Dominic Hannigan (Labour)
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Companies limited by guarantee are regularly formed by local associations, charities, resource centres and residents' associations because it offers them a separate legal entity and identity and avoids the need to issue shares to individuals involved. Under the Companies Act, companies limited by guarantee are considered public companies, and as such, must have an annual statutory audit irrespective of the amount of annual income and expenditure incurred. The costs of such an audit can be as high as €1,700, plus VAT, and can often be the largest item of expenditure to many of these organisations.

In contrast, if the local development association were a private limited company, it would have to issue shares to its members but would be exempt from a statutory audit if its annual turnover was less than €7.3 million, its asset base less than €3.65 million and it had fewer than 50 staff members. Many small charities fit right into these criteria.

The need for an annual statutory audit is becoming increasingly prohibitive for many small charities and development associations. Will the Minister consider a change in the Companies Act whereby companies limited by guarantee with an annual income of less than €100,000 would be exempt from an annual statutory audit? Such an exemption would benefit a local small charity, residents' association or local development association by freeing up valuable income for them to pursue their main objectives. Auditors would be relieved of what is a boring and meaningless task of completing pages of audit reports to satisfy regulators that a proper and full statutory audit has taken place for a company with very a small annual income. Will the Minister consider the introduction of such an exemption?

Seán Haughey (Dublin North Central, Fianna Fail)
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I am taking this Adjournment matter on behalf of the Minister for Finance, Deputy Brian Lenihan.

The regulation and auditing of charities is the responsibility of the Minister for Community, Rural and Gaeltacht Affairs. Section 50 of the Charities Act 2009 stipulates the accounts of a charitable organisation should be audited within nine months of the end of the appropriate financial year where the gross income of such an organisation exceeds an amount proscribed by the Minister for Community, Rural and Gaeltacht Affairs. The Minister cannot proscribe an amount greater than €500,000 under the legislation.

However, the Charities Act 2009 has not yet been commenced as it will happen when the charities regulatory authority is established. In addition, for those charities that are companies, the provisions of company law and the auditing requirements of such law also apply. Responsibility for company law rests with the Minister for Enterprise, Trade and Employment. The company law review group is reviewing the area of exemption from the provisions of company law for companies limited by guarantee.

Charitable organisations can also, of course, apply for charitable tax exemption from the Revenue Commissioners. This is a valuable status for a charity to have because, once granted, the charity can then benefit from the various tax exemptions for charities included in the tax code. These cover income tax and corporation tax in the case of an incorporated charitable body and also extend to capital gains tax, stamp duty, capital acquisitions tax and several other taxes.

A charity may also apply for authorisation as an eligible charity under the provisions of section 848A of the Taxes Consolidation Act 1997 after it has been granted exemption from tax by the Revenue Commissioners for a period of not less than two years. This allows the charity to benefit from the scheme of tax relief for donations to charities and other approved bodies. The relief can be beneficial to charities and such bodies, as it can increase a donation by a top rate taxpayer by over 69%.

The Revenue Commissioners' role in this regard is to consider applications from bodies of persons or trusts claiming exemption from these taxes on the basis they have been established for charitable purposes only and to operate controls and monitoring procedures to ensure exemptions, once granted, are not abused. In determining the appropriate level of controls, Revenue must get the balance right between the opportunities for malfeasance and misuse of moneys donated by the public or grants paid by other Government agencies and the important contribution that voluntary organisations make to society. It is, therefore, necessary to ensure the monitoring procedures and controls are commensurate with the risks involved.

Revenue adopts a two-pronged approach to compliance, consisting of the vetting of applications from bodies of persons or trusts claiming exemption from certain taxes to ensure they are entitled to the exemption, and operating controls and monitoring procedures. The first element is the vetting of applications from bodies seeking charitable tax exemption. This is considered the key element in ensuring compliance with charity tax exemption conditions. The second element is the controls and monitoring that bodies that have been granted charitable exemption are subject to after the exemptions have been granted.

Once an exemption has been granted, each body is required to provide a copy of its first year's financial accounts, as well as details of activities actually carried out. This information is normally requested within two years of the grant of exemption. Bodies with an income in excess of €100,000 are required to submit audited accounts. In addition, the Revenue Commissioners carry out several long-term reviews based on risk rating. As part of the long-term review process, bodies with an income in excess of €100,000 are required to submit audited accounts on request.

Given the thresholds used by the Revenue Commissioners, the auditing of charitable bodies for tax exemption purposes cannot be considered onerous for smaller charities. It is considered that the practice is both balanced and reasonable.

As regards the wider issues of regulation and general audit, these are issues primarily for the Minister for Community, Rural and Gaeltacht Affairs and the Minister for Enterprise, Trade and Employment.