"natural categories" vs "activity-based categories"

[eteb3]

Hi

Doing the accounts for a charity and decided to look at the Commission guidance for the first time, since we're liable to register now.

They distinguish between "natural categories" and "activity-based categories" (screenshot)

From the examples given, I can't understand the difference (except that they are different).

Can anyone explain, and suggest how we should think about the choice? It wouldn't be much skin off our nose to state both, if that's an option.

Thanks.

 

[Scalloway]

I would suggest that natural categories is a global category where these examples of expenditure are just totalled.

Wages / salaries and national insurance
Pension contributions
Rent/hire of rooms
Repairs and maintenance
Light and heating
Water and sewerage
Insurance
Telephone, internet and postage
Printing, postage, stationery and computer supplies
Grants and donations paid
Bank interest and charges

Activity based would be where you would have cost centres eg

Premises income and expenditure
-Hires
-Caretaker's saary
-Heat and light
-Insurance

And

Events income and expenditure
-Grants
-Entry fees
-Hire of room
-Purchase of materials

 

[Bobbo]

The distinction between the two is a little clearer if you look at the expenditure (payment) side rather than the income side.

Basically, the natural categories are just what that income or expenditure is. Activity based reporting requires income and expenditure to be categorised in line with the charity's activities. The first distinction is between raising funds (cost of generating voluntary receipts / fundraising costs - the terminology in CC16b which you provided a screenshot from is a little out of date) and charitable activities.

For example, rent paid for a building the charity occupies. Is that used say by a hospice charity would use the hospice, or is it where the charity's fundraising team are based calling donors, creating adverts to seek donations etc. If the former, the activity to which that rent relates is charitable activities, if the latter then that rent relates to raising funds. If the fundraising team are also based at the hospice premises then you would be looking at apportion the cost between the charitable activities and raising funds on some sensible basis (floor area used perhaps).

That you say the charity has only become liable to register indicates income has only just exceeded £5,000 in a year or perhaps you represent a church charity like a PCC and income has just exceeded £100,000.

To answer your final question, no you can't pick both. But you can use natural categories to provide further analysis of activity based reporting.

 

[eteb3]

Thank you, both: this is very helpful.

Looks like we're better of with the more informative "activiites-based" system, so we'll go with that.

Grateful for your time in lengthy responses!