Charities | What makes a charity?

Many people have misconceptions as to what makes a charity and who decides. Many assume that the Charity Commission, as registrar and regulator of charities, 'bestows' charity status on organisations according to whether we deem them worthy, and that the quality of an organisation's management and its effectiveness contributes to that judgement. In other words, many people think of charity registration as a form of licensing system, and that the commission can withdraw charity status from charities that do not perform well.

While such a system could arguably have its merits, it is not what the legal framework in England and Wales provides for. What is and what is not a charity is a matter of law, not judgement, and whether an organisation is on our register or not does not determine charity status. Indeed, thousands of charities are unregistered because their annual incomes fall below the threshold that makes registration for charities compulsory (5,000).

The law says that charities are organisations that:

a) have purposes which can be exclusively charitable; and that

b) those purposes are for the public benefit.

The Charities Act 2011 sets out 13 descriptions of purposes which may be charitable. These include the prevention and relief of poverty, the advancement of education, the advancement of religion, the advancement of health or saving of lives and many other purposes that the law will recognise. The purposes of any organisation must fall within one of these descriptions.

In addition, that purpose must be for the public benefit. There are two aspects to this: namely the 'benefit' aspect and the 'public' aspect.

The benefit aspect means that organisations applying to register as charities must be able to demonstrate that their work does indeed provide an identifiable benefit. That benefit must be linked to the organisation's purpose, be balanced against any detriment or harm, and must not be political, as charities may not have political purposes (this does not prevent charities from taking part in political activities, such as campaigning, as a way of pursing a charitable purpose).

Organisations must also be able to show that the public, or an acceptable section of the public as defined in case law, will be the recipients of the benefit - the beneficiaries. The purposes must be such that there is no unreasonable restriction on who can benefit.

Activities

Most registration cases are straightforward and clear cut. Where the expressed purposes are unclear or public benefit is in doubt, the commission may look at the actual activities of the organisation to decide whether the purposes may be exclusively charitable. Although relatively rare, questions may arise as to an organisation's charitable status under law. For example, last year, the Charity Tribunal upheld in an appeal that the commission was right to refuse registration to Uturn UK on the grounds that its purposes of advancing citizenship and community development by promoting street associations could not be said to be exclusively charitable.

It is important to stress that, while the way the charity operates may not always be relevant to its legal status as a charity, trustees do have legal duties and responsibilities to further the charity's purposes for the public benefit. We, as regulator, have a role in ensuring they comply with those duties and can, in serious cases, investigate trustees for non-compliance. We can take remedial action, where justified, to: restrain activities; suspend or remove trustees; or appoint an interim manager to administer the charity in place of the trustees.