On 16 January 2008 the Charity Commission published its guidance on public benefit under the Charities Act 2006. This briefing looks at what the guidance says, and what it means in practice for charities. At the end of this briefing there are details of a programme of free seminars we are running for clients which will examine the issues in more detail.
Background to the guidance
Under the section of the Charities Act 2006 which deals with charitable purposes (due to be brought into force from 1 April 2008) a charitable purpose is a purpose which both falls within a statutory list of thirteen charitable purposes set out in the 2006 Act and is for the public benefit. There is no presumption that a particular charitable purpose is for the public benefit – a change from the existing law which presumes that the advancement of education, the relief of poverty and the promotion of religion are for the public benefit.
The Charity Commission is obliged under the new Act to issue guidance promoting awareness and understanding of this public benefit requirement. The new guidance – following a period of consultation on draft guidance issued in March 2007 - fulfils this requirement.
Charity trustees will be under a statutory obligation, once the relevant provisions of the 2006 Act come into force, to have regard to the guidance when exercising any powers or duties to which the guidance is relevant.
What does the guidance say?
The guidance represents the Charity Commission’s interpretation of the current law on public benefit. This is important – the guidance is not the law, but merely an interpretation of it.
The guidance sets out two key principles of public benefit, together with important factors which must be considered in deciding whether an organisation’s aims meet the public benefit principles:
Principle 1: There must be an identifiable benefit or benefits
(a) It must be clear what the benefits are
(b) The benefits must be related to the aims
(c) Benefits must be balanced against any detriment or harm
Principle 2: Benefit must be to the public, or a section of the public
(a) The beneficiaries must be appropriate to the aims
(b) Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted:
•By geographical or other restrictions; or
•By ability to pay any fees charged
(c) People in poverty must not be excluded from the opportunity to benefit
(d) Any private benefits must be incidental
Charity trustees will have a new duty to report in their trustees’ annual report on their charity’s public benefit (also likely to be brought in from 1 April 2008). Trustees of charities below the audit threshold will need to include a brief summary of the main activities undertaken in pursuing the charity’s aims for the public benefit. Trustees of larger charities will be obliged to provide a fuller explanation.
The Charity Commission will assess the public benefit of new charities, and of existing charities using a range of methods including: the information provided in the trustees’ annual report, carrying out public benefit research studies; working with professional and umbrella bodies and detailed assessments of individual charities.
The Commission is due to publish supplementary guidance, after further consultation, about how the public benefit requirement applies specifically to different kinds of charity. The first “sub-sectors” to be tackled are expected to be:
•charities for the relief of poverty;
• charities for the advancement of education;
• charities for the advancement of religion; and
• fee-charging charities.
The consultations are expected to begin in late February, with final supplementary guidance in these areas likely to be published later in 2008.
What does this mean?
The Charities Act 2006 will reverse the presumption that the advancement of education, the relief of poverty and the promotion of religion are for the public benefit. Charities with those purposes will, therefore, need to demonstrate that their charitable purposes are for the public benefit.
This change brings a renewed focus on the requirement that all charitable purposes must be for the public benefit. In practice, the Charity Commission will expect to see evidence that charity trustees have considered whether particular activities are, or will be, capable of advancing the charity’s purposes for the public benefit. This may, in some cases, impose an additional evidential burden on trustees.
It must be stressed that the guidance is not a definitive statement of the law, but the Charity Commission’s interpretation of the law. The law on public benefit is scarce and complex. While the Charity Commission is to be congratulated on extrapolating guidance from such a difficult source, there is scope for argument as to whether the guidance is an accurate and complete statement of the law. And given the lack of clear case law in many areas, there is significant scope for the law to develop. The opening of the new Charity Tribunal has been timed to coincide with the changes in the public benefit rules: in due course we can expect to see challenges before the Tribunal to some of the legal interpretation offered by the guidance.
An inevitable focus in the guidance is on the impact of the public benefit requirement on fee-charging charities. The Commission’s guidance differs significantly from the draft it published for consultation in 2007 in that it states that “people in poverty must not be excluded from the opportunity to benefit”. The draft guidance had stated, more prescriptively, that “people on low incomes must be able to benefit”. So there has been a reversal in emphasis. BWB’s representations on the draft guidance identified this point as the most contentious point of legal analysis raised by the consultation draft. Despite this change, there remain major interpretational questions.
Notwithstanding the length and detail of the guidance, we see there as being two important safeguards against novel and adverse interpretations:
• The Commission must deal with every charity on a case by case basis, and the guidance itself states that if charities depart from the guidance they should be able to show good reasons for doing so. This implies that there may be cases where trustees judge, quite properly, that compliance with charity law is not necessarily the same thing as compliance with Commission guidance.
•Charities can and should be able to argue that proportionality and balance are key factors, particularly where resources are limited.
What should charities do now?
The main steps charities need to take are set out below, but the vast majority of charities have nothing to fear from this guidance and should be able, comfortably, to demonstrate adequate public benefit.
1. From 1 April 2008, all charity trustees must have regard to the guidance when exercising any powers or duties to which the guidance is relevant. This will involve:
•Reading, at the very least, the Commission’s four-page summary guidance and understanding how the main guidance applies to their charity.
•Keeping the guidance in mind when assessing the charity’s current activities and planning future activities.
We would recommend that all trustees are fully briefed on the guidance (available athttp://www.charity-commission.gov.uk/publicbenefit/default.asp), and new trustees should be made aware of the guidance, and its relevance to the particular charity, as part of the process of induction.
2. Charity trustees should review whether their charities’ aims and activities are for the public benefit. This may involve an audit of the charity’s existing activities, as well as consideration of how to promote public benefit on an ongoing basis. Clearly for some charities, particularly fee-charging charities, this may be a more significant exercise than for others.
3. Poverty, education, religious and fee-charging charities should watch out for the supplementary guidance due to be published at the end of February, and respond to the Commission’s consultation.
4. Charity trustees should be ready to report on their charity’s public benefit in their annual reports. Section G of the guidance explains what the new requirements are likely to be: this will be confirmed once secondary legislation has been passed.
Public Benefit Seminars
BWB has arranged a programme of free seminars for clients on the public benefit guidance at which the issues raised by the guidance will be explored in more detail. The first of these will be a general session looking at the guidance generally. Subsequent seminars will focus on issues relevant to specific types of charity including, where relevant, a discussion about the supplementary guidance to be issued by the Commission for consultation. Clients are most welcome to come to more than one seminar but attending just the seminar relevant to your charity type should be sufficient if you only want to attend once.
The dates of the seminars are:
•General session on the public benefit guidance: Tuesday 4 March 5.30 to 6.30pm
•Fee charging charities: Wednesday 9 April 2008 5.30-6.30pm
•Education charities: Tuesday 22 April 2008 5.30-6.30pm
•Religious charities: Tuesday 18 March 8.30am to 9.30am
•Health and social care charities: Wednesday 2 April 8.30am to 9.30am
•Human rights charities: Tuesday 8 April 8.30am to 9.30am
•Performing arts charities: Wednesday 16 April 5.30pm to 6.30pm
•Other arts charities: Wednesday 30 April 5.30pm to 6.30pm
Please contact Mona Rahman at seminars@bwbllp.com if you would like to attend any of the seminars, or click on the links above to register online via our website.
A further seminar for sports and recreation charities will be arranged to coincide with the publication by the Commission of a revised version of their leaflet RR11 “Charitable status and sport”. Please email seminars@bwbllp.com if you want to be kept informed when a date is fixed for this seminar.
