4 Common Misconceptions About Charity Organisations

by Lauren Armstrong

26 February 2024

For many small charitable organisations, there are several common misunderstandings regarding their work. The majority of beliefs relate to the ways in which charities manage their finances, take chances and benefits they gain. For instance, a lot of people assume charities pay no taxes at all. On the other hand, some think fraudsters target charities less than other institutions. In this article, learn about some of the most common myths about the industry and suggestions for debunking them from the Institute of Chartered Accountants in England and Wales (I.C.A.E.W.). By doing this, we hope to accurately portray the industry and inspire people to donate to small charities.

Charity and Voluntary Sector Head of I.C.A.E.W. Kristina Kopic states that: “In helping to put these common myths to bed once and for all, charities gain more time to focus on delivering their important work and reaching their strategic aims,” 

1. Charities Spend Too Much On Highly Paid Executives

According to research released by the service nfpResearch, half of the population does not believe that chief executives of charities should be compensated at all. Some believe that because they serve a worthy cause, their salary should be regulated.

The “narrative that charity executives are overpaid and that this diverts funds from the causes charities set out to help” is something that I.C.A.E.W. wants charities to disprove. The majority of charity executives actually have “modest” incomes, as I.C.A.E.W. notes.

The pay and equality survey conducted by charity leaders group A.C.E.V.O. states the average basic salary for charity C.E.O.s in the UK in 2022 was £56,000. This reflects a £4,000 decrease from the poll’s beginning date in 2013.

More has to be done to explain how executives, who manage challenging tasks even when their enormous salaries are revealed. Approximately, this is £175,000 for major charities. Frequently, they oversee intricate operations with income levels in the hundreds of millions of pounds, 

The range and intensity of C.E.O. responsibilities are often overlooked when discussing their compensation. The I.C.A.E.W. guidelines suggest that certain charities are just as complicated as corporate organisations, if not more so. 

In addition, the I.C.A.E.W. notes that charities can further enhance public trust. This can be done by ensuring that the highest level of compensation corresponds to experience. We can also compare salaries to positions in businesses of a comparable size, industry, and region.

2. Too Much Is Spent On Administrative Expenses:

The general public often believes that charities spend too little on the communities they serve. On the other hand, they believe there are too many additional costs, such as back office costs.

In reality, frontline support accounts for the majority of a charity’s profits. Furthermore, spending on back-office tasks usually results in savings, such as more effective fundraising with the use of C.R.M. technology. Eliminating this myth requires highlighting the cost savings and increased productivity that come with investing in such technology.

A charity’s mission is directly connected to 86% of its spending, as evidenced by the charity sector group N.C.V.O.’s 2022 UK Civil Society Almanac. Likewise, this is another recommendation made by I.C.A.E.W.

The guidelines from I.C.A.E.W. state that “Charities should be able to explain how administration and other related costs will increase efficiency and improve impact, transparency, governance, and leadership, to understand where savings or investment could be made”

3. Small Charities Require Less Funding Since They Do Not Pay Taxes

Many individuals question how charities can get tax relief since they are unaware that they do not pay taxes and therefore require less public funding.

Nevertheless, when used for charitable purposes, they are exempt from paying corporation or income taxes on the majority of income types, among other exceptions. There is additional tax relief available, even for legacy income. Despite this, charities are subject to taxes such as business rates and payroll taxes.

The advice from I.C.A.E.W. highlights the significance of clarity and states that charities “should explain their tax contributions and the relevant tax reliefs and exemptions they have been granted.”

A Cardboard with Inscription

4. Charities Are Less Vulnerable to Fraud

To a large extent, the I.C.A.E.W. guidelines are concerned that fraudsters and cybercriminals do not target charitable organisations. The National Cyber Security Centre maintains that this is not the case. According to its January 2023 research, charities are especially open to cyberattacks since they frequently lack the funding for internal knowledge and cyber security measures.

The I.C.A.E.W. emphasises that charities, for instance, are more likely to depend on employees utilising their personal technology for work. Overall, this is more challenging to protect than IT offered centrally. A cyber security breach has affected over 25% of charities, according to the U.K. government’s 2023 Cyber Security Breaches Survey.

“When charities experience a cyber-attack, the impact can be severe for cash-strapped charities because the lower the charity’s income, the less likely it is to be insured for cyber security,” adds I.C.A.E.W.

If you found this article helpful, check out some of our related posts:  

Top Benefit of Using Charity Donation Platform – Givey | Blog

Giving for Good: How to Get Involved and Make a Difference – Givey | Blog

Leave a Reply

Your email address will not be published. Required fields are marked *