Charity Update 2008

The recently passed Charities Act 2006 now defines a charity as a ‘body or trust which is for a charitable purpose that provides benefit to the public’.  Before the Act, many charities were presumed to provide benefit to the public.  Under the Act this presumption has gone.  Instead there is a specific requirement for all charities to show that their purposes provide ‘public benefit’.  Charities seeking registration in the future must provide evidence that their purpose will provide public benefit.  They will be assessed by the Charity Commission to establish such matters as:

• what the public benefits are;
• who will benefit; and
• whether that is sufficient given the purposes the charity is set up to achieve.
  

The Commission may also carry out public benefit checks on existing charities who will then be asked to demonstrate how they meet the test.

 

The Charities Act 2006 Implementation Plan published by the Cabinet Office sets out that the new definition of charity and the public benefit test will not be brought into force until there is an accessible right of appeal through the Charity Tribunal and the Charity Commission has developed and consulted on its guidance on the operation of the public benefit requirement.  The Charity Commission expects that these public benefit provisions will come into force by late March this year, making 2008 a significant year for many charities.

 

The Charity Commission is set to provide revised general public benefit guidance for all charities this month.  Following this a further three-month consultation on the public benefit issue for the following types of charities is planned:

• charities for the prevention and relief of poverty;
• charities for the advancement of education;
• charities for the advancement of religion; and
• fee-charging charities.

It is anticipated that specific guidance for each of the above will then be issued in the second half of 2008 which will explore the public benefit issues for those types of charities in greater depth.

 

The trustees’ should bear in mind that it is their responsibility to be familiar with the guidance and to assess whether or not their charity meets the public benefit requirement.  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.

 

From late March 2009 it will be a requirement for charities to begin reporting on public benefit as part of their annual reports to the Charity Commission.

 

The ability of an organisation to satisfy the public benefit tests will determine the tax status of the organisation and therefore its eligibility to the tax reliefs that are available for charities and donors.

 

As charities become more and more commercial to further their generation of income in support of their causes it is likely that concerns regarding their tax status will be voiced with increasing strength from their commercial competitors.

 

The need for charities to satisfy the public benefit test may end up being good news for the charity sector as the end result will be that charity tax reliefs will only be available to bona fide charities, thus protecting them from an increasingly vocal minority who would wish to see them restricted in one form or another.

 

Timetable for implementation of the Charities Act 2006

 

The updated provisional timetable for implementation of the Charities Act 2006 anticipates the Third Commencement Order in the first quarter of 2008. This includes the following:

 

The Fourth Commencement Order is expected in summer 2008 and is to include:

 

It is not envisaged that the new licensing regime for public charitable collections will come into force before 2009.  Provisions relating to ‘exempt’ charities are also expected to come into force next year.