Guidance for member hospices on the Charity SORP March 2010

This guidance is endorsed by the Charity Finance Directors’ Group, which aims to promote best practice in charity finance in England and Wales.

While great care has been taken to ensure the accuracy of information contained in this guidance document, it is necessarily of a general nature and Help the Hospices cannot accept any legal responsibility for any errors or omissions that may occur. The publishers and authors make no representation, express or implied, with regard to the accuracy of the information contained in this guidance document. The views expressed in this guidance document may not necessarily be those of Help the Hospices. Specific advice should be sought from professional advisers for specific situations.

No part of this guidance document may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise without the prior permission of Help the Hospices.

©2010 Help the Hospices

Contents Introduction 3

Key 6

SOFA – Income notes 7

SOFA – Expenditure notes 15

Balance sheet and notes 21

Appendix – Apportioning overheads 26

2

Introduction This document and the accompanying example set of accounts provide guidance on how hospices should classify and disclose items under the Charities SORP (Statement of Recommended Practice) 2005 to make sure they are fully complaint with the Charity Commission guidelines. It focuses on the statement of financial activities (SOFA) and related notes, as this is where guidance is most needed, but also covers the balance sheet (and related notes).

We have tried to include any item that is reasonably common for several hospices. Therefore, the accounts are quite detailed, but there will be several items each hospice does not have (or that are immaterial).

The aims of this guidance are:

to address some areas of confusion among hospices

to reduce the costs to hospices, by producing hospice specific guidance, thus reducing the amount they have to pay to professional advisors

to enable hospices to benchmark their performance more accurately by improving the quality of the annual ‘Hospice accounts’ report produced by Help the Hospices

to improve the standard of hospices’ accounts (while all hospices’ accounts will be approved by external auditors, the auditors may not be charity specialists, and it is not their job to make sure the accounts are perfectly compliant, so they may not try to correct minor disclosure errors).

This guide only deals with issues around how things should be disclosed in the accounts, it does not:

give guidance on appropriate accounting treatment (although Help the Hospices finance team will do their best to answer specific queries)

give any guidance on the content of the trustees report (although this is something we may develop at a later stage)

include a cashflow statement (some larger hospices may have to prepare one).

Also, the example set of accounts does not include any accounting policies since we felt that these would be unique to each hospice.

In preparing the analysis of incoming resources, we have focused on what will be most useful for fundraisers in benchmarking project performance. In preparing the analysis of expenditure, we have based the analysis on the costing model that Help the Hospices is developing. Although the accounts and the costing model do not need to be prepared on the same basis, it will reduce work if they are and it will also increase the understanding of the costing model as it will tie in more closely to the accounts.

3

A key principle of the SORP is that incoming resources should be linked to any related expenditure and should be analysed by their nature rather than their source. Meanwhile, expenditure should be analysed by what it aims to achieve (ie outcomes, not outputs). The following table shows the mandatory headings (in bold) in the SORP and how they should be linked.

A Incoming resources B Resources expended

A1 Incoming resources from generated funds

B1 Cost of generating funds

A1a Voluntary income B1a Costs of generating voluntary income

SORP suggests breaking these down into their material categories by nature.

Items here should be only those that are purely voluntary in nature (gifts) and would include any endowments.

Costs of any fundraising for those gifts of income and/or endowment. Ideally these costs should be broken down into the same categories as income (but in practice this may not be possible).

A1b Activities for generating funds B1b Fundraising trading: costs of goods sold and other costs

SORP suggests breaking these down into their material categories by nature.

Items here should be only those that include an element of value-for-value exchange (the person gets something valuable in return for their money).

The costs of raising income from fundraising trading activities/events analysed in the same format as for that income.

A1c Investment income B1c Investment management costs

SORP gives very specific guidance about how this should be analysed in the accounts notes.

These only need to be analysed in more detail if the hospice is endowed and the endowment capital is invested (the example set of accounts assumes this is not the case).

A2 Incoming resources from charitable activities

B2 Charitable activities

SORP recommends analysing these on These should be analysed across the

4

what the charity is being paid for, not who it is being paid by. It requires that the analysis should follow the same format as the analysis of charitable activities wherever possible.

key aims/objectives of the activities the charity carries out, including an allocation of support costs.

