17 January 2008

Stop Press - Public Benefit Guidance

Alison Paines
Partner | UK

The Charity Commission has finalised its general guidance on charities and public benefit (the ‘Guidance’) on which it consulted with the third sector in early summer last year.  The Guidance can be seen at: www.charitycommission.gov.uk.  This comes in advance of the implementation on 1 April of the requirement under the Charities Act 2006 that every charity must demonstrate that its aims are for the public benefit.  Previously the law assumed this to be the case for charities that advance education or religion, or relieve poverty.

All charity trustees are required to have regard to the Guidance.  There will be an obligation for trustees to report on public benefit in the Trustees’ Annual Report.  This is likely to apply to accounting periods commencing on or after 1 April, provided the necessary regulation is passed when expected.

The Guidance sets out two main principles of public benefit:

  • there must be an identifiable benefit or benefits; and
  • benefit must be to the public, or section of the public.

Identifiable benefit

A charity must be able to show public benefit that is related to its aims.  If this is not self-evident, the Commission may request evidence to establish it.  Where a charity has more than one aim, all its aims must be for the public benefit.  The Commission will look at the overall benefit and will balance benefits against any detriment or harm that arises.

Benefit to the public or a section of the public

The beneficiaries of a charity must be appropriate to its aims, which means considering who the charity is intended to benefit.  The section of the public that can potentially benefit must be sufficiently large given the charity’s aims.  There can be restrictions on who can benefit – for example to a group with a particular charitable need – provided such restrictions are reasonable and appropriate to the charity’s purposes.  Benefit must not be restricted unreasonably, such as by geography, or the ability to pay any fees or charges.

The implications of the public benefit requirement for fee-charging charities, in particular fee-charging schools and hospitals, have caused some concern in the sector.  However, the final Guidance is less prescriptive with regard to fee-charging charities than it was in the draft version issued last year.  The Guidance acknowledges that charities can charge fees in excess of the cost of the services or facilities, but the benefit must not be unreasonably restricted by the ability to pay the fees charged.   People should not be excluded from the opportunity to benefit, particularly those in poverty.  The Commission recognises that some fees are, by way of necessity, very high and cannot be reduced sufficiently.  In these cases, charities will need to consider more innovative ways to offer people in poverty the opportunity to benefit.  One example given is an independent school working in partnership with a local state school.   When considering the effect of fees, the Commission will take into account: the nature of the particular charitable aim; the level of fees charged; the particular circumstances of the organisation; and the social and economic circumstances under which it carries out its work. 

The final requirement under this test is that any private benefits must be incidental, which means they must be a necessary result of carrying out the charity’s aims.

Sub sector guidance

The Commission will be publishing supplementary guidance about how specific types of charity can meet the public benefit requirements.  In particular, such draft guidance will be issued very shortly for consultation in relation to the following types of charity: charities for the prevention and relief of poverty; charities for the advancement of education; charities for the advancement of religion; and fee-charging charities.  This supplementary guidance is due to be finalised in summer 2008.

Reviewing public benefit

The Commission will review the public benefit which charities provide in several ways, including carrying out an assessment of the public benefit provided by individual charities. 

Alison Paines Partner | London, Cambridge

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