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Comment on draft Charities Bill by Thomas Eggar's Helen Harvie

Howard Lake | 2 June 2004 | News

Helen Harvie from law firm Thomas Eggar’s Charity Group responds to the Draft Charities Bill.

In line with the Government’s commitment to provide more openness and accountability in the not-for-profit sector, the long awaited Charities Bill was published last week. As anticipated, this Bill provides the greatest shake-up in charity law for the last decade, as well as fundamentally restructuring the Charity Commission.

There are currently 5,000 new charities registered with the Charity Commission each year and in excess of 180,000 on the register. The Government and the Charity Commission are committed to regulating all existing charities more closely and encouraging them to merge with other similar charities where appropriate to achieve savings from economy of scale. The ultimate objective is to ensure that the person making a charitable donation is confident in the credibility of any registered charity and certain that the majority of that contribution will go towards the charitable activities of that organisation, rather than to sustaining a poor administration system.


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Not only does the new Bill expand the range of categories that will now be recognised when registering new charities, but it also provides the springboard for a fundamental review of existing charities, particularly those that charge fees.

Private schools and hospitals
There have been warning signals for some time that the Government intends to target fee-paying charities which only cater for a particular sector of the public who can afford to pay for their services. Indeed, many independent schools have already altered their rules for scholarships and bursaries to ensure that they are open to all and increasingly means-tested. Private hospitals are even more vulnerable.

The Bill confirms this intention. Until now, any educational charity was automatically assumed to be charitable but this will no longer be the case. Both new and existing charities will have to pass the ‘public benefit’ test. The Government’s background notes to the draft Bill state that: “Independent schools would have to show that they provide a public benefit”. Public benefit is not defined in the Bill but means that the resources of the charity must be open to a sufficiently wide class to be considered available to the ‘public’.

Whether and how independent schools may meet this criteria is unclear. The larger independent schools may be able to provide sufficient access to their facilities to meet the test, but what about the schools that do not have state-of-the-art facilities?

What happens if any of these charities lose their charitable status is also worryingly unclear. The change in tax status might mean that many charities, particularly independent schools and hospitals, might become financially unviable. However, in the worst case scenario, they may not just lose their favourable tax status, but may find that the assets of the charity fall to the Charity Commission to determine their ultimate destination.

Restrictions on trading
There had been a suggestion that the Government should relax the restrictions on trading that currently affect charities. The Bill finally confirms that this will not happen. No doubt many entrepreneurs and high-street traders will breathe a sigh of relief that there will be no further encroachment on their existing markets from incoming charities which already benefit from rates relief.

The Bill introduces a new licensing scheme for public collections to be administered by the local authority, in an attempt to simplify a hugely complex system. Fund-raising is increasingly under scrutiny. The Government has indicated that it is happy for the sector to regulate itself, but if this is not successful it reserves the right within the Bill to intervene and make statutory regulations.

Payment of charity trustees
The not-for-profit sector is completely dependent upon the time, good will and enthusiasm of its volunteers. Charity trustees may generally only be paid basic expenses, rather than any form of remuneration for services to the charity. This Bill seeks to rectify that situation and ensure that, as long as it can be justified on a commercial basis, there is no reason why acting charity trustees should not receive some form of recompense for their efforts. Will this open the floodgates to claims by charity trustees and make the public more reluctant to make donations? Again, the implementation of this remains to be seen.

Relaxing bureaucracy
The Bill contains a series of measures aimed at relaxing some of the bureaucracy associated with charity law, whilst at the same time ensuring that the Charity Commission, as a regulatory body, has increased powers of monitoring and intervention. Measures include making it easier to merge with other charities and to transfer funds, and to free-up restricted capital for the benefit of the charity. There is also to be greater protection from liability for both charity trustees and charity auditors and a much simpler process for incorporating charities will be introduced.

Many of these reforms are long awaited and welcomed by the sector in general. However, there is certainly much unease about the extent of the scope of these reforms and how they will be implemented in practice. It is anticipated that this Bill will become law in early 2005. Some of the measures may be amended but there is no doubt of the Government’s intention to ensure that charities are brought to account and made to operate efficiently, transparently and in the public interest. This Bill ensures that the Charity Commission increasingly has the ‘teeth’ to deal with charities that do not meet their standards.

Charity trustees would be well advised to take the next six to nine months to look very seriously at their constitutions, their activities and their provision of access to the public. In particular they should review their status in light of the 12 revised charitable purposes and consider the implications of any potential loss of charitable status.

Helen is a member of Thomas Eggar’s dedicated Charity Group, based in the Chichester office.

Thomas Eggar is one of the UK’s largest regional law firms. It provides legal services to both commercial organisations and private individuals. It has over 250 years of experience of looking after wealthy private individuals and family affairs.

Thomas Eggar has offices situated in Chichester, Horsham, London, Reigate and Worthing.