A3 Other income No expenditure equivalent

No income equivalent B3 Governance costs

5

Key The Charities SORP sets out certain mandatory categories. These category headings are indicated by an asterisk (*) throughout this guidance and the example set of accounts.

In other areas, the Charities SORP recommends that certain items are analysed in further detail, but does not prescribe how they should be analysed (because each charity will be different). However, it is likely that each hospice will have similar activities, so it is recommended that they follow a common approach. Such analysis comes under headings that do not have an asterisk. There are a couple of areas where we are suggesting extra information that is not required by the Charities SORP. There are not many of these, and they are indicated by the hash symbol (#).

NB. The concept of materiality always applies, ie if the value of any item is immaterial then it does not need to be shown separately and can be grouped with one of the other categories on a ‘best fit’ basis.

6

Statement of financial activities (SOFA) The example set of accounts is based on a hospice with a trading subsidiary.

Hospices with a material trading subsidiary must produce a consolidated SOFA, which includes the results of that subsidiary.

The SORP states that subsidiaries’ income and costs should be consolidated on a line-by-line basis, not as a single figure. So if a trading subsidiary includes, for example, shops, lottery, education and rental income, these items should be split into the appropriate headings in the consolidated accounts; there should not just be one category called ‘income from trading subsidiary’ or similar (the same principle applies to analysing expenditure).

Hospices do not need to publish a SOFA for the charity only, although they can if they wish (the example set of accounts does not include one) as long as the accounts notes disclose the key SOFA figures for the charity separately from those of the rest of the group (as shown in example set of accounts note 24).

At a minimum, the SOFA should distinguish between unrestricted and restricted funds, and restricted funds should be split between income and capital if the hospice receives endowment funds. The example set of accounts does not include any endowment funds. (Hospices should consult their auditors or the finance team at Help the Hospices for guidance on the disclosure of endowed funds).

The example set of accounts also makes a distinction on the face of the SOFA (as opposed to the notes) between general and designated funds. This is not mandatory, and alternatively hospices may consider that the best way of doing this is in a note to the accounts.

There is no need to make this fund-type distinction in the individual income and expenditure notes, and the example set of accounts does not do this.

Incoming resources* There are certain mandatory categories for income laid down in the SORP.

The SORP requires that income is split between two categories:

income that you fundraise for – ‘income from generated funds’ and

income that you receive in return for carrying out your charitable activities – ‘income from charitable activities’

There is a third category – other income – but this should only be used in rare cases, eg selling a significant fixed asset or selling a significant part of the hospice’s activities to a third party.

7

Incoming resources from generated funds*

The SORP has three mandatory categories within this area:

voluntary income (including any endowments)

activities of a trading nature for generating funds

investment income.

These three headings should be on the face of the SOFA if there is any material income.

The SORP does not prescribe any specific sub-analysis below this, but recommends that these amounts are split into their material parts in a note to the accounts.

Voluntary income (including any endowments)*

Under the Charities SORP, items to be included in the category include:

gifts of money

donations for Light Up A Life

any other cash donations (including those made in shops)

legacies

grants for core funding, including those from government and charitable institutions (except for ‘performance-related’ grants – see below)

gifts in kind (this represents the value of items donated to the charity) – this applies only to goods that are donated to the charity for its own use, either as fixed or current assets, but not items that are donated for sale by the charity to finance its activities (only the sales proceeds from such gifts are recognised in the accounts)

donated services or facilities (this represents the ‘value to the charity’ of services donated free to the charity, eg the amount it would have cost to rent a suitable conference centre instead of one that is provided free and that may or may not be better/larger than needed. No figure should be included in relation to volunteers time as the SORP specifically states that charities should not include a value for help provided by volunteers)

income from Midnight Walks

sponsorship (in the sense of donors charitably sponsoring someone to, for example, run a marathon, not, for example, a company sponsoring a publication in return for prominent display of their logo)

donations received at fundraising events (so technically if you have a fundraising ball that you sell tickets for, that ticket income should not be shown here as it is

8

Gift Aid tax claims arising from any of the above.

The SORP suggests that voluntary incoming resources should be broken down into appropriate constituent parts either on the face of the SOFA or in the notes to the accounts. It would be helpful for comparison purposes if each hospice adopted a common basis on which to analyse the income.

