Pecuniary Benefit

Pecuniary Benefit

October-December 2019

Pecuniary Benefit – What Does This Mean?

The Charities Act prohibits anyone from benefitting financially from the running of a Charity, and any organisation that is exempt from Income Tax has to comply with the same idea. But what does that actually mean?

Clearly, people are earning a living from managing a charity, so at what stage does this become illegal ‘pecuniary benefit’?

Problems can arise for people that are in control of a charity or tax-exempt not-for-profit. To be in control is not the same as having voting rights at a committee or board meeting – a person may still be in control due to the influence (or personal relationships) they have over those formally running it. If a person can effectively pay themselves from the income of a charity, even if the paying is formally done by someone else, or signed off by a second person, this may well be pecuniary gain. This means there must be a credible step between money coming into the charity, and it being paid to one or more key people or officers.

Pecuniary benefit is not necessarily cash. A charity may, for example, build up a ‘brand’, or other intellectual property, through their activities. If another person is able to use this goodwill or brand to make money with their own activities, this would also be illegal pecuniary gain.

Like businesses, charities are often successful because of the work of a single individual in setting it up, driving it, and giving it vision. Where this person is paid for their work, it is especially important that there is an effective committee with financial oversight that determines how, how much and for what this person is paid.

Occasionally we see a ‘sole trader’ pattern in a client’s accounts. The telltale signs of such a pattern are:

  • the key person is paid irregularly (when there’s money in the bank) rather than being an employee.
  • There is no breakdown, or hours, for what the person is paid for.
  • there are cash advances to that person for future expenditure. These are often poorly accounted for.
  • no accounting system (cashbook, spreadsheet or software) that would allow meaningful financial reports at meetings.