Charity law update

The Electoral Commission has recently published detailed guidance, Charities
and Campaigning, which explains the
rules of charity law and electoral law so that charities can ensure they comply with all the relevant legislation when campaigning in the
run up to an election. The Charity Commission had previously produced its own guidance,
Speaking out – campaigning and political
activity by charities (CC9).

The commission’s guidance is clear that
charity law recognises campaigning as a legitimate activity for charities, so long as it supports the delivery of the charity’s purposes and is justifiable, including in terms of impact and cost. This can include campaigning to secure or oppose a change in the law or government policy.

However, charities must retain independence and political neutrality, must never engage in any form of party political activity, and must take reasonable care to avoid adverse perceptions of their independence and political neutrality.

The first step for charities considering campaigning is to ensure that they are complying with the requirements of charity law. The next step is to identify whether the charity will need
to register as a non-party campaigner during the ‘regulated period’ before the election, which starts on 19 September and ends on polling day.

Charities will need to consider whether
their planned campaigning activity is regulated under the Lobbying Act (and should record the formal records of the decisions taken) as well as the cost and timing of their planned activity. If
a charity plans to spend more than £20,000
in England or £10,000 in Wales, Scotland or
Northern Ireland on such regulated activity,
they must register with the Electoral Commission as a non-party campaigner.

Legal advisers with clients to whom the Lobbying Act may apply must familiarise themselves with the potential reach of the legislation and the general obligations placed on third-party campaigners so that their clients are ready when the rules take effect in September.

Tax avoidance

Another issue that has been covered extensively by the media, following the Cup Trust scandal, is the abuse of charity tax reliefs. The government announced in its 2013 Autumn Statement that it would seek to amend the definition of charity for tax purposes to ensure that entities set up for the purpose of tax avoidance would not be entitled to claim charity tax reliefs.

HMRC published a discussion paper in the spring seeking views on its proposals to introduce a new ‘purpose of establishment condition’ aimed at outlawing extreme cases where charities are established to abuse charity tax reliefs.

Because of the responses it received, and wider informal consultation with the charity sector, the government decided not to change the definition in the Finance Bill 2014. Feedback confirmed that the proposals outlined in the paper would have a disproportionately negative effect on the charity sector and legitimate donors.

HMRC highlighted its bolstered range of weapons in its armoury against using charities
as tax avoidance vehicles:

• its recent success in the courts in challenging certain charity tax avoidance cases
• the introduction of the General Anti-Abuse Rule (GAAR)
• recent changes to the ‘fit and proper person test’ for charities to confirm that individuals involved in the management or control of a charity who use, design or promote tax avoidance schemes may jeopardise its claims for tax reliefs; and
• the new accelerated payments regime, which will introduce new powers for HMRC to issue accelerated payment notices requiring users of tax avoidance schemes to pay for their potential tax liability upfront.

HMRC has recently won two cases in the First-tier Tribunal in relation to Gift Aid schemes involving charities. In neither case has the charity been implicated, but taxpayers have been required
to pay back some of the relief granted. 

In Nicholas Green v HMRC [2014] STC 396, two charities were given shares in a company that was listed on the Channel Islands’ stock exchange, but the tribunal found the real value of the shares to be approximately one third of that claimed and the taxpayers were ordered to repay the difference in relief claimed.

In Ferguson v HMRC [2014] UKFTT 433, Mr Jenner of NT Advisers advised individuals on a scheme that channelled money via a Jersey trust and a charity, known as the Blue Box scheme. The tribunal found that the scheme did not work, and found for HMRC.

What these cases demonstrate, is that HMRC
are investigating Gift Aid claims in more detail.
It serves as a useful reminder to charities that they should ensure that Gift Aid declarations are worded so that the risk of repayment if the donor pays too little tax falls on the donor, and not the charity.

Conflicts of interest

The Charity Commission has issued updated guidance on conflicts of interest – an area that
can cause significant and complex problems for trustees. The guidance takes a comprehensive look at what charities should be doing in relation to conflicts – both actual and implied, and conflicts
of interest and duty.

It clearly distinguishes between conflicts and benefits, and gives some guidance as to what should be included in a policy. Alongside the detailed guidance and executive summary, the commission has produced a ‘legal underpinning’ document, which sets out the case law on conflicts generally and in relation to charities.

The guidance focuses on three simple steps
for dealing with conflicts: identify, prevent and record. It examines more complex areas of conflicts of interest, such as trustee benefits, conflicts of loyalty and particular issues affecting charitable companies.

The guidance also recommends asking trustee candidates for a breakdown of their interests/conflicts so that this can be considered in the appointment process; making conflict declaration the first slot on each meeting agenda; and having
a conflict of interest policy and register of interest publicly available.

It also recommends that charities without proper conflict or trustee benefit provisions in their governing documents should now consider revising their documents to update them (note prior commission consent will often be needed
for this) and legal advisers should be advising
their clients to do so.

There is a hardening in approach generally
to trustees who do not address the issue. Inappropriately managed conflicts of interest featured in all of the commission’s concluded investigations in 2012/13. The guidance
therefore places greater emphasis on the serious consequences of failing to manage conflicts of interest and on charity trustees’ responsibilities
to identify and declare them.

Many conflicts can be managed effectively and some benefits to trustees are capable of being authorised, but trustees need to ensure that conflicts are brought into the open, and that suitable policies and procedures are put in place
to effectively deal with situations as they arise.

Human Dignity Trust

The Human Dignity Trust (HDT) has won its appeal against a decision of the Charity Commission refusing to register it as a charity (Human Dignity Trust v Charity Commission (CA/2013/0013) (9 July 2014)). The First-tier Tribunal (Charity) has directed the commission to rectify the register of charities so as to include HDT.

The tribunal’s decision states that: “As a matter
of law, this decision is confined to its own facts and does not establish a legal precedent for the registration of other prospective charities. This decision also has no legal effect upon charities already registered as such and operating in the field of human rights. It does not supersede the Charity Commission’s published guidance or the decisions of superior courts in this area.”

However, as it is the first tribunal decision on the scope of human rights as a charitable purpose, it will naturally be of interest to legal advisers working in this field. The meaning of ‘human rights’, and the extent to which a charity that operates overseas must benefit the public in England
and Wales, was also examined.

In addition, the decision contains an interesting commentary on whether HDT’s purposes are political, which contains a layer of analysis on
top of Slade LJ’s in McGovern v Attorney General
[1982] Ch 321. SJ

Sarah Clune is a professional support lawyer in the charity and social enterprise team at Stone King