CIO proposal

A Charitable Incorporated Organisation (CIO) is a corporate form of business designed for (and only available to) charitable organisations in England and Wales. CIO status is conferred by the Charity Commission for England and Wales on application by a charity, whether new or existing.

CIOs were not a possible option when our society was legally formed in 1995. The desire for legal limited limitations to liability lead to the creation of HBBS Ltd and Renegade Pyrotechnic in 2007, with our charity name changing from Hastings Borough Bonfire Society to Hastings Bonfire Trust. The CIO status only became a possible option to charities in England and Wales on 4 March 2013, with The Charities Act 2011.

The main benefits of the CIO form are that the charity has legal personality (the ability to enter contracts, sue and be sued, and to hold property in its own name – rather than in the name of its trustees), and its members have limited liability (their liability in the event the charity becomes insolvent is limited or nil).

Historically these benefits were only available to limited companies, and many charities chose to incorporate as charitable companies limited by guarantee. However, this requires registration and filings with both Companies House and the Charity Commission for England and Wales, each of which has its own regulations and requirements. In contrast a CIO only needs to register and file accounts and returns with the Charity Commission, being bound by the Charities Act (and not the Companies Act). This aims to reduce bureaucracy for the charity.

Uniquely among limited liability corporations in the UK, smaller CIOs in England and Wales can opt to file receipts and payments accounts, rather than the accruals accounts usually required.

HBBS Rationale - Our purpose for a move to a CIO:

Instead of keeping separate our unincorporated registered charity and our incorporated limited company, these can now be combined into a single entity, offering both of the major benefits of a charity and an incorporated entity

• Simplification of administration and reduction in costs: -

  • a reduction in accountancy charges from three sets of annual accounts we currently have to prepare, from three to two sets of accounts (CIO and Pyro) once the current year’s accounts have been filed

  • a halving of the number of Companies House filing fees we would need to pay

  • a reduction in the main governance framework: only being bound by one constitution, and no longer by HBBS ltd’s Memorandum & Articles of Association (though retaining the subsidiary’s M&A of A)

  • a reduction in the legislative framework: Only the Charities Act would apply to the main organisation and not then the Companies Act

• Simplification of Member engagement with one combined AGM being possible; currently we have two separate AGMs on the same night, which is, err, fiddly and a little tedious for our members and ourselves. This should save about 15 minutes of each AGM

• To make it easier and more legally certain for our charity to sign legal contracts with other organisations, such as hiring out of our charity assets to other local organisations, or maybe one day allowing us to come into land ownership

• To retain/extend our charitable objects and clarify our bonfire/effigy/firework purpose, supporting the Sussex Bonfire tradition, and supporting the local community in all forms. These are quite similar today across both our charity and Ltd. Co governing documents.

• To allow us to claim Gift Aid on membership subs, donations, programme donations, any corporate gift aid from the subsidiary Renegade Pyrotechnics ltd. (or cancellation of Pyro corporation tax), and any tax on bank interest

• To return our society name to Hasting Borough Bonfire Society (instead of just the trading name of HBBS Ltd, and the original name of Hastings Bonfire Trust which according to our constitution should never have been changed).

Mortgages and a Register of lenders charges
One disadvantage of the CIO form for larger charities is that, unlike for charitable companies, there is no public register of lenders' charges over the corporation's assets, and this can make it harder to arrange finance, e.g. for a mortgage for land. [I don't personally think we will ever want to borrow money for bonfire - are there other views, e.g. for land mortgages? Today HBT cannot get finance/mortgages, but HBBS Ltd theoretically could.]

Once a CIO...
Almost any existing charity, including charitable companies, can convert to a CIO. Once a CIO, there is currently no means of converting to any other legal form. [So I think we would need to dissolve and transfer our assets to a new charity with similar aims.]

Can be closed by the Charity Commission
Also, the Charity Commission have the right to summarily close a CIO (and perhaps any charity), which could be a risk, but presumably only if trustees start taking money from it (some famous cases recently), and then the situation is unclear, but I'd guess the Members could disolve and transfer funds to a new CIO/Charity and appoint new Trustees.