We are suggesting that there are three broad headings that would be suitable for hospices to split this category on the face of the SOFA:

donations

legacies

government grants.

More details about these three items can be provided in the notes.

If someone else is making a donation to a hospice, it does not matter how they raised the money, just in what form they pass that money to the hospice. For example, if a ‘friends group’ organised a ball and then donated the profits to the hospice, the net profits would be shown as donation income.

In contrast, as explained below, if the hospice organised the ball itself, income and expenditure would be shown gross as ‘activities for generating funds: fundraised income’ and ‘cost of generating funds: fundraising trading’ respectively.

Donations (Example set of accounts note two)

Donations are likely to be a material source of income for every hospice. Therefore, according to the principles of the SORP, these should be broken down into their main constituent parts in a note to the accounts. Most hospices do this already, although they use different categories and different levels of analysis.

Most hospices will not need to include every one of the following items, but they are included in this guide for completeness:

general donations

in memoriam donations

standing orders and directs debits

donations from charitable trusts

payroll giving

9

value of gifts in kind and donated services

donations for Light Up A Life

income from Midnight Walks

other sponsorship.

Gift Aid tax claimed on the above should be included somewhere within this category. There are two options as to how this can be shown:

The Gift Aid tax claimed could be added on to the total for the item it relates to. So Gift Aid tax claimed in respect of Midnight Walks would be included in the total for Midnight Walks, etc. The advantage of this is that the true amount of income raised by each activity is shown.

The Gift Aid tax claim could be shown separately. The advantage of this is that the total amount of Gift Aid tax would be shown, which might make it clearer when hospices are doing well in terms of their recovery of tax under the Gift Aid scheme.

Ideally, we recommend that hospices do both, by adopting the first approach but identifying the total Gift Aid as a memo#, as is shown in the example set of accounts.

Legacies (Example set of accounts note three)

Under the Charities SORP, as with any other form of incoming resources, legacies should be accounted for on an accruals basis. The SORP gives three criteria of entitlement, measurement and certainty for charities to consider when deciding if a legacy should be included in the financial statements.

A hospice may have material legacies that they have been notified of by the year end, but which do not meet the criteria for inclusion in the financial statements. In such cases, they should disclose details of the estimated value of the unaccrued legacy entitlements in a note to the accounts.

Grants received (Example set of accounts note four)

One area that may cause confusion is where income from a primary care trust (PCT) (or other equivalent government bodies in other parts of the UK) should be shown.

This is an area where there could be two separate treatments depending on the way a hospice is funded:

If a hospice receives its income under a block grant, then the income should be shown here (and it may be restricted if the PCT is giving the money only for a particular service). An indication that the money is received under grant would be that the correspondence specifies what services the money must be spent on, but does not specify or vary the level of activity. If it specifies which hospice services

10

If a hospice receives its income under a performance-related service level agreement (SLA), the SORP states it would be more appropriate to show it as incoming resources from charitable activities (see comments on income from charitable activities on page 15 below). An indication that a hospice is receiving money under such a SLA would be where the level of income depends on the level of activity carried out (eg the hospice is paid a certain amount per referral/per bed night/per person attending day care, etc).

Again, the principle of analysing income into its material constituent parts applies. For hospices, we suggest that it would be appropriate to split them into a core-funding grant, and then list any other significant grants by name/purpose.

Activities for generating funds*

The Charities SORP describes these as ‘trading and other fundraising activities carried out… primarily to generate income’.

Items included in this category should all include an element of value-for-value exchange (the contributor gets something from the charity in return for their money). Examples of things that should go in this category are:

sales of tickets (eg for a lottery, a ball, a coffee morning)

other income where the main purpose is fundraising but people are getting something valuable in return, eg golf days (people pay to play golf), autumn fair or Christmas fair (people buy goods), raffles (people buy tickets), ladies’ lunches and fundraising dinners (people pay to attend the lunch/dinner), sunflowers (people buy sunflowers), santa’s grotto (people pay for children to enter the grotto)

the fee a participant pays to the hospice for entering a Midnight Walk, trek or challenge event, but not any of the voluntary income they raise as a result of their activity

commercial sponsorship (eg where a local company pays for a hospice to produce a publication in return for prominent display of their logo)

income from the sale of goods donated for that purpose and/or from selling bought-in goods

providing goods or services to people who are not the hospice’s beneficiaries and the hire/letting of property that is mainly used for charitable purposes. Where ‘letting income’ is shown in the accounts depends on why the hospice owns the property in the first place. Hiring out a room within the hospice should be shown here. However, if a property is not primarily used by the hospice for its charitable

