The law regarding charities was recently revised with the introduction of the Charities Act 2006 which has now become law.
An organisation must have purposes that are recognised as charitable in law and must be able to demonstrate that it exists to benefit the public in some way.
Prior to the recent Act there were four heads of charity recognised by law - relief of poverty, advancement of religion, advancement of education and "any other purpose beneficial to the community". Now there are twelve charitable purposes. This list is illustrative of the types of purposes which are charitable, it is not a definitive list. It also includes an "any other purpose" clause thus ensuring flexibility for the law to evolve in response to changes in society and changing social and economic needs.
All organisations which have charitable purposes (i.e. that fall within the list) also have to show that they exist to benefit the public in some way in order to gain charitable status. In the past the law presumed that charities under the three named heads (poverty, religion and education) benefited the public. Under the new Act this presumption has been removed, meaning that there is a level playing field for all.
The Act does not define "public benefit" - decisions about whether this requirement is met are determined by the Charity Commission as the independent regulator, on the basis of case law, and ultimately by the courts.
The Commission’s primary role is to act as independent regulator of charities.
It also is tasked with promoting awareness and understanding of the public benefit requirement as another of its objectives. It must consult wit the public and others before issuing or revising any related guidance and must publish this guidance once agreed.
The Commission performs its functions on behalf of the Crown but is not subject to the direction or control of any Minister of the Crown or other government department, apart from legal obligations or expenditure controls.
The new Act makes some changes to the registration of certain types of charity. For example small charities with an income of less that £5000 are not required to register (and may choose to de-register if they are already registered).
Certain types of charities remain exempt although some Industrial and Provident Societies which are also charities will no longer be exempt.
Charities with an income of at least £500,000 or with assets valued at £2.8 million or more will be required to have their accounts professionally audited and those with an income between £10,000 and £500,000 must have their accounts independently examined.
The above is not an exhaustive list of changes which the new Act has introduced - there are numerous others, including the introduction of an independent Charity Tribunal. This body will be able to review any decision taken by the Charity Commission, thereby enabling people to appeal against such decisions without resort to the High Court as was the case previously.
If you run a charity or are thinking of establishing one we can assist and guide you through the legislation. Partners and others in this firm are themselves trustees for various charities and we are therefore well placed to advise and assist.
For further information please contact Robert Beattie.