• Low:
• High:
• Best estimate: £4,951,244.75

Description and scale of key monetised costs by ‘main affected groups’

It is anticipated that key monetised costs for charities under an updated Annual Return will be the impact on gathering information, particularly where this may be new or different to information already collected. The low point of impact is based on a 10% increase in time while the high-point is at a 50% increase. A mid-point has also been calculated in the table in the evidence section below and is at 25%. The high-point is considered highly unlikely and has been included to demonstrate a range of assumptions. Assumptions are included from page 6.

Other key non-monetised costs by ‘main affected groups’

The costs of creating, checking and submitting accounts and an annual report have not been included as there is no proposal to change these items, though charities may choose to change them in line with their annual return submission. Additional time spent in charities on responding to an updated annual return requirement may result in time away from other activity to support delivery against charitable objectives. The updated Annual Return will mean questions remain the same for 3 years and with the option for some questions to be removed as we develop alternative mechanisms to collect the data over time, resulting in diminishing impact each year.

1.5 Benefits (£m)

Total Transition, constant price years

• Low: Optional
• High: Optional
• Best estimate: TBC

Average Annual, excl. transition, constant price

• Low: Optional
• High: Optional
• Best estimate: TBC

Total benefit (present value)

• Low: Optional
• High: Optional
• Best estimate:

Description and scale of key monetised benefits by ‘main affected groups’

Charities in the IFF Research response described the Annual Return as a method through which they guarantee the good governance of their organisation. The updated questions and a static question set mean that charities will be able to further understand their own organisations within the annual context and provide more information about what they do, their purpose and the benefit they bring to wider society.

Other key non-monetised benefits by ‘main affected groups’

Improving data collection about the sector will enable the Commission to better direct proactive activity, inform our policy development and wider regulatory work which should contribute to more proactive identification of wrongdoing and harm, minimising sector risk while enabling evidence to improved data that will help us promote and enable compliance with charity law. This should improve trust and confidence in the Commission’s ability to regulate effectively and identify / tackle wrongdoing and harm when it happens. The outputs of the consultation will be used to further understand potential benefit to the sector.

Key assumptions/sensitivities/risks

Discount rate (%): 0

There is some inherent uncertainty about the impact of the AR23 changes on different types of charities – this is in part because of the data gaps that we are trying to close through the revisions to the question set. We are using the impact suggested by the IFF Research consultation as a proxy for charity time spent on AR. We are also having to make some assumptions about how different types of charities may be affected depending on their activities (those that do not perform certain activities will not answer certain questions, but we will not have precise numbers until we had run the question in an AR for the first time). We are satisfied, in principle, that the benefits of enhanced transparency and better data, enabling more targeted regulatory interventions will be of greater benefit to charities. They should help to increase public confidence that charities are open, trustworthy, and well regulated.

1.6 Business assessment (Option 1)

Direct impact on business (Equivalent Annual) £m:

• Costs:
• Benefits:
• Net:

Score for Business Impact Target (qualifying provisions only) £m:

Problem under consideration and rationale for intervention

The Charity Commission has identified high-priority gaps in the data we hold, as compared to information that we have previously determined that we should collect in support of our statutory objectives. There are areas where the coverage of our routine data collection, through the questions contained in the Annual Return, is not presently optimised. Taking opportunities to make these questions clearer, more relevant and more comprehensive will support proactive identification of regulatory interventions that may be needed in response to risks around finances and financial governance, safeguarding and charities operating internationally. We are also seeking information that can allow us to regulate in the public interest, ultimately increasing accountability to the public by securing accessible and accurate information.

We have carefully considered whether it aligns to activity in support of our statutory objectives for the Commission to initiate data improvement in this area and gather the additional data, given that this increases the maximum number of questions a charity might be presented with the number increasing (depending on their activities and size) from 36 to 52, a 44% increase. In practice it would be very rare for a charity to carry out the precise suite of activities and structures that would require them to answer the full set of questions. In the proposed Annual Return, a minimum of 32 questions will be asked of all charities (this is compared with 16 in previous years, so doubles the baseline) with all other questions being dependent on income and type of delivery. Many questions require a yes or no answer, with some responses triggering further questions. The overall extent of regulatory burden in return for the benefits obtained (outlined in the following section) has been a key decision-making factor throughout the process. There is no other body, voluntary or associated with Government, that has the systems in place to carry out this form of annual collection from the full sector (both large and small charities) so it cannot be a stakeholder led change. Due to the existing Regulations and process, there is an established system and cycle in place that should make this a manageable requirement upon charities. It is anticipated that the greatest impact will be felt in year one, as we move to a new question set. The intention is to retain the same question set for at least 3 years which means there will be a diminishing impact over the time period.