11

The SORP suggests such income be broken down into its material components in a note. It does not say what these should be, but we suggest that the following three categories would be appropriate for hospices:

Shop income – to include sales of donated and bought-in goods, and income arising from retail Gift Aid (both commission income and the proceeds donated). Technically, any donations received in the shops (eg from collection boxes) should be shown as part of voluntary income, but as these are unlikely to be material it is ok to show them here as it is more practical.

Lottery income – the gross value of the sale of lottery tickets.

Income from charges for fundraising events/activities (eg tickets to balls), from letting out rooms in the hospice, and commercial sponsorship income.

Where material, these items should be broken down further in a note to the accounts as shown in the example set of accounts.

Shops income and expenditure (Example set of accounts note five)

As shops income is such a major source of income for most hospices, it makes sense to include a separate note – most do already.

Having this note in a standard format will also increase our ability to benchmark the results of charity shops.

We recommend that income be analysed within the following categories:

income from sale of donated goods (including the proceeds from the sale of goods on an agency basis)

income from sale of bought-in goods

commission income from sale of goods on an agency basis

any retail Gift Aid income generated within shops

cash donations collected in shops.

Similarly, it would be useful to analyse expenditure in a standard way and the following is suggested:

costs of buying-in goods

staff costs (for staff who work in the shops)

property costs (ie rental costs or depreciation of the shops)

12

management charges and overheads (ie any charges that are not directly attributable to shops but have been allocated, eg apportionment of the finance team’s costs for its time spent on activities for generating funds)

other costs (including, for example, any costs of operating retail Gift Aid such as payments to a software company).

Although it is not a requirement of the SORP, we suggest that this note also mentions the number of shops operated by the hospice#, as this would help us to benchmark shop performance.

Lottery income (Example set of accounts note six)

As lottery income is such a major source of income for most hospices, it makes sense to include a separate note – most do already. The format of the note is fairly simple, and reflects what most hospices do in their accounts already. Income is shown gross and expenditure is split between prizes and other costs.

Fundraising trading income (Example set of accounts note seven) *

We recommend that charges for fundraising events be listed either by type or by name, depending on how many there are. They should be compared to the cost of putting on these events, not only for disclosure in the accounts notes but also for good management, since their profitability is vital for compliance with trust law and tax law. As with all other categories, the costs should include an appropriate proportion of staff time and overheads. (If an event has made a loss, the notes should explain why the trustees had originally expected the event to be profitable, and the reasons why this was not the case).

Again, remember that the concept of materiality prevails, so if income in this area is not significant, no analysis is needed.

The majority of the money from Midnight Walks would not count as fundraising trading proceeds, as the income for the hospice is not primarily raised by charging people to enter the event, but by people making donations/sponsoring the participants. Only income raised by charging people to enter the event would be shown in the ‘fundraising trading income’ category. The rest should be shown as ‘donations income’. The same principle applies to income from challenge events, marathons, etc.

Also, when an outside organisation has held a fundraising event to raise money for the hospice (eg the golf club puts on a dinner and then donates the proceeds to the hospice), that money should be shown in ‘donations income’ not ‘fundraised income’. As long as the outside organisation is not acting under hospice control (including acting as agent) the donation does not have to be grossed up for the event costs. It does not matter how the person giving the money got that money, it is how the hospice received it that matters. In this case, it is receiving it in the form of a donation.

13

Investment income (Example set of accounts note eight)*

The SORP is quite specific on how this accounts note should be set out, with income from the following categories to be separately identified:

rental income from investment properties (ie properties that the charity owns and does not use in its charitable work)

listed investments

unlisted investments

cash

investment income from subsidiaries or other associated companies (see below)

other investment income.

There is nothing unique about hospices, as compared with other charities, that would require any departure from these guidelines.

The category of ‘investment income from subsidiaries/associates’ refers to dividend or donation income from such sources – it does not matter which – and it will only be applicable to the hospice’s own SOFA.

