Could a ‘hardship fund’ help provide critical support to your employees during the current crisis?

As a result of COVID-19 many people are facing increased financial hardship and are at risk of falling into, or have already fallen into, poverty.

We have recently received a number of enquiries from individuals, companies and charities asking how they might be able to support employees and former employees in financial need, as well as others who are facing dire financial circumstances. While it is heartening to see the scale of the Government’s intervention over recent months, it is unlikely to be sufficient in preventing some individuals from falling into financial hardship or poverty.

One way in which financial support can be provided is through charitable “staff hardship funds” or “employee benevolent funds”, which aim to relieve or prevent a class of beneficiaries from falling into poverty.

While the normal rule for charities is that it is not permissible to have a beneficiary class which is “connected” by employment e.g. “all the employees or former employees of ABC Co”, the exception to this rule is for charities that relieve poverty. This was confirmed by the Upper Tribunal in the Attorney General v Charity Commission for England and Wales & 10 Ors (2012).

So, it is possible for commercial companies and other organisations to establish charitable funds to support those connected to their organisation who are struggling financially during this challenging time. The class of beneficiaries might include employees, former employees, pensioners and their families and dependants.

In operating a hardship fund, it is important to make sure that funds are directed appropriately to relieving or preventing poverty, with suitable financial thresholds and other appropriate criteria in place. Funds might be applied, for example, in making hardship grants to help with rental payments, or in paying for essential items, or in providing debt relief advice and so on.

Organisations may wish to consider establishing a new charitable hardship fund and registering it on the Register of Charities. Alternatively, to provide a faster response, organisations which already have associated charitable corporate foundations may be able to channel funding to provide financial assistance for employees through their foundation (subject to appropriate advice). Or they could consider using a donor advised fund.

From a tax perspective, donations by an employer company to a registered charity will be eligible for corporate Gift Aid. In other words, those donations will effectively be treated as tax deductible payments for the employer company.  Likewise, any individuals who give to a registered charity will be able to claim higher rate tax relief on their donations, while the charity will have the potential to reclaim 25% of the value of the donation as Gift Aid.

We’re regularly updating the Coronavirus Hub on our website, so stay tuned for more content on this and on many other topics over the coming weeks. If you would like to discuss hardship funds or any connected issue in more detail, please do get in touch with either Laura Soley ([email protected]) or Oliver Scutt ([email protected]).