We have been careful to only propose additional questions in the Annual Return where there is no other collection route (in the Commission or in the charity sector) so as to avoid duplication. We have strictly rationalised from a longer list of potential data improvements based on fit to our regulatory remit and the value they will add, and have discounted the addition of questions where, in our view, the utility of additional data would not outweigh the additional time requirement it might impose on the sector. We have also assured ourselves that where we have suggested new data is collected, it is definitely necessary for it to be collected annually to monitor trends in key risk areas, rather than something that could potentially be collected on a one-off basis in response to a risk event. We have only included proposed questions for data we cannot collect through other mechanisms.

Policy objective

As a result of implementing the revisions to the Annual Return, our data set will be more effective than that collected using the current question set, which has been in use (with minor guidance revisions) since 2018. We are assessing this effectiveness in fulfilling three primary policy goals. These are to:

• ensure that in our highest risk areas we have access to additional data that we have identified we need to give early and appropriate sight of evolving risks to the sector, donors or beneficiaries. This means we can prevent and deal with wrongdoing and harm through routes additional to our reactive regulatory role
• ensure that we collect current and relevant information on charity activities to secure appropriate levels of transparency and accountability of this data to the public, building on the clear influence research shows this has on increasing levels of public trust and confidence
• have clear oversight of trends within the sector, and evidence as to the impact of charities, to inform our policy development and wider regulatory work. This also supports our general duties to respond to queries from Ministers of the Crown for information or advice on any matter relating to any of our functions and to encourage and facilitating the better administration of charities

We are doing all this with proportionality in mind, ensuring that we are conscious of the differing types and sizes of charities that will be filling out the return. We are seeking to collect data at the right time and through the right route and have therefore looked at overlaps with other data collection opportunities, such as UCD, Charity Classifications and the SORP. Where we have determined questions for an Annual Return are the most suitable data collection vehicle, this is generally on the basis that they need to be asked annually in order to collect timely information and generate data that can be examined for longitudinal trends. However, we have assessed that there is opportunity to use the annual return process to collect data on current and emerging situations that are, or are likely to be of high-risk to individual charities and the sector as a whole examples include the impact of Covid-19 or the conflict in Ukraine. This has resulted in the addition of one topical question.

We only collect data using this question in exceptional circumstance (need) based on comprehensive risk assessment processes. The focus is on minimising additional data requests to charities that would be required if we instead had to do this through a bespoke data collection mechanism. To inform this topical question, we will utilise our existing risk assessment approach and focus on the most urgent / high-level risk to ensure we are not collecting unnecessary information.

The additional policy objective is to improve the ease of completion of the Annual Return, both by modifying language in the questions to make it clearer, with an accompanying glossary and specificity of thresholds around which information should be declared, e.g. using % figures in questions around income. Additionally, we have used Yes or No responses as the default for new questions, and only deviated from this where it is necessary to secure more granular data.

We do know that modifying the form of existing questions does come with a short-term regulatory burden in making the initial switch as the charity familiarises itself with the new question set, we anticipate that over the lifecycle of the Annual Return strategy period, trustees will find the questions themselves are easier to interpret and engage with. Further, we intend that those questions ask for data in a form that trustees should normally be routinely collecting for other purposes in any case. It is anticipated that the regulatory impact will decrease sharply after year one, partly because charities will become familiar with the updated baseline questions and understand the information they are likely to be asked on the basis of their income and charity type (where the Commission will support with a ‘data guide’ for charities), and partly because, as the consultation suggests, we may remove questions at a point where we identify a less burdensome way of obtaining information.