Income from the trading subsidiaries should be treated as follows:

In the consolidated SOFA – No attention should be paid to whether the income came into the charity or the trading subsidiary, as the group is being accounted for like an individual company. Income should be analysed by type, not by the entity it came in as. The SORP states that subsidiaries should be consolidated on a line-by-line basis, not as a single figure. So if a trading subsidiary includes some shops, lottery, education and rental income, these items should be split into the appropriate headings in the consolidated accounts; there should not just be one category called ‘income from trading subsidiary’ or similar (the same principle applies to analysing expenditure). A Gift Aid donation from the subsidiary does not appear in the consolidated accounts, as any transactions between the parent and the subsidiary are cancelled out on consolidation.

In the hospice’s own SOFA – There is a statutory requirement in all cases to produce an audited SOFA for the hospice on its own if consolidated accounts are prepared, even though it can normally be omitted from the published and filed accounts, as long as the key figures from it are separately disclosed in the consolidated accounts notes. However, if a hospice chooses not to do that then any Gift Aid donation paid by the subsidiary to the hospice would have to be shown as investment income in its own SOFA, as stated in the comments on investment income at the top of this page.

The example set of accounts does not include a charity SOFA, as the relevant information is included in note 24.

14

Income from charitable actives (Example set of accounts note nine)*

The SORP states: “This category includes any incoming resources received which are payment for goods and services provided for the benefit of the charity’s beneficiaries.”

Funding in the form of grants from the PCT/local authority should be shown here where they are provided under a performance-related SLA (see comments on ‘grants received’ at the top of page 11).

The Charities SORP does not specify how this category should be broken down, since they will differ for each charity depending on what that charity does. However, it should be possible to create greater uniformity in the hospice sector as hospices are engaged in the same types of activities.

There is a potential problem in that the SORP requires that wherever possible the analysis of income from charitable activities should use the same categories as the analysis of charitable expenditure.

This means that such income should be analysed on the basis of what it is being received for (the service), not who it is being received from (the funder).

However, one of the main parts of financial information hospices want to keep track of is the level of income from government funding. Although much of the income from charitable activities will represent some form of government funding, this will not apply to all of it. For example, hospices may receive income from other sources for education income.

It is suggested that we get around this problem by adopting the same analysis as for charitable expenditure (please refer to ‘charitable activities’ on pages 16 and 17 below for details) but separate each item into ‘government funding’ and ‘non-government funding’. In practice, almost all of the funding is likely to be from the government, and it will only be necessary to distinguish the occasional amount that is not.

Resources expended* (Example set of accounts note 10) Expenditure should be analysed between three mandatory categories:

cost of generating funds

charitable expenditure

governance costs.

One important feature of the SORP is that costs that cannot be directly attributed to one of the above purpose-based categories – referred to as back office costs or operational support costs (but may also be known as overheads) – should be

15

allocated to these categories on an appropriate basis (rather than being shown as a line in their own right as was required by SORP 2000).

Cost of generating funds*

The SORP then prescribes three mandatory categories for analysing cost of generated funds. Each one is linked to one of the categories of ‘incoming resources from generated funds’. These are as follows:

Cost of generating voluntary incoming resources – This links to the ‘voluntary income’ heading, which also covers any incoming endowments. Therefore, it should include any costs associated with persuading people to make such donations, including staff costs, cost of adverts, etc. The SORP also requires that where there are various categories of activities here, “as far as possible the analysis provided here should match the detailed analysis of voluntary incoming resources”. In reality, any analysis of fundraising costs between say legacy/donation and grant fundraising is likely to be quite arbitrary, so it is not recommended that hospices go into this detail.

Fundraising trading: costs of goods sold and other costs – This links to the ‘activities for generating funds’ heading. Therefore, it should include any costs associated with shops and lotteries, as well as costs associated with organising any other fundraising events where people are charged a fee in return for something, eg attending a ball. The SORP states that “where material, details should be given… of separate trading activities in a way that matches the analysis of income”. So the expenditure analysis should be the same as adopted for income. This is shown in notes five, six and seven to the example set of accounts.

Investment management costs – This links to the ‘investment income’ heading. According to the SORP, this should include the costs of “portfolio management, obtaining investment advice, administration of investments, rent collection, investment property repair and maintenance”. These costs are unlikely to be material enough to need breaking down further, but if a hospice does, it should follow the breakdown in the investment income note.

