30 July 2021 - Article
The outlook for the Third Sector
Charities have risen to the many challenges posed by COVID-19 to support their beneficiaries. From continuing efforts to provide aid and services, through to new initiatives for those under lockdown and on the ‘frontline’, the third sector has demonstrated just how vital its contribution to society is.
It is, however, also a worrying time for many charities. The Institute of Fundraising published research in March with the concerning statistic that while ’43% of charities surveyed reported an increase in demand for their services’ the sector had also seen a ’48% decline in voluntary income’ from individual donors.
For this reason, we know many charities are looking to partner and work with businesses to help fundraise.
If you are a charity, or a business, looking to explore ‘corporate partnerships’ here are the three aspects of the law we think it’s key to understand to make your partnership a success.
Going back to basics – the Charities Act 1992
Businesses can partner with charities in a number of ways, and how each partner will benefit from the arrangement can vary enormously.
A typical ‘corporate partnership’ may involve a major donation, or a broader initiative to engage staff in fundraising and volunteering, which is separate from the corporate’s usual business and simply acknowledged by the partners, with little to no public promotion.
Where, however, a business wants to make contributions to a charity and promote these contributions in the course of its business, it is likely to be treated as a ‘commercial participator’ under the rules in the Charities Act 1992. This catches, for example, a retailer selling a line of limited edition ‘charity’ products to raise funds.
In these circumstances the business and all benefiting charities will need to enter into a written agreement which meets specific requirements under the Charities Act 1992 and the Charitable Institutions (Fund-Raising) Regulations 1994.
The commercial participator will also need to ensure it delivers a ‘solicitation statement’ whenever it makes representations about what it will contribute to charity; this allows those taking part in their promotion transparency on how much will ultimately go to which particular charity.
It’s crucial for all parties involved to meet these requirements, and often charities will have template agreements to allow businesses to ensure compliance with the 1992 Act and kick-start their fundraising work together.
Managing trading and tax issues
In the context of corporate partnerships, and particularly ‘commercial participator agreements’, businesses will of course want to work with charity to publicise the good work they are helping support. This can range from a simple acknowledgement by the parties to a coordinated media programme and co-branding of sponsored products and events.
For many charities brand recognition and reputation is crucial, and allowing a business to collaborate in use of its brand in this way can have real value for both parties – particularly considering recent research has put the combined brand value of this country’s top 100 charities at £200bn.
To ensure they are raising funds efficiently charities must ensure they receive fair value for licensing their branding. However they must also be wary of incurring corporation tax and/or VAT where their licensing constitutes a commercial, trading activity.
For this reason many charities develop separate agreements to cover publicity rights in a partnership between commercial partners and the charity’s trading subsidiary.
It’s also key for all parties to ensure they understand this split between a contribution to a charity’s work and an agreement to use the charity’s brand together; confusing the two can lead to an unnecessary and unwelcome tax charge for charities and businesses supporting each other.
Delivering best practice fundraising
Most charities who fundraise from the public will already be very familiar with the work of the Fundraising Regulator and its Code of Fundraising Practice, which includes a section on working with commercial participators and partners.
It is however also an important document for businesses looking to partner with charity to be aware of as charities complying with this Code must also make sure their ‘commercial partners’ keep to it.
Businesses should also note that the prescribed requirements for a ‘commercial participator agreement’ discussed above now include a requirement for a commercial participator to specify ‘any voluntary scheme for regulating fund-raising’ they will be bound by in their collaboration.
The agreement must also specify, in particular, how the business will protect vulnerable people from certain types of damaging behaviour under these arrangements.
Both parties to a charity partnership will want it to be a successful venture that maintains the public’s trust in charity and accurately represents the business’ support.
We believe recognising the legal requirements for these relationships and referring to the Fundraising Code can help all parties achieve this, not hinder them.