We will work to measure the effectiveness of this through a review of the quality of data returned each year (i.e. whether charities have provided the information we expect, in the form provided), and make an assessment about the changes to the AR in the Annual Report. The data collected will be monitored and supervised against standards set out as part of the data management element of this work.

1.7 Overview

This is an early assessment of Regulatory Impact from the changes to be introduced to the Annual Return with effect from 2023. Figures will be refined once the final set of questions and the system design are confirmed following consultation. Social value, focused on the benefit to wider society of making regulatory changes, is heavily reliant on which information can be collected and how it can be shared. A monetary value hasn’t been attached to social value at this point but the factors for consideration are summarised above and included in the section below. Figures for social value will be refined alongside the Equality Impact Assessment, Data Protection Impact Assessment and development of the Commission’s Data Warehouse, which will better inform how data can be collated, analysed and disseminated. Broad assumptions were initially made and have been refined through initial consultation / research and in preparation for full consultation. The full consultation will result in a final refinement and assessment of regulatory impact and likely burden. The assumptions used, and any refinement that has taken place, are detailed below with reasoning for why they have been used and detail about how they can / will be further challenged.

1.8 Assumptions

Charities required to submit an annual return and additional burden of an updated return

Income bands determine the level and complexity of detail required from charities in submitting their annual returns. This will continue with the proposals for an updated annual return in 2023 with 32 questions being asked of all charities with an income over £10,000, and all CIOs, and up to a further 20 additional questions being presented to charities based on their income type and based on other risk factors, such as if they operate overseas or are likely to be engaged in safeguarding activity. This is twice the number of questions currently being asked of all charities and the same number of sub-questions that might be asked.

The figures in table D refer to the number of charities in each income band. The table differentiates between types of charity at the under £10,000 income threshold only. This is because all charitable organisation types are required to respond to questions about their organisation at over £10,000 income per year but under £10,000 income per year only Charitable Incorporate Organisations (CIOs) are required to answer questions. As all charities are required to submit some form of annual return, all charities have been included in the activity calculation to estimate the regulatory burden and this has then been adjusted to remove those organisations who will see no increase in time to submit as they do not answer questions about their activities. This estimate will be reviewed and refine again based on responses from the public consultation.

It should be noted that the requirement to submit an annual return or provide information about a charity is not new and therefore the entire regulatory burden of completing a return isn’t costed for impact. An estimate of 50% increase on time at a high-point to complete the annual return in year one has been included, with a mid-point of 25% and a low-point of 10%. All figures refer to the impact of changes from regulatory burden only and predominantly focus on year one. The intention is that the total potential question set will remain the same for at least 3 years, which will mean a diminishing overall regulatory impact over this time period as charities become used to the information gather and reporting requirements of the updated questions, they are most likely to be asked. As such, it is anticipated that the impact for Year Two should return to pre-transition burden as charities are familiar with the question set, the best estimate has been placed at 0, though a high-point of 10% impact has been included. There is also the potential to remove questions as new mechanisms for collecting the same information are identified and/or developed which could see an overall reduction in regulatory burden on charities through the annual return. The design of the updated question set means that larger, higher-income and charities with higher-risk / more complex operating models will be more likely to be asked to answer all of the questions, including sub-questions with lower income charities only answering the 32 core questions. The smallest charities (those which are not CIOs and have incomes under £10,000) will see no change as they will still only be asked for their income and spending figures. This assumption has been included on the basis that annual returns should be familiar to most organisations and they are likely to already have mechanisms for collecting, reporting and signing-off information about their organisations. Where a charity is unfamiliar with the annual return this is likely due to a change in people or the charity being new, in both cases, the annual return would have been a relatively more complex experience than for existing organisations. An assumption of familiarity with the existing annual return has been included in calculating the overall regulatory burden and any new charity will be supported to become familiar with the annual return process.

It would be possible to include the estimated regulatory burden costs for new charities, and/or those who have never submitted annual returns and/or have moved between brackets in this same way. While they would not have previous experience of submitting an annual return they would still be required to answer more questions than the year of establishing their charity (e.g. if they were established in 2022). Given that these charities had previously not submitted annual returns or have increased requirements due to a change income, they are unlikely to need to rework processes in the same way that charities well-tuned to existing annual returns may have to if they have to respond to a question requiring declaration of additional data. Netting out these impacts, we have made an assumption that the impact is the same across new and existing charities.