Each of these three categories should include direct and indirect costs associated with generating that income.

Charitable activities*

The SORP states that these should be analysed “on the face of the SOFA or in a prominent note to the accounts”. Either is acceptable, but in the example set of accounts they have been included on the face of the SOFA as this seems to be what most hospices do at the moment and can most easily be linked to the aims, activities and achievements disclosures in the trustees’ report.

16

It is important to note that the SORP requires the expenditure to be analysed by the purpose of the activity (ie what the money is being spent to achieve) and not by expenditure type (eg staff costs, electricity, drugs, etc).

The categories selected have been chosen to reflect the same categories that will be part of the ‘hospice costing’ model. These are:

inpatient care

day care

community services

Hospice at Home

education and research

hospital services

lymphoedema

bereavement and family support

Governance costs*

The SORP states that expenditure on the governance of the charity will normally include both direct costs and related support costs.

Direct costs will include such items as internal and external audit, legal advice for trustees and costs associated with constitutional and statutory requirements, eg the cost of trustee meetings, preparing statutory accounts, restructuring. Where material, there should also be an apportionment of shared costs and of any indirect costs.

Analysis of resources expended (Example set of accounts note 10)*

The SORP states that the analysis note of charitable activities must distinguish between direct and support costs. In the example given in the SORP itself, there is a third category of ‘grants expenditure’, but this is unlikely to be relevant to hospices. Hospices can break direct and support costs down into further detail, but there does not seem to be any great benefit in doing this, and so this has not been done in the example set of accounts.

The same thing should be done for ‘cost of generating funds’ and for governance costs.

Analysis of support costs (Example set of accounts note 11)*

The SORP states that the notes should provide details of total support costs and details of the material items/categories within them.

17

They should also state how costs have been allocated across categories. According to the SORP, the following principles should be followed in order when deciding where to allocate costs:

Allocate it directly (ie it is not a support cost in the first place).

Apportion those costs that are not pure overheads, but that cover more than one category, on a “reasonable, justifiable and consistent basis” between those categories only. An example might be a head of nursing who has responsibility for both inpatient and day care services. In this case, their cost should be apportioned in proportion to how they spend their time.

Anything that cannot be attributable under the above methods should be apportioned across all expenditure areas to which it might relate on a “reasonable, justifiable and consistent basis”.

The SORP provides four examples of what is considered a ‘reasonable and justifiable’ basis (but there may be others). These are:

usage

based on number of staff

based on staff time

floor area occupied.

We recommend either the methods set out in the Help the Hospices ‘costing model’ (which was developed by a group of hospices in the South West region), or staff numbers for all support costs (see below).

The methods set out in the Help the Hospices costing model (see appendix)

The advantage of this method is that it is very accurate and will be consistent with the costing model, therefore avoiding having to carry out the same exercise twice.

The disadvantage is that it is more time consuming and goes into more detail than is needed for the purposes of the SORP (eg floor space is used for accommodation costs, IT costs by number of computers used, kitchen costs by number of meals served etc).

The model suggests the costs are apportioned in a series of specific ways depending on the costs (please refer to costing model for details)

Staff numbers for all support costs

The advantage of this approach is that while it is relatively quick and easy, it is still accurate enough for the purposes of the SORP.

However, if hospices want to develop a costing model to cost specific services, then this is not likely to be detailed enough, so it may actually lead to more work for hospices that also choose to implement that model.

18

Wages and salaries (Example set of accounts note 12)*

The SORP requires that these are split between gross wages (including amounts paid to temporary or agency staff), national insurance and pension costs.

The SORP also requires disclosure of the average number of staff. It states that where materially different – because of a large number of part-time staff – the average number of full-time equivalents may be disclosed#.

We suggest that because of the large number of part-time staff most hospices employ, full-time equivalents is actually a more appropriate number; therefore, this should be disclosed as well.

The SORP states that the staff numbers should be split between sub-categories according to the manner in which a charity’s activities are organised.

An extreme interpretation of this would mean disclosing the number of staff allocated to each expenditure category in the SOFA or note. However, this level of detail is probably unnecessary, and we suggest that the following level of analysis would be appropriate:

direct charitable services

fundraising services

governance costs

support services.

