Charities Act 2006 - BIG Changes for Charities - How will they Affect You?

The first question is “Will it affect me”?

The next question is “What is changing?”

 

A review and update of charity law has been eagerly awaited as it is long overdue.

 

The starting point for the legal concept of ‘charitable purposes’ is to be found in the preamble to a seventeenth century act of parliament.  In the twenty-first century it is not surprising to find that the range of charities that exist today has evolved considerably since this seventeenth century definition was conceived. The newly passed Charities Act 2006 updates the scope of charitable aims to better suit our modern society.  The Act now defines a charity as a ‘body or trust which is for a charitable purpose that provides benefit to the public’.

 

Charitable Purpose

 

Before the Charities Act 2006 there were four types of charitable purpose (aims).  The new Act increases the list of charitable purposes from 4 to 13 (with the thirteenth being a general heading that is wide enough to act as a ‘catch-all’ – it keeps everything which is currently charitable, but which may not be covered by any of the 12 specific headings, within the scope of ‘charity’ and it also covers any purposes that might be recognised as charitable in the future).  In this way, all 13 headings together cover everything that is charitable.

 

Benefit to the Public

 

Before the Act, many charities were presumed to provide benefit to the public.  Under the Act there is no longer a presumption for these charities, now there is a specific requirement for all charities to show that their purposes provide ‘public benefit’.

 

 

Now you want to know “How will it affect me?”

 

All charities seeking registration in the future must provide evidence that their purpose will provide public benefit.  After consultation, the Charity Commission may carry out public benefit checks on existing charities who will then also be asked to demonstrate how they meet this test.

 

Charities can charge for their services providing the charge is not set at a level which effectively excludes people on low income from benefiting.  Charities that charge fees, such as private hospitals, care homes, private schools and universities will clearly be concerned to see how they will be affected by the new rules relating to public benefit.  How the tests will be applied to charities that charge fees is something that remains to be seen.

 

Although charities can provide different sorts of benefit to the public, it seems that relieving the public purse (e.g. where a hospital treats patients whose treatment would otherwise have to be funded by the public or where a school educates pupils whose education would otherwise have to be funded by the public) would not be sufficient if there were no other clear public benefits.  It will be a challenge for the trustees of such charitable organisations to demonstrate the ways in which they satisfy the public benefit test.  Religious charities may also find it difficult to evidence that the public benefit test is met.

 

The Charity Commission will assess, for example:

 

• what the public benefits are;
• who will benefit; and
• whether that is sufficient given the purposes the charity is set up to achieve.
• Charities Act 2006 – BIG Changes for Charities
• How will they affect you? (continued)

And lastly you will be asking “What should I do about it?”

It is the trustees’ responsibility to be familiar with the guidance and to assess whether or not their charity meets the public benefit requirement.

 

The requirements of the public benefit test are of utmost importance.  Donors to charities as well as the charities themselves can take advantage of valuable tax concessions.  The ability of an organisation to satisfy the tests will determine the tax status of the organisation and therefore its eligibility to the generous tax reliefs that are available.

Just as the South West has a particularly active charitable sector so the region has the most generous people in England - with 62% giving to charity in an average month, (UK average 57%). The average donation in the South West is £15.17 per month - higher than all English regions apart from London! (per NCVO 2006)

So.... “Where can you get help?”

It is to be expected that the law on public benefit will continue to evolve and develop in pace with modern society. It will doubtless alter in response to the social and economic context within which charities operate and to decisions by the Commission, the proposed Charity Tribunal and the courts.

 

Any charity which considers that it may be at risk of failing the public benefit test needs to review the ongoing guidance from the Charity Commission and consider seeking professional advice from their legal advisors at the earliest opportunity.

 

The provisions on charitable purposes and the public benefit requirement will come into force in early 2008.

 

Further information is available on the Charity Commission’s website.

For all enquiries about Charity Law related issues, please contact any member of our specialist team on 01872 241700 for further information or to arrange an appointment.