The question set is now finalised for consultation, and this includes a total of 52 questions. For the purposes of the Regulatory Impact Assessment at this stage, it is assumed that there will be no more, or less, than 52 questions in total (although in practice, as the consultation document sets out, this is the maximum question set and we may not run all questions every year). All charities with an income over £10,000 and all CIOs will have to complete a minimum of 32 questions with other questions presented by income bracket and activity types. For the purposes of the Regulatory Impact Assessment, at this time, it has been assumed that all charities will see an increase / difference in the number of questions they are asked to complete and the type of information they are asked to provide. The question type and impact assumptions are included below. Complexity for each question has also been developed as an annex to this impact assessment. The assumptions for how complexity has been calculated are included below.

Table A: number of questions – previous years compared to AR23 proposal

Per annum totals for Part A	2023	Previous Annual Returns	Change
Number of questions	52	36	44% increase
Number of new questions	23 [footnote 1]	Not applicable	Not applicable
Number of questions that have been amended as per feedback from previous Annual Return processes	5	Not applicable	Not applicable
Number of questions retained from previous Annual Returns	24	Not applicable	Not applicable
Annual baseline – the number of questions asked of all charities	32	16	Double (100% increase)
Number of sub questions aimed at specific charities	20	20	No change

Table B: complexity of new and amended questions

Completion Difficulty	2023	Change
Little to no complexity anticipated in the information gather. This is information that it is expected charities would know as part of the management of their organisation.	5	Unavailable
Some complexity anticipated in the information gather. While information in this category might already be collected by charities, it may require some additional or new analysis of data / information.	4	Unavailable
The information gathered is likely to be complex in nature. It may be complex information already gathered and analysed by charities, new information requests from charities or information that requires input from multiple sources.	15	Unavailable
The information gathered is likely to be highly-complex in nature with any inaccuracies having reporting implications for charities. It is likely to be highly complex, existing information or new information charities are asked to share. It will include information that requires input from multiple sources. The size and nature of the charity will directly impact how complex the information gathered is.	4	Unavailable

Table C: complexity assessment – criteria

When considering the length of time charities indicated that it took to complete annual return submissions in line with the proposed increases, each new question was assessed for complexity according to the following criteria. The complexity of most questions was in categories 1-3 which suggests that there will be an impact in the requirements and this will be tested as part of the consultation on the question set.

Level of complexity (1 = low, 4 = high)	Information Gather	Technical Expertise / Sign-off	Technical complexity of completing the AR form
1 (little to none)	Little to no complexity anticipated in the information gather. This is information that it is expected charities would know as part of the management of their organisation.	Limited technical expertise is anticipated to ensure the quality and accuracy of the information and it isn’t anticipated that it is the type of information that would require additional sign-off.	Entering the information into the Annual Return form is expected to be easy with radio buttons, limited drop-downs or limited character field (e.g. number / value)
2 (some)	Some complexity anticipated in the information gather. While information in this category might already be collected by charities, it may require some additional or new analysis of data / information.	It is possible that a charity may find benefit in drawing on technical expertise in gathering and / or verifying information in this category but it isn’t anticipated that the information for submission would require any additional sign-off.	Entering the information into the Annual Return is expected to be easy with radio buttons, limited drop-downs or limited character field (e.g. number / value). There may be some multi-selection fields to complete.
3 (definite)	The information gathered is likely to be complex in nature. It may be complex information already gathered and analysed by charities, new information requests from charities or information that requires input from multiple sources.	The information gathered for questions at this level of complexity is likely to require oversight and sign-off from someone with technical expertise in the relevant field, e.g. financial breakdowns, nature of operating partners.	Entering the information into the Annual Return is likely to be more complex, from multi-selection fields through to free text boxes.
4 (high)	The information gathered is likely to be highly-complex in nature with any inaccuracies having reporting implications for charities. It is likely to be highly complex, existing information or new information charities are asked to share. It will include information that requires input from multiple sources. The size and nature of the charity will directly impact how complex the information gathered is.	The information gathered for questions at this level of complexity will require oversight and sign-off from someone with technical expertise in the relevant field, e.g. financial breakdowns, nature of operating partners and will require sign-off from someone more senior in the charity. The size and nature of the charity will directly impact how complex the information gathered is.	Entering the information into the Annual Return will be of the highest complexity, usually in the form of free-text boxes which allow for greater ambiguity.