The number of highly paid staff (defined as those who earned more than £60,000 in the year from salaries, bonuses and any taxable benefits in kind, but not including employers’ national insurance or pension costs) should be disclosed. This is based on actual amounts earned in the year. Therefore, if a hospice employs a consultant on a salary of £120,000 one month before the year end, this would not be disclosed as the consultant would only have earned £10,000 in the financial year.

Also, the total employer pension costs for all these highly paid staff should be disclosed for defined contribution schemes and also how many of them are in defined benefit schemes.

Net income (Example set of accounts note 13)*

Certain items need to be disclosed separately in the accounts. These include:

fees to auditors (analysed separately between audit fees and any other material services)

ex gratia payments (this does not refer to staffing/employment, since trustees have full discretion over such matters, but rather to ultra vires situations needing High Court authorisation – such as sacrificing part of a contested legacy as a compromise to save legal costs).

19

There are various other items that are not specifically required by the SORP, but that are required by the Companies Act (under which most hospices will be incorporated). These are:

depreciation

operating lease charges (analysed between plant and machinery, and other items)

profit or loss on the sale of fixed assets.

Normally all these miscellaneous items will be listed in one note.

Taxation (example set of accounts note 14)*

As registered charities, hospices will not be liable for corporation tax on their activities, and this should be stated in a note to the accounts.

20

Balance sheet Where a hospice has a trading subsidiary, any consolidated accounts published must include two balance sheets: one for the hospice itself and one for the group. The same applies to any notes relating to the balance sheet.

NB. Consolidation is only necessary where there would be a material difference between the consolidated and unconsolidated accounts.

Tangible fixed assets (Example set of accounts note 15)* The SORP gives the following broad guidance as to the way fixed assets should be analysed:

freehold land and buildings

leasehold land and buildings

plant and machinery (including motor vehicles)

fixtures, fittings and equipment

payments on account and assets under the course of construction.

The SORP states that is it acceptable to split these headings where appropriate.

The example set of accounts takes advantage of this as follows:

Most hospices probably have little or no plant or machinery. Therefore, the heading ‘motor vehicles’ has been used for this category.

Computer equipment has been given a separate category distinct from the rest of fixtures, fittings and equipment, since it will often be a major source of tangible fixed assets in its own right.

There are no leasehold properties or assets under construction in the example set of accounts.

Where a freehold property is included at a valuation (other than the deemed historical cost of a gift) the following must be disclosed:

the name and qualification of the valuer

the basis of the valuation

the historical cost and depreciation

the date of the previous full valuation

if the value has not been updated in the year, a statement that the existing valuation remains appropriate or else that under the transitional provisions of

21

Investments (Example set of accounts note 16)* As shown in part ‘a’ of note 16, the investment note should reconcile the opening market value of any investments with the closing market value, taking account of any additions, disposals and revaluations.

Part ‘b’ shows that the year-end balance should also be analysed between investment categories. The SORP is quite prescriptive in how investments should be analysed between:

investment properties

investments held on a recognised stock exchange (this includes common funds where the underlying assets are listed)

investments in subsidiaries or associates

unlisted investments

cash held as part of the investment portfolio

any other investments.

Separate details should also be provided where any of the above are held outside the UK.

As in part ‘c’, where the hospice has a trading subsidiary, the notes to the accounts should show:

its name

details of how the charity controls it (eg shares held)

how its activities relate to that of the charity

the amount of its assets, liabilities and funds

a summary of its turnover, expenditure and profit/loss for the year.

Under the SORP, there is no need to split realised gains (ie those arising on investments that have been sold) and unrealised gains (ie those arising on revaluation of investments still held at the year end). However, this is necessary for all companies accounting under the Companies Act, in order to show a ‘realised’ surplus/deficit for the year. As most hospices will be charitable companies the requirements of the Companies Act will also be applicable to them. Therefore, the example set of accounts has been prepared on this basis.

22

Debtors (Example set of accounts note 17)* The SORP sets out the following categories for analysing debtors:

trade debtors

amounts due from subsidiary and associated undertakings

other debtors

prepayments and accrued income.

The SORP states that if there are any material long-term debtors these should be shown on the balance sheet. Otherwise, they should be shown in the notes to the accounts (no long-term debtors are included in the example set of accounts as we thought it unlikely that many hospices will have debts that are due in more than 12 months).

