Impact of COVID-19 on the Charity Sector – Challenges and Strategies

The COVID-19 crisis has had a devastating effect on virtually every corner of the economy. The charity sector is no exception. It is estimated that the sector has lost at least £4.5 billion in income as an immediate consequence of the pandemic. In the face of severely depleted fundraising income, many charities have had to fall back on their reserves; yet the estimate is that only a quarter of charitable organisations have sufficient reserves to last through the summer.  The impact of the pandemic means that many charities are facing increased demand for their services from vulnerable communities in need of  unparalleled levels of support.  Other charities have seen their entire business model removed overnight – museums and performing arts venues, for example, have been ordered to close, with no knowledge as to when they will be allowed to reopen.

This alert assesses some of the options available to charities, in terms of both government-backed assistance and alternative sources of support.   

Government Financial Support

On 8 April 2020, Chancellor Rishi Sunak announced an aid package of £750 million to assist charities struggling as a result of the coronavirus pandemic, noting, however, that the government would be unable to match every pound of spending that the 170,000 charities in the UK would have received in 2020.

The package is aimed at charities that are providing essential services during the crisis, with £360 million going directly from government departments to those charities and another £370 million allocated to smaller/medium local charities that are, for example, delivering food and essential medicines and providing financial advice (including through the National Lottery Community Fund in England). In essence, the package is aimed at charities that are “on the front line of fighting the coronavirus”.

In addition, the government has pledged to match all donations to the BBC’s Big Night In fundraising event, which is due to be held on 23 April, with a minimum match of £20 million.

The government has stated that its departments are working to identify priority recipients in the expectation that charities will begin to receive money in the coming weeks and that the application system for the National Lottery Community Fund grant pot should be operational within a similar period of time.

With regard to devolved charitable services, the government has applied the Barnett formula (which in simple terms is the mechanism used by the Treasury to adjust the amount of public expenditure allocated to Northern Ireland, Scotland and Wales to reflect changes in spending levels allocated to public services in England) in the normal way, expecting devolved administrations to receive £60 million through the charities pot with further Barnett allocations through the direct grant pot.

The Chancellor’s announcement comes after many charities, including St John Ambulance Association, stated they could go bust unless they received state aid. Following the announcement, organisations such as the ambulance association, hospices, Citizens Advice and those dealing with vulnerable children and domestic abuse victims will now receive assistance as part of the government package.

The government has also stated that charities can access many of the measures that the Chancellor announced for businesses:

UK Government Response to COVID-19 (5 April 2020)

UK Government Response to COVID-19 (18 April 2020)

Tax Points for Businesses to Consider in the Face of Covid-19 (17 April 2020)

Alternative Options

Prior to the Chancellor’s announcements, the Charities Aid Foundation (“CAF”), an organisation that facilitates giving to charity for individuals and provides financial services for smaller charities.

CAF responded swiftly to the coronavirus pandemic, launching the CAF Coronavirus Emergency Fund, which provides grants of up to £10,000 to charities impacted by COVID-19.

Eligibility

Organisations that undertake charitable activities and have a charitable purpose with an income of £1 million or less (in the last financial year) are eligible to apply for a grant under the CAF scheme. This includes:

• UK registered charities: charities registered with the Charity Commission, the Scottish Charity Regulator or the Charity Commission for Northern Ireland, or as shown in the Charities Act 2010;
• organisations registered with Companies House or the Public Mutuals Register, as a charitable or not-for-profit entity; and
• unregistered entities and social enterprises.

Eligibility entitles an organisation to apply for unrestricted funding for core costs, staffing, volunteer costs, supplies and equipment, communications or other critical charitable areas. Applicants must be able to describe just how the emergency grant is intended to improve the situation for their organisation and community.

Prioritisation

With the intended high demand for such grants, CAF has stated that it will prioritise:

• charities whose established charitable activities are at risk of being severely reduced, negatively impacting vulnerable groups;
• organisations that must deliver core services in unusual ways in response to the crisis in order to continue to be able to reach their beneficiaries;
• deeply embedded organisations with established networks to deliver charitable activities; and
• organisations experiencing cash flow problems as a result of the crisis.

Given the fund is a rapid response fund, CAF is aiming for grants to be paid to selected organisations within 14 days of their application.

Charity Commission Guidance

Coronavirus (COVID-19) guidance for the charity sector

Click to view the full alert.

The views expressed herein are solely the views of the authors and do not represent the views of Brown Rudnick LLP, those parties represented by the authors, or those parties represented by Brown Rudnick LLP. Specific legal advice depends on the facts of each situation and may vary from situation to situation.  Information contained in this article is not intended to constitute legal advice by the authors or the lawyers at Brown Rudnick LLP, and it does not establish a lawyer-client relationship.