Submission requirements for charities by income bracket

• Charitable companies and unincorporated organisations
  • Income under £10,000 – report income and spending
  • Income between £10,000 and £25,000 – answer questions about charity, no further documents required
  • Income over £25,000 – answer questions about charity, accounts checked, trustee annual report, accounts, independent examiner’s report
  • Income over £1m and / or gross assets over £3.26m with income over £250,000 – full audit as well as answer questions about charity, accounts checked, trustee annual report, accounts, independent examiner’s report

Charitable incorporated organisations

• All CIOs – answer questions about charity, annual report, accounts
• Income over £25,000 - answer questions about charity, annual report, accounts, get accounts checked, submit a copy of independent examiner’s report
• Income over £1m and / or gross assets over £3.26m with income over £250,000 – full audit as well as answer questions about charity, accounts checked, trustee annual report, accounts, independent examiner’s report

Estimated time to complete an annual return

For the purposes of this impact assessment the requirements to get accounts checked / independently examined have not been considered. Changes to the system and the question set do not impact this requirement which is referred to as ‘Part B’ of the Annual Return The only impact is on Part A, which is where questions are asked about the income and operations of charities.

Estimated time to complete the required information for each income bracket is based on information from the report based on the consultation exercise that was completed in March 2022, with around 70 charities across different levels of income by a contracted researcher – IFF Research. It is also based on the assessor’s knowledge of administrative activity required to gather relevant information and produce reports. The time to physically submit the additional questions in annual return is likely to be the least burdensome element, though a change in question order and content will have an impact on how charitable organisations complete their submissions. We are looking to introduce mechanisms that allow information to be reviewed and changed mid-application so that there won’t be a need to restart sections if information needs to be altered. It should be noted that this is based on best estimates and is open to challenge. It will be subject to further refinement as we receive more information from the sector during consultation between June and August 2022. Building and testing the determined / final question set will give a far clearer view of the regulatory burden and this will result in an improved assessment of regulatory impact in Q2 2022/23 and a further review will be conducted following the consultation in Q3 2022/23.

Charities interviewed as part of the IFF Research consultation told us:

‘The time taken to enter the information into the form ranged from 10 to 90 minutes. For Low-Income and Mid-Income Charities it generally took no longer than 30 minutes. Those more experienced with Annual Returns also tended to report it was quicker. The charities who participated in this research tended to be fairly experienced, it may take longer for some submitting a Return for the first time.

Gathering the information took typically around half a day in total for Mid-Income and Low-Income charities but it could be a multi-stage, multi-day process for larger organisations who might need input from a number of different people internally and externally. High-Income Charities reported it could be time-consuming looking up information or clarifying definitions for questions they had not been asked in previous years. Examples of requests which charities found particularly onerous included reporting government Covid-19 recovery grants at a monthly level and giving the details of income received from overseas at country level.’

From this information, the following assumptions are being made for charities based on income:

Low-income charities (below £10,000) will see no change as they are only required to submit income and spending detail which is an existing requirement.

Low-income charities (between £10,000 and £25,000) and CIOs under £10,000 income take 30 minutes to submit information and half a day to gather information – costed at 4 hours in total with no additional sign-off requirement.

Mid-income charities and CIOs (considered as those over £25,000 and up to £250,000) take 30 minutes to submit information but up to a day to gather information and achieve sign-off (all costed at one level), costed at 7.5 hours of work.

High-income charities and CIOs (considered as those over £250,000) 3-5 days to gather and submit information, including increased governance for sign-off processes. This has been costed at the mid-range, to provide an average across levels of efficiency and types of charity with 30 hours required to complete the required annual return activity. This includes 27 hours spent on information gather and 3 hours for sign-off (assuming equivalent of a senior leadership team meeting).

Estimated costings for time spent on information gather, annual return submission and sign-off

Annual return information can be gathered for charities by unpaid trustees, volunteers, or paid employees. The rates of pay in the charity sector are typically lower than public and private sector rates of pay. The assessor’s view is that using this costing to understand regulatory burden isn’t robust and instead proposes the use of the BEIS recommended costs of £14 p/ hour. However, it is accepted that using this figure is likely to result in an overall over-estimate as many charities, particularly lower-income charities and CIOs are likely to be managed by unpaid trustees. It is assumed a typical sign-off in a mid-low income charity would be at the same level as the technical skill needed for the information gather. Information gather in high-income charities is assumed at this same £14 rate, with sign-off at the equivalent of a senior grade in the civil service. Hourly rates / day rate charges have been used to find a high-point figure for the sign-off costs (source – Charity Commission intranet, Appointing Temporary Workers) to account for the potential that multiple people might be involved in review or sign off, this is costed at £250 for half a day equivalent of sign-off time as outlined in more detail below:

Low and mid-income charities – information gather and sign-off at an hourly rate of £14.

High income charities – information gather at an hourly rate of £14; sign-off at a 0.5 day rate of approximately £250 (note, this is an estimate as the number of charities is much lower for impact on overall cost).

Anticipated Benefits and Social Value

One of our aims in updating the annual return from 2023 onwards, in particular the updated question set and ways to make the service easier to use, are to improve data collection about the sector. This will enable the Commission to better direct proactive activity, inform our policy development and wider regulatory work which should contribute to more proactive identification of wrongdoing and harm and to minimising sector risk. This improved information will support the Commission in promoting and enabling compliance with charity law. This should contribute to improving trust and confidence in the Commission’s ability to regulate effectively and identify / tackle wrongdoing and harm when it happens.

Charities in the IFF Research response described the Annual Return as a method through which they guarantee the good governance of their organisation. The updated questions and a static question set mean that charities will be able to further understand their own organisations within the annual context and provide more information about what they do, their purpose and the benefit they bring to wider society. In addition, we are looking at ways we can improve and enhance the digital service for annual return to make it easier and more efficient for trustees and charities to use.

The Commission wants to build on its understanding of what the cost of wrongdoing and harm is to the sector and using the information gathered through the enhanced annual return and question set we aim to identify areas of specific risk that we can proactively target. Through this we hope to proactively reduce the impact of wrongdoing and harm on the sector and provide more targeted advice and support where we know it is needed.

As our knowledge about the sector grows we aim to utilise annual return data to inform policy decisions that direct the support offered to charities and enable more targeted and efficient spending, resulting in greater value for money across society and directing activity to those areas, geographically and across the sector, that need it most.

The outputs of the consultation will be used to further understand potential benefit to the sector.

1.9 Conclusion

The table below takes into account the number of charities there are and includes generic increases of 10%, 25% and 50% in the time taken to complete the changed elements of the strategic AR. There has been consideration for the complexity of the updated questions in relation to information gather, sign-off and professional input. It is noted that the overall number of questions is a 44% increase, the number of questions asked of all charities doubles whilst the number of specific questions asked remains the same.

Specific questions are more likely to be asked of larger or more complex charities and when reviewing complexity of the question set, higher complexity questions look more likely to affect larger charities. It is anticipated that larger charities will experience a lower overall impact as they are more likely to have dedicated resource, technical expertise and established processes to support the production and delivery of an annual return. With around 60% of charities impacted by the question change and aggregating across the likely increases and impacts for those questions, it is proposed that the mid-point calculation of 25% is used to demonstrate regulatory burden. This sits most in line with the overall increase in the number of questions and accounts for the greater impact on higher income charities.

Further work is required on the specific complexity of questions, but the current assessment places the regulatory burden at an estimate of £4,951,245 with the most burden being experienced in Year One, a likely net-zero impact in Year Two and a potential for reduction in overall burden by Year Three. This will be reviewed again in light of the consultation. Full breakdown of the figures for the immediate (transition year) impact can be seen below, in Table E.

Table E: Calculations for Regulatory Impact Assessment

1. Please note this needs to be considered against the complexity ratings per questions when considering the regulatory impact ↩