By Mike McKillop, Charity Commission for England and Wales.

The Charity Commission has emerged from its strategic review with a new set of priorities:

• Enhancing the information and guidance on its website;
• Removing paper as a way of doing business by increasing the online service offering so that if you need us to authorise something this can be done more quickly and with a minimum of fuss; and
• Working in partnership with other organisations that provide services to the charity sector to ensure charities know where to go for support.

Under our partnership agenda we are communicating material of interest to particular groups of charities; the following concerns the practice of total return policy.

Under total return, charity trustees of an endowed fund can release a certain level of capital gains generated by the investments and treat this as income.  However, the trustees must first be able to make a distinction between the 'unapplied return' and the original investment or 'investment fund'. The former relates to the retained income and capital gains on the original investment while the latter is the original investment.  This distinction needs to have been made before application can be made to the Charity Commission for the total return approach. (Full Guidance can be found at www.charitycommission.gov.uk).

With more difficult market conditions, certain charities that have adopted total return have found themselves with a negative total return (in simple terms, this being where the value of the investments are less than the original investment). While not a favourable position, this does not mean the charity has to stop drawing from the portfolio – a more simplified approach is now possible which supersedes the total return approach.

This has been in place since 2006 and enables charities to access their permanent endowment if it is deemed approppriate for both the charity and its beneficiaries.  This also reduces the often onerous correspondence with the Charity Commission that is normally required when applying for total return.  However trustees' duties are in no way reduced with a prudent approach still being central.

It doesn't matter if you already have a total return policy as this is irrelevant if you choose to release the endowment in the above manner.

The certification can be found at: www.charitycommission.gov.uk/

Even if you release the permanent endowment you are not under any obligation to spend it but it does give you the flexibility to spend more to meet your priotities as they change.

Mike McKillop is development manager at the Charity Commission for England and Wales
http://www.charity-commission.gov.uk