Permanent Endowments
One exciting area to boost charity income on a sustainable annual basis is to set up one or more permanent endowments. For charities who are more interested in helping relatively few beneficiaries, but intensively over a long period of time, then being able to draw on investment income and permanent endowment income each year is helpful.
Estate bequests can be actively sought and converted directly into a target permanent endowment, with minimal changes to other parts of the charity operating model.
For prospective donors and grant makers, concerned about a charity’s going concern, if they can see sizable permanent endowments in place, some fears may be alleviated. Also, annual income from permanent endowments can usefully service annual loan interest, if there are such loans to charities in place.
Charity Commercial Income
It is all too easy for some charities to become embroiled in charity governance and charitable purpose issues and treat commercial opportunities as a distant afterthought. Charity board members may also by default, apply the same risk appetite to their commercial activities as they do to their charitable ones.
Charity commercial income is typically non primary-purpose income, generated within one or more commercial trading subsidiaries of the parent charitable entity. With clever commercial strategies and commercial board oversight, strong net margins can be generated. These margins can then be gift-aided to the parent charity to support charitable activities and take some pressure off funding charity central costs from charitable income alone.
Arguably, there is a need to appoint commercial staff of a high calibre, to oversee charity trading activities and incentivise them to maximise net income for those subsidiaries, in ways that align with the charity mission and its values and don’t tarnish the charity’s reputation either.
Finally, charities can become joint venture partners not just on charitable activities, but also on commercial activities. If some latent intellectual property is linked to multiple charities e.g. famous historical figures, it may make sense to form a joint venture, to leverage the commercial benefits of such IP.
Leveraging latent intellectual property for financial gain
Some charities have a rich history and are sitting on intellectual property that has yet to earn a financial return for the charity concerned. An example might be the famous founding members of a professional membership body. The opportunity exists for the charity to then license the used of historical materials associated with the founding member, but owned by the charity, that may be used in historical books or research articles, published by third parties.
Where the founder was also a gold medal or premier award winner, with the medal or accolade formally issued by the charity concerned, there is scope to brand charity merchandise with that information, such that the income generated from merchandise sales flows directly to the charity who issued the gold medal or accolade. The same opportunity arises for a health charity issuing a gold medal to honour an early health researcher who discovered health facts associated with the modern day charitable mission.
Arguably, there is a need to appoint staff of a high calibre, to oversee charity intellectual property development activities and incentivise them to maximise net income from that IP, in ways that align with the charity mission and its values and don’t tarnish the charity’s reputation either.
Tax cost minimisation
Based on the premise that the UK charity sector delivers collective social benefits that the government values and cannot hope to match, there is an opportunity for the entire UK-regulated charity sector to lobby government to waive PAYE/NI taxes for charity staff supporting charitable activities. But also, to waive PAYE/NI taxes for charity staff working in the UK tax jurisdiction, supporting commercial trading subsidiaries too. Based on the same premise, stamp duty land tax full relief could be given to charities as well.
Simon