In the public domain

New rules mean that charities must prove that their purpose is beneficial to the public or face losing their charitable status, says Sarah Smith

To be classed as a charity, an organisation must have ‘charitable purposes’ that fall within those described in the Charities Act 2006. An individual charity will form its own specific ‘objects’ or ‘aims’ under these broad descriptions. Where there is more than one aim, they must all be demonstrably for the public benefit. The new Charities Act does not change the law on public benefit, which is based on court precedent built up over the years, but it does refocus and strengthen the legal requirements for charities, their trustees and the Charities Commission in several ways. For example, under the previous Act, it was presumed that charities formed for the relief of poverty or to advance religion or education automatically fulfilled a general public benefit requirement. This is no longer the case. Also, all charities must now demonstrate that their aims are for the public benefit, whether they are new organisations seeking registration or established ones. From April 2008, trustees must build on the current requirement to explain their activities and achievements in the Trustees’ Annual Report to include how those aims are for the public benefit. The Charity Commission also has a responsibility to provide information and support in compliance with the public benefit requirement. This will be expanded during 2008 with specific guidance for various types of charity. It is a requirement under the Charities Act 2006 for trustees to consider this guidance when planning their activities, and to confirm this consideration as part of the Annual Report.

Charity: yes or no?
The Charity Commission will assess whether an organisation is a charity by looking at its:

Aims: are they for lawful charitable purpose?
Benefit(s): these must be identifiable, related clearly to the aims and balanced against detriment or harm. They do not, however, need to be quantifiable.
Public: the benefits identified must be for the public or a significant sector of it. The opportunity to benefit must not be unreasonably restricted by geographical or charitable need, or personal characteristics. In particular, people in poverty must not be excluded because they are unable to pay high fees.

The emphasis is not to prevent certain defining restrictions to enable, for example, a charity to concentrate on children or a particular medical condition, but to check that they are not overwhelming and thus contrary to the concept of inclusive charity. Any ‘private benefit’ must be incidental – i.e. occurring to enable the charity to undertake its aims or as a by-product of carrying them out. For example, a charitable animal sanctuary is providing incidental private benefit to veterinary surgeons attending to the animals, but this is necessary in order for the charity to achieve its aims. A business that prospers due to charitable regeneration of an urban area is also incidental private benefit as a result of charitable activity. Following assessment, the Charity Commission may refuse registration to a new charity or ask it to amend its objects or activities before proceeding. Existing charities may be asked to restructure, restate objects or indeed removed from the register altogether. However, the trustees can ask for an internal review of any decision made by the Commission, or request referral to a new Charity Tribunal. The Tribunal will consider the matter and any further evidence. It may uphold or strike out the Commission’s decision. Alternatively, it may direct the Commission to follow the correct procedure and retake the decision. Tribunals can award costs but not compensation, and appeals against its decisions will be heard at the High Court. Practitioners should ensure that the trustees of their charity clients are aware of the requirement to consult the guidance on public benefit. A summary sheet for trustees is available to download at www.charitycommission.gov.uk. Trustees should review their governing documents to ensure that the aims are still relevant and reflected in activities that are compliant with the public benefit requirement. Trustees writing Annual Reports need to emphasise the link between their aims, activities and how the public (or a sector of the public) have benefited. They also need to acknowledge their own consideration of available guidance.

Charitable purpose under the Charities Act 2006

the prevention or relief of poverty;
the advancement of education;
the advancement of religion;
the advancement of health or the saving of lives;
the advancement of citizenship or community development;
the advancement of the arts, culture, heritage or science;
the advancement of amateur sport;
the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;
the advancement of environmental protection or improvement;
the relief of those in need, by reason of youth, age, ill health, disability, financial hardship or other disadvantage;
the advancement of animal welfare;
the promotion of the efficiency of the armed forces of the Crown, or the efficiency of the police, fire and rescue services or ambulance services; or
other purposes recognised as charitable and any new charitable purposes which are similar to another charitable purpose.

Sarah Smith Bsc (Hons) FCCA FCIE is a practitioner in rural Oxfordshire specialising in charity and small business accounts and tax compliance. She also lectures for the AAT Masterclass series.