Creditors: amounts falling due in less than one year (Example set of accounts note 18)* The SORP sets out the following categories for analysing creditors:

loans and overdrafts

trade creditors

amounts due to subsidiary and associated undertakings

other creditors

accruals

deferred income.

Creditors: amounts falling due in more than one year (Example set of accounts note 19)* The same analysis should be used here as for creditors due in less than one year.

Such creditors should be analysed between amounts due in one to two years, two to five years and more than five years.

Where a loan is secured, details of that security should also be disclosed as well as the loan-to-asset value as a ratio or percentage.

Restricted and designated funds (Example set of accounts notes 20 and 21)* The notes to the accounts need to give the following details about each individual (material) restricted and designated fund:

23

balance at start of the year

incoming resources

outgoing resources

transfers between funds (the notes to the accounts should also explain the reasons for any transfers)

gains and losses on revaluations

balance at the end of the year

explanation of the nature and purpose of each restricted fund that has a balance at the year end.

Net assets by fund (Example set of accounts note 22)* This note is effectively a summarised balance sheet, analysing each of the main balance sheet headings between the different fund types. Therefore, the totals for each type of fund and for each type of asset/liability need to agree with the equivalent figures on the balance sheet.

Related party transactions (Example set of accounts note 23)* The SORP provides a detailed definition of related parties (Glossary 50). The most common will typically include:

any charities under common control

any person/body with the power to appoint/remove a trustee

all charity trustees and senior management staff (and the close family of any of these)

any businesses a trustee/senior management staff have a significant amount of control of.

Trustee benefits* The SORP says all remuneration or other financial benefits directly or indirectly out of the charity’s resources (for whatever reason) to any trustee or person closely connected with a trustee, no matter how small the benefit, must be considered material and disclosed, naming the trustee. The sole exception is benefits received by the person as a beneficiary without preferential treatment.

Trustee expenses* The disclosure required here is only en bloc (not by individual trustee) and applies only to personal expenses. It does not apply to:

24

impersonal expenditure incurred as agent for the hospice and therefore reclaimed on that basis

an expense incurred by the Board as a whole, eg for hiring a meeting room.

Other related party transactions* The following should be disclosed for each material related party transaction (or class of transactions) of any other kind:

the name of the related party

explanation as to how they are a related party

details of the transaction

amounts involved

any outstanding balances at the year end

any amounts written off relating to such balances in the year

any other information needed for a reader to understand the transaction.

For trustee expenses, it is acceptable to treat similar types of expense as a group, listing only the total amount paid to the trustees (eg for travel) and the number of trustees who received that actual or constructive reimbursement. (Constructive reimbursement is where the personal expense is paid direct rather than reimbursed.)

Also, salary costs for senior staff do not need to be disclosed separately under this note – but see the section on ‘wages and salaries’ on page 19 for the disclosure of the numbers of higher-paid staff in each £10,000 band above £60,000.

Charity SOFA (Example set of accounts note 24) This note shows the minimum details that need to be shown of a hospice’s own SOFA. The note is not required if the hospice chooses to publish a full unconsolidated SOFA for the charity only.

25

26

Appendix – Analysing costs on the basis of the Help the Hospices costing model The SORP states that the notes should explain how costs have been allocated across the different expenditure categories.

As stated on page 18, we recommend either the methods set out in the Help the Hospices costing model (which was developed by a group of hospices in the Southwest region), or staff numbers for all support costs.

If hospices wish to use the same methods as in the costing model, then overheads should be apportioned on the following basis:

Accommodation costs (including rent, property depreciation, utilities and maintenance costs) are apportioned on the basis of floor space.

Kitchen costs are apportioned to each department on the basis of the number of meals provided to staff/patients in each service area.

The finance team’s costs are apportioned based on an estimate as to how much time is spent on each of the three main expenditure areas (‘charitable activities’, ‘cost of generating funds’ and ‘governance costs’).

IT costs (including the cost of any IT staff and software and maintenance costs) are apportioned based on the number of computers used.

The costs of any staff who provide care to patients in more than one service area are apportioned on the basis of the number of treatments they provided, eg the costs of a physiotherapist who treated 100 inpatients and 200 day care patients would be split so that one-third of their costs went to inpatients and two-thirds to day care.

Any other costs (including HR, volunteering department, general management) would be apportioned on the basis of actual staff numbers (not full-time equivalent).