Charity law update

As I write this, my daughter is preparing for her school Nativity play, in which she is singing a song of which the main lyrics are, "Eey Or, are we nearly there yet?", which got me thinking about the charity reforms proposed last year, and how far the sector ?has really come.

Eighteen months ago, the sector was geared up for an exciting time of change. Lord Hodgson was about to publish his extensive review into the Charities Act 2006, and practitioners and charities alike were excited to see what would be recommended, and what would be taken forward.

A few minor changes were made at the time, but the last three months have seen a few more significant amendments to the charity landscape in the spirit of the Lord Hodgson report, with ?more to come.

Public benefit

Following the Independent Schools Council v Charity Commission case [2011] UKUT 421 (TCC), the Charity Commission withdrew parts of its public benefit guidance, and September 2013 saw the new versions finally being published. It was clear that the commission had taken its time on the new drafts, and had carefully considered the criticisms levelled at it by the tribunal. As such, the new guidance is very much focussed on trustees taking responsibility for analysing public benefit and ensuring that the charity meets its legal obligations in this regard.

While many in the sector will welcome this move away from the more prescriptive guidance that was previously in existence, one wonders how this approach assists those with little knowledge of the rich history of public benefit case law and the commission's approach.

In particular, the commission avoided giving any clear detail in relation to the "poor must benefit" condition. While understandable in the circumstances, it can leave trustees of fee earning charities in a very difficult position when assessing whether the charity has done enough to provide public benefit. To be fair, it is very difficult to see how the commission could have done anything else in its guidance, and many charities will welcome the opportunity to make decisions for themselves as to what is sufficient to ensure that the poor are not excluded, but those charities that are struggling are unlikely to find any enlightenment in the guidance as it is now written.

Regular readers of this update will remember that Lord Hodgson was very keen on more information being displayed on the charity register. The commission has taken this on board and has, following consultation, updated the annual return form for 2014. The most interesting and potentially controversial change is the question around Fundraising Standards Board (FRSB) membership.

Fundraising charities

Charities are now required to say whether they are a member of the FRSB in their annual return, and this information will be published on the register. While this will benefit those fundraising charities who are members, the effect that it might have on non-fundraising charities has not been ameliorated. There may well be a presumption made that charities who are not members are somehow less trustworthy than those who are members, but many charities will not require FRSB membership because they do not fundraise. The recent Charity Law Association conference noted this, and asked whether there could be some indication on the register which let the public know that a charity was not a fundraiser and therefore had no requirement to join, but this has not been taken forward.

Fundraising generally, and its regulation, are due to be reviewed in 2017, and this is likely to be one of the items that is considered - particularly if it is having little or no effect on public confidence and/or membership of the FRSB. Until then, the public ought to be educated as to exactly what FRSB membership is, and which types of charity are eligible for membership.

Defaulting charities

Not strictly a Lord Hodgson recommendation, but the commission is now, some may say, finally, taking a firm line on charities who do not file accounts and annual returns. In 2008, the red banner was introduced to show late filing, and the commission has taken that one stage further by opening an inquiry into regular defaulters, and, more crucially, making the names of those ?charities public.

So far, this has been a success. Bournemouth Borough Council, who were a trustee of three of the original defaulting charities, responded very promptly and filed the appropriate documents. At the time of writing, nine of the original 12 charities have provided up-to-date documents, and this shows that the inquiry will have the desired effect, either by forcing the trustees to take action and get their house in order, or highlighting those that have a continued disregard for their legal duties.

Amateur sports clubs

Although not charities, and not considered by Lord Hodgson, there is change afoot for Community Amateur Sports Clubs (CASCs). CASCs are organisations that are set up to promote and ?play sports on a non-professional level, and are given certain tax breaks if they meet the criteria ?set out by HMRC.

CASCs have long been criticised for the complicated criteria which exist to determine whether an organisation is eligible and the confusing restrictions on income and payments once you are registered. To resolve this, HMRC pledged last year to simplify the current system, and a consultation on proposals for new rules was published in June 2013. HMRC have now responded to that consultation, and provided some detail as to the proposed new rules that will be available for comment in early 2014.

The new rules do go some way to simplify the registration conditions, and bring trading limits up to date. Where the new rules fail in simplification, is the limit set on "cost of participation", over which provision has to be made for those who cannot afford it. There will be many different costs associated with participation in a sport, and the amount will vary considerably depending upon the sport itself. So while the limits are hugely helpful in determining exactly when a club is required to make provision for those who cannot afford fees (when this cost exceeds £520/year), ?the definition of "cost of participation" will ?cause difficulties.

"Cost of participation" includes anything that is required to take part in the sport, but HMRC say that the lowest possible cost will be taken into account, and you can exclude items that individuals are expected to own, such as t-shirts and trainers. HMRC uses golf as an example. A second hand set of clubs can, apparently, be purchased for £20, so that is the amount that will be added to the membership fee to calculate the cost of participation.

What is not clear, is what happens if the club also imposes a dress code, but does not require a particular uniform, a tennis club asks that players wear white, for example. Can you expect individuals to own white sports gear, or do you calculate the cost of that in the cost of participation? As a runner, I immediately thought of running trainers for running clubs - although unlikely to be a requirement of the club, it is arguable that you need decent trainers to participate on a regular basis, and at an average of £100 a pair, they are unlikely to be a pair of trainers that everyone can be taken to own. If the club makes no mention of it, is it excluded from the cost of participation?

Many participants in the consultation made the point that CASCs are so diverse, no one set of rules will ever fit all, but HMRC argue that this is the best they can do in those circumstances. There will be a final opportunity to comment on the draft regulations in early 2014, but substantial amendments are unlikely to be made at this stage. If you are advising CASCs, it is well worth reviewing the consultation response at this stage, to be ready for when the changes do some into force in 2014.

The implementation of the recommendations of Lord Hodgson and the Public Administration Select Committee were always going to take some time - and indeed should take time, to ensure that the changes are brought into effect in the least disruptive way and have been thought through carefully. Eighteen months on, we are beginning to see a post-Hodgson era of less red tape, but it will be a long time before the real effects are felt.

So, no, we aren't nearly there, but we're certainly moving in the right direction. SJ