This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.

These websites for each chapter update the 3rd edition of The Russell-Cooke Voluntary Sector Legal Handbook by James Sinclair Taylor and the Charity Team at Russell-Cooke Solicitors, edited by Sandy Adirondack (Directory of Social Change, 2009). The websites are not intended as a comprehensive update and should not be treated as such.

To order a copy of The Russell-Cooke Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking . It costs £60 for voluntary organisations or £90 for others, plus 10% p&p.

Chapter 5
THE ORGANISATION'S OBJECTS

HODGSON RECOMMENDATIONS ON CHARITABLE PURPOSES, PUBLIC BENEFIT AND CHARITABLE STATUS

Updated 18/8/13. This information updates ss.5.2 & 5.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
In his review of the Charities Acts presented to Parliament on 16 July 2012, Lord Hodgson made the following recommendations in relation to charitable purposes, public benefit and charitable status, and the government commented on some of them in its interim response on 3 November 2013. The government's full response will include consideration of the Commons public administration select committee's report on its inquiry into the Charities Act 2006 and the regulation of charities, which was published on 6 June 2013.

I have added comments in italic.

• The Charity Commission should consider providing a single piece of guidance setting out how it defines each of the charitable purposes and the factors it will consider when applying those definitions to decide whether an organisation qualifies as charitable. It should also give thought to producing more model objects to supplement this guidance and assist new charities to comply with the law [Chapter 4 recommendation 1]. This was not explicitly mentioned in the government's interim response, but it is not likely to be controversial.


• No statutory definition of "public benefit" should be introduced, in order to retain the flexibility attached to the common law definition. However, the attention of the tribunal should be drawn to the important role it has to play in ensuring case law precedents reflect emerging social mores [Chapter 4 recommendation 2]. The government's interim response noted that most feedback it received was not in favour of a statutory definition, but that some in the sector were in favour of a partial definition of public benefit similar to the one in Scotland. The government did not think a statutory definition would be desirable, or that a partial definition would provide much additional clarity over the existing case law and Charity Commission guidance.
  
  The public administration select committee recommended reinstating the presumption that charities for the advancement of education, advancement of religion or relief of poverty are for the benefit of the public,
  Sandy's comment: The charity law review advisory group set up by NCVO to operate alongside the Hodgson review said further legislation would be highly desirable to clarify the law on public benefit, but it should not seek to produce a comprehensive definition of the public benefit requirement.


• No change should be made to the list of charitable purposes [Chapter 4 recommendation 3]. Development of social impact measurement should not be added to the existing statutory list of charitable purposes at this time [Chapter 9 recommendation 6]. The government's interim response agreed that the statutory list of charitable purposes should not be changed.


• The Charity Commission, in its drafting of new guidance on public benefit and more widely, should take on board the comments made by the sector regarding the need for a clear distinction between legal requirements and best practice in the text [Chapter 4 recommendation 4].


• In order to address future public concerns about "what constitutes a charity", in practical as opposed to historical-legal terms, the government should stimulate a widespread sector and public debate on the question [Chapter 4 recommendation 5].


• For the time being, the recommendation of the Calman report that a UK-wide definition of charity be introduced should not be implemented. However, the harmonisation of the definition across the UK remains desirable in the longer term, and this issue should be revisited at a later date [Chapter 4 recommendation 6]. The government did not comment on this recommendation in its interim response. The public administration select committee said a "passporting" system should be developed, to make it easier for charities to operate across the nations of the UK.
  Sandy's comment: The charity law review advisory group set up by NCVO to operate alongside the Hodgson review recommended that the government, the devolved administrations, the sector's three regulators (Charity Commission for England and Wales, Office of the Scottish Charity Regulator and Charity Commission for Northern Ireland) and HM Revenue & Customs should try to agree a single definition of charity and a single public benefit requirement for the whole of the UK, which would also apply for tax purposes.
  