Commercial activities that don't support our charitable purposes
Not having an entirely separate Ltd Co could be a limitation if we want to do commercial activities that would not support our core purposes (of offering a beach bonfire, procession, effigy and fireworks, and promoting the Susses bonfire tradition). [But why would we want to? And if we did, we could create a new Ltd Co for that purpose, either separate ]rom the society or as a subsidiary, as appropriate at the time, as we have done before]

Filing accounts
Currently, as an incorporated charity, HBT does not normally need to send in full accounts. We must still report our charity’s total income and expenditure, even if you do not need to send a full annual return. This needs to be reported within 10 months of the end of our financial year. And we need to send a full annual return if either:

• our charity’s income is more than £10,000

• our charity is a charitable incorporated organisation

So this is a little extra admin for HBT (but then no admin for HBBS Ltd.) however Ashdown Hurrey already prepare the full accounts for HBT so we just need to file those instead of simply our total income and expenditure (and about 25 other questions about Trustees and Volunteers).

(Err, let me develop this list further. A large list of minor points could follow given time, but I suspect most would fall into the category of changes to governance, rather than disadvantages)

1. The CIO template constitution says the Members appoint the Trustees, and then the Trustees appoint their own chair, treasurer and secretary from amongst their number (in line with the HBBS Ltd constitution[1], but unlike the HBT Constitution[2] and unlike our current practice).

We are proposing then to amend the constitution template in this regard and demand all top-table get voted on annually, and all other committee. Discussion item – normal constitutions vote in trustees for a 3 year term, renewable for a limited number of times before a break. Do we want to retain our traditions? (Always possible the Charity Commission will object to any such changes, but gut feel is they will allow if that is what Members actually want.)

2. The minimum days notice required to call a General Meetings would move from 21 days[3] to 14 days[4] under the CIO model. (This does not stop your committee from aiming to continue to give 21 days of course!)

3. Special Resolutions would need to be passed by a 75% majority of votes cast (the same as for HBBS ltd today but more than the two-thirds majority required for HBT motions[5]).

4. Written resolutions (without a General Meeting) are now also allowed but need a simple majority of all members eligible to vote[6], or unanimously by all members for winding up[7]

5. After HBBS limited (i.e. our operations) agreed to merge with the new CIO it would be bound by our charitable purposes (other than incidental activities)[8].. Currently HBBS ltd is a commercial organisation, however the HBBS ltd Memorandum of Association notes similar purposes of promoting and organise our core traditional purpose[9] but has wider commercial freedom. Incidental activities would be allowed in either case.

6. Renegade Pyrotechnics limited would also be ‘part of the CIO’ as far as officers getting payment from the CIO[10]. Not an impact as Pyro members do not get any payments besides expenses anyway.

7. Upon any winding-up of the society, and if there were more liabilities than assets, the membership liability of up to £1 per member would also apply to people who were members within the previous year Removes £1 liability per member from HBBS memorandum 7. Minor benefit to members

8. Improved constitution as an incorporated organisation in that we would be allowed to own property in our own name without paying fees to an official custodian[11]

9. Improved constitution in that HBBS limited would no longer be bound by the Companies Act

10. Improved constitution in that HBBS limited would no longer need to file accounts with Companies House once HBBS had been fully subsumed into the new HBBS CIO (say one accounting year in), and can then save the £15 annual filing fee to Companies House

11. Currently we need to update the Charity Commission every year but don’t need to file accounts with them unless our charity turnover exceeds £25k. However as a CIO we would need to file accounts every year regardless.

12. Improved constitution in that HBBS limited would no longer need separate accounts to be prepared, saving £360 Annual accountancy fees

13. We should develop a way of recording a log of emailed meeting notices for General Meetings[12].

14. Chairing of general meetings technically becomes a post appointed by the ‘trustees as a group[13]. This is much the same as the HBBS Ltd constitution today. However it has been practice for Members to directly appoint the top table, so this should continue and the new CIO constitution has been drafted in line with those Members’ expectations. It is always possible the Charity Commission will object to this change from their template constitution.

[1] HBBS Clause 11(4)

[2] HBT Clause F

[3] HBT Clauses J(1), P(1), Q and U – ooops some of these are for GMs and some for Exec Comm meets – re-work this footnote.

[4] CIO Clauses 11(3)(a) and 29(a)(a)

[5] HBT Clauses L & U

[6] CIO Clause 10(3)

[7] CIO Clause 29(1)(b)

[8] CIO Clause 3; HBBS ltd Article 62

[9] Memoranda 3 & 4

[10] CIO Clause 6(4)(a)

[11] CIO Clause 4(1)

[12] CIO Clause 11(3)(d)

[13] CIO Clause 11(4) and Clause 19(2)

Fair question, after all we mainly try to just burn things, and today we do most of our business through a limited company under the Companies Act.

The definition of valid charitable purposes is provided by the Charity Act 2011. In particular see Clauses 2-4. For us, most important are that both of the following points are true: -

• 3.1 Our primary charitable purpose is (f) 'The advancement of the culture and heritage' of the Sussex Bonfire tradition - where gov.uk even mentions 'the preservation of historical traditions, such as carnivals, ...' as counting, and even our proper torch making 'craftsmanship' is the envy of Sussex and, secondarily, through our teamwork and volunteering we also support (e) 'The advancement of citizenship or community development', to mention just a few of the things we do

• 4.1 We offer this for public benefit, primarily for the local community by offering a free torchlit procession, bonfire, firework display and effigy

Everything we do is for these purposes is 'charitable' for the Charity Commission and HMRC (including our fundraising through merchandising for instance). So these days at least, we could transact all our business through our current charity, but then we would not be incorporated like the limited company unless we move to a CIO

Firstly, Members discuss and approve move to a CIO, i.e. a Special General Meeting to vote on 3 motions:

a). HBT special resolution: Agreement for formation of a new CIO under the old name of Hastings Borough Bonfire Society but with the new ‘CIO-friendly constitution’

b) HBT special resolution: Dissolution of the HBT (charity), giving all its assets to the new CIO (on 1/1/23 subject to accountancy advise)

c) HBBS special resolution: Dissolution of HBBS Ltd, giving all its assets to the CIO

For this, a Notice will be issued to Members by Tuesday 19th July advising of the SGM on Tuesday 9th August.

Steps that then follow after Members accept it (if passed by a two-thirds majority of those voting from HBT to convert, and a three-quarters majority for HBBS Ltd to merge and close) would then be to:

1. Register the charitable company (CIO) with both the charity commission and Companies House. We’ll also need to provide detailed information on its finances and activities each year.

[wait approx. 45 days for Charity Commission approval and discuss any wording revisions they require, iterating with Members as required]

2. Inform Ashdown Hurrey of the vote and the Charity Commission response

3. 1/1/2023: Hastings Bonfire Trust transfers to Hastings Borough Bonfire Society (CIO earliest date of operation)

4. 1/1/2023: HBBS Limited similarly transfers to HBBS CIO (CIO earliest date of operation)

5. Then all operations are merged under CIO, including all assets and trading names. This migration will happen incrementally over time at the discretion of the Hon Treasurer under advice by Ashdown Hurrey. It could mean we have to produce 2023 accounts for HBT & HBBS Ltd for at least a partial year - t.b.c.

6. Inform HMRC that the CIO wishes to start claiming gift aid

Start claiming 25% Gift Aid: Includes annual Membership subs and donations such as programme sales

a. Membership Subs:

but this needs improved record keeping between the Membership Secretary and Treasurer (title, initial(s), surname, house name/number, postcode, gift aid mandate, aggregated donations each year separated between periods 1 Jan-5 April and 6 April-31 Dec)

b. Programme sales:

these are easy to claim Gift Aid on without the need for gift aid mandates. General collections (e.g. money in the hat/bucket) can be claimed as long as each date/event does not raise more that £1,000 and no individual person gives more than a £20 note. Don’t have to count buckets every day if under £1000 – just record the date of the final count.

i. Collectors need to be warned to report to the collection captain/treasurer of any occurrences of seeing more than £20 being donated by anyone so those sums can be excluded from the gift aid claim

ii. Collectors need to be warned to apply no pressure for money and make it a true donation, or report to the programme captain/treasurer the amount that needs to be deducted for gift aid because it was pressured

c. Charity collections in the bucket:

Might get away with counting each bucket as a separate collection and therefore a separate £1000 limit. However gift aid reclaimed on this needs to be passed to the beneficiary charities for the bucket and not simply retained by HBBS

d. Taxed bank interest

The tax can be reclaimed

e. Pyro gifts

Pyro can gift fireworks to HBBS, before it gets blown up, reducing/eliminating their Corporation Tax, or HBBS can reclaim by Gift Aid up to the amount of Pyro corporation tax paid

7. Migrate operational HBBS Limited activity to CIO and wind down HBBS Limited

[elapsed time = one (or two) financial periods ideally ending on a financial accounting year]. Target is that last HBT & HBBS accounts would be to 31/12/2022 (no change for our accountants up to then), and the CIO would operationally start then, having replaced both, ideally at the start of the new financial year. However the committee will need to decide when it is practical to close aspects of HBT & HBBS Limited based on advise from the accountants and timelines of the bankers.

8. Bank accounts: Inform bankers of change in ownership of the existing accounts.

Hon. Treasurer to decide if/when it is sensible to close the legacy HBT/HBBS Limited accounts in favour of a new one, or whether they are operationally useful for a few years and to just rename them to Hastings Borough Bonfire Society, or do both.

9. Create a new PayPal account for the CIO, and distribute links (website, fundraising teams)

10. Prepare 2022 accounts for HBT, HBBS and Pyro

11. Inform Charity Commission that HBT is wound up

12. Inform Companies House that HBBS Ltd is wound up

13. Inform HMRC that HBBS Ltd is wound up

14. Inform Members of any new bank account to pay membership subs into (though payments continuing to be made into the HBBS Ltd account will also be valid for Gift Aid relief)

When we asked the Charity Commission if they were comfortable with a CIO owning a subsidiary that was a firework company they referred me to HMRC CC35 - their Guidance for Trustees on trading and tax: 'how charities may lawfully trade'. This document entirely supports our current practices through the CIO model as a combined entity, and in owning a limited company firework subsidiary. CC35 itself is 36 pages long; however please note Greg has an 8-page summary with annotations as relevant for our bonfire & pyro - see this summary of CC35 for the tax viewpoint.

Also see information from HMRC on tax that can be reclaimed: https://www.gov.uk/charities-and-tax

See more on tax benefits under 'advantages' above

Well, not much at all really in practice.

So Renegade Pyrotechnics Limited, a wholly owned subsidiary of HBBS Limited today, and indeed part of the old-old-HBBS was always very much part of HBBS from the founding of the society (12 years before the Limited Company).

In governance terms, Renegade Pyrotechnics limited has its own constitution - their Memorandum and Articles of Association, They can operate as a separate legal entity with much commercial freedom.

HBBS Ltd has owns Renegade Pyrotechnics ltd, and that is not adversely impacted with the CIO, as the HBBS Ltd assets (including Renegade's shares) simply pass to the new HBBS CIO automatically at the . Pyro use their proceeds for our beach bonfire precessions, as far as they are able, minimising the amount of firework money needed from the society, so all proceeds from Pyro have aways been used for our primary bonfire charitable purposes anyway.

Pyro has the ability to make profits but its Director, Top Table and Team do not derive any income from it, and the profit is not taken in dividends by HBBS Ltd as it could be, but instead given to the Society as free (or highly subsidised) fireworks for our Society beach display, for the benefit of the general public, and in furtherance of the Sussex Bonfire Tradition and our other charitable Objects (both now and under the new CIO).

The material change with Renegade Pyrotechnics being brought into the CIO by the HBBS ltd merger is that any surpluses from Pyro activities would have to be used for the Society's charitable Objects. As they always have been anyway, and the intention is therefore that this is not thought to be a material change for Pyro. More restoring us to where we used to be from the 1995-2007 period, which could not happen then as a CIO was not at that time possible.

Here is helpful guidance from the Charity Commission

https://www.gov.uk/government/publications/the-essential-trustee-what-you-need-to-know-cc3/the-essential-trustee-what-you-need-to-know-what-you-need-to-do

So how did we get here? Our broader history can be found on the main website. However answering from a governance point of view, this PDF of the structure and the history of the society from 2018 has useful detail on this point.