01 April 2006

With... the latest on charity law in Scotland


Background

The Charities and Trustee Investment (Scotland) Act 2005 (‘the Act’) was granted Royal Assent on 14 July 2005.  The Act will be brought into force in stages throughout 2006 and 2007 substantially reforming and modernising charity law in Scotland.

Charities that are registered with the Charity Commission of England and Wales (‘the Commission’) but which carry out activities in Scotland cannot afford to ignore these changes. This briefing note provides guidance to those ‘cross-border charities’ that may find that they have obligations under the Act.

A key principle of the Act is that the activities of all charities in Scotland will be regulated by a new independent statutory body, the Office of the Scottish Charity Regulator (‘OSCR’). The intention is that OSCR will take on its functions in April 2006 when the Scottish Charity Register goes live. Its role will be similar to that of the Commission: providing a level playing field for all charities and ensuring that they are accountable and well governed.  While some English and Welsh charities are not obliged to register with the Commission because they fail to meet the minimum income threshold; they do not use or occupy land and they do not have permanent endowment, there will be no equivalent exemption in Scotland. All Scottish charities will have to register with OSCR.

When is a charity required to register with OSCR?

If a charity occupies land or premises in Scotland, carries out activities in any office, shop or similar premises, holds open meetings or charges for events in Scotland, it must be registered with OSCR.

The terms ‘Scottish Charity’ and ‘Registered Scottish Charity’ have been reserved for bodies established in Scotland or controlled wholly or mainly from Scotland and may not be used by charities registered with OSCR but based elsewhere.

To register with OSCR a charity will need to satisfy the ‘Charity Test’. There is no assumption that a charity that qualifies for registration in England and Wales will qualify for registration in Scotland.

Meeting the Charity Test

A body meets the Charity Test if:

  • its purposes consist only of one or more of the charitable purposes set out in the Act; and
  • it provides (or, in the case of an applicant, provides or intends to provide) public benefit in Scotland or elsewhere.

In addition, section 7(4) of the Act sets out the circumstances in which a body will not meet the Charity Test even though it has charitable purposes and provides public benefit, such as when it is, or when one of its purposes is to advance, a political party.

The Act sets out fifteen charitable purposes and a sixteenth residual category of analogous purposes.  The original intention was to provide a definition that matched the definition under English charity legislation but some small differences have arisen.

The Act, in common with the new English Charities Bill, removes the public benefit presumption. Section 8 of the Act provides that:

(1)     No particular purpose is, for the purposes of establishing whether the Charity Test has been met, to be presumed to be for the public benefit.

(2)     In determining whether a body provides or intends to provide public benefit, regard must be had to:

(a)     how any

  • benefit gained or likely to be gained by members of the body or any other persons (other than as members of the public), and
  • disbenefit incurred or likely to be incurred by the public in consequence of the body exercising its functions compares with the benefit gained or likely to be gained by the public in that consequence, and

(b)     where benefit is, or is likely to be, provided to a section of the public only, whether any condition on obtaining that benefit (including any charge or fee) is unduly restrictive.

Given the above, it would be possible for an organisation to be registerable as a charity in England but not in Scotland (or vice versa) although it is likely that OSCR will accept most, if not all, of the charities registered with the Commission.

Implications for English registered charities operating in Scotland

Since OSCR is designed to regulate all charitable activities in Scotland, most organisations active in Scotland will be required to register with OSCR and submit to its supervision even when they are registered elsewhere.

The Act recognises the need to draw a distinction between those charities that are primarily based in Scotland and those that have only occasional connections with Scotland.

A cross-border charity will only have to register with OSCR if it