  While this may be desirable in principle, charity law in Scotland is developing differently from charity law in England and Wales and it seems unlikely that the Scottish charity sector would welcome harmonisation. And when Northern Ireland tried to bring together elements of, in particular, the Scottish and English definitions of public benefit, it created a legal quagmire that set back the development of NI charity law for about two years [see Charity registration comes closer in Northern Ireland].


• The Charity Commission, as part of its information strategy review, should identify and implement ways of drawing public attention to the public benefit reports of individual charities [Chapter 4 recommendation 7].


• Charities should recognise the importance of public benefit reporting both to public confidence and their own ability to attract supporters, and take responsibility for complying with reporting requirements, stressing the "impact" rather than the "process" of their activities [Chapter 4 recommendation 8].


• At present unincorporated charities that have an annual income of £10,000 or less (and do not own what is called designated land) can change their purposes or transfer their assets to another charity with similar purposes by using a simple procedure that takes effect by passing a resolution that must be sent to the Charity Commission. This is a procedure that works well and should be available to charities with income up to £25,000 [Appendix A recommendation 26].

Go back to list of all of Lord Hodgson's recommendations

PUBLIC BENEFIT AND FEE-CHARGING CHARITIES

Updated 25/5/13. This information updates in s.5.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission announced on 21 December 2011 that the sections of its public benefit guidance on fee-charging by charities would be rewritten following the upper tribunal's ruling in October 2011 that key parts of the guidance were wrong in law or were obscure. The Commission had until 23 December 2011 to appeal against the tribunal's decision, and decided not to.

The upper tribunal's decision supported the argument of the Independent Schools Council, which had brought the challenge, that the Commission had gone too far in defining how fee-charging educational charities should demonstrate public benefit (for example, by providing bursaries). But it rejected the ISC's view that such charities should not be obliged to offer benefit to people in poverty.

The Commission had already, prior to the upper tribunal's decision, set up a working party to review all of its public benefit guidance. Its draft guidance was published on 27 June 2012, followed by consultation until 26 September 2012.

In the meantime the relevant sections of the guidance were withdrawn in December 2011, as required by the upper tribunal, and no longer form part of the Commission's statutory guidance on public benefit to which charities must have regard when carrying out powers or duties to which the guidance is relevant. The amended guidance is at tinyurl.com/qbqh8mz.

The majority of the Commission's public benefit guidance does not apply to fees and is, until the new draft guidance is approved, unchanged. All trustees, including those in fee-charging charities, must continue to consider it in relevant decisions and report annually on their benefit to the public.

Trustees and relevant staff in charities which charge high fees should carefully read the Commission's Q&A about the upper tribunal decision and interim advice for trustees at tinyurl.com/6twv5uj. Key points from the decision, as summarised in the Q&A, are that all charities must have expressed aims (or purposes) which are for the public benefit. An organisation with aims that expressly, or by implication, exclude the poor cannot be a charity. All charity trustees have a duty to administer their charity for the public benefit.

Charity trustees of educational charities which charge high fees, in consequence of their duty to administer the charity for the public benefit, are required to take into account the whole of the class of beneficiaries the charity is set up to provide for. Accordingly, they have a duty to make provision for the poor. That provision must be more than minimal or tokenistic and must be related to the charity's aims.

Beyond that, the level of provision to be made for people unable to pay the full fees is to be decided by the trustees in the context of their charity's circumstances. There are no objective benchmarks about what is appropriate, but in deciding what provision to make for people who cannot afford the full fees, the charity trustees must act in a way that a reasonable body of trustees would in their charity's circumstances.

If educational charities provide 'luxury' or 'gold-plated' facilities, it will be even more incumbent on them to demonstrate a real level of public benefit.

A final key point in the Commission's Q&A is that there are different types of benefits that charities can provide for people who cannot afford the full fees — direct, indirect and wider benefits. All types of benefit can be taken into account (although some may have greater significance than others) provided that the benefits are related to carrying out the charity's aims.

Although the upper tribunal's decision related specifically to fee-charging educational charities, the Commission has made clear that the key points are also relevant for trustees of other charities which charge high fees.

The full tribunal decision in Independent Schools Council v The Charity Commission for England and Wales is at www.bailii.org/uk/cases/UKUT/TCC/2011/421.html.

For summaries and articles about cases, do a Google search on key words in the case name or content.
Go back to contents
Go to archived items about charitable purposes (VSLH3 chapter 5)

PUBLIC BENEFIT AND BENEVOLENT FUNDS

Updated 22/2/12. This information updates in s.5.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Public benefit is not defined in the Charities Act 2006, but is based on case law which is that charities have to provide a benefit to the public as a whole or a sufficient section of the public. Historically "a sufficient section of the public" could not be defined by a personal or private connection such as to a family member or an employer, but for many years the courts have accepted that charities for the relief of poverty could limit their beneficiaries to those with a link to a particular individual or employer. The upper tribunal (tax and chancery chamber), which deals with charity issues, has now confirmed that this approach remains in place.

At the request of the Charity Commission, the attorney general asked the first-tier charity tribunal in January 2011 to determine whether charities for the relief of poverty and with beneficiaries defined or linked by a personal or private relationship still meet the public benefit test. This was specifically relevant for benevolent funds and other charities whose beneficiaries are, for example, employees or former employees of a particular employer, "poor relations" of a named individual, or members of a particular organisation, such as a Masonic group. The case was referred to the upper tribunal on 1 November 2011 and was heard there in mid-November. Ten charitable funds which could be affected by the decision were parties to the case.

In a decision on 20 February 2012 the upper tribunal said charities for the relief of poverty must meet the public benefit requirement in the first sense of being by their nature beneficial to the community, but are an exception to the public benefit requirement in the second sense of having to benefit "a sufficient section of the public". Organisations for the relief of poverty which do not meet the requirement in the second sense can thus continue to be charitable, provided they are by nature beneficial to the community. So also, the tribunal said, might some organisations for the prevention of poverty be charitable even if they do not meet the public benefit requirement in the second sense. But the exception does not apply to organisations set up for other charitable purposes.

The decision in HM Attorney General v The Charity Commission for England and Wales and others can be accessed on the Ministry of Justice tribunals website via tinyurl.com/7emd8m6.

Go back to contents
Go to archived items about charitable purposes (VSLH3 chapter 5)

PUBLIC BENEFIT GUIDANCE, REPORTING AND ASSESSMENTS

Updated 25/4/11. This information updates in s.5.3 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
All charities must exist for the public benefit. Since 1 April 2008, the presumption in England and Wales that organisations established for the relief of poverty, the advancement of education and the advancement of religion operate for the benefit of the public unless proved otherwise has been abolished. When applying for charitable status such organisations now have to show — as do organisations established for all other charitable purposes — that they will benefit the public. In addition, charities which had been presumed to be for the benefit of the public, especially those which charge high fees, are being reviewed to ensure they meet the public benefit test. The chair of the Charity Commission, Dame Suzi Leather, said on 7 October 2009 that charities that are found not to be meeting the test could be given up to five years to do so.

Public benefit guidance
The Commission's guidance on public benefit requires all charities to comply with two principles:

• There must be an identifiable benefit or benefits. It must be clear what the benefits are; the benefits must relate to the charity's aims; and benefits must be balanced against any detriment or harm.
• Benefits must be to the public, or a section of the public. The beneficiaries must be appropriate to the aims; the ability to benefit must not be unreasonably restricted by geographical or other restrictions or by ability to pay any fees charged; people in poverty must not be excluded from the opportunity to benefit; and any private benefits must be incidental.

| Home | About Sandy | Publications | Open training | Current courses | In-house training | Consultancy | Mentoring | Books by post |
| Legal update | Legal update (activities & services) | Legal update (employment & volunteering) | Legal update (equality & human rights) | Legal update (risk, finance, funding & property) | Legal update (legal structures & charitable status) | Legal update (archived items) |

SANDY ADIRONDACK
Governance and legal training and consultancy
for the voluntary sector
39 Gabriel House, 10 Odessa Street, London SE16 7HQ
Tel 020 7232 0726; fax 020 7237 8117
Email:
Web: www.sandy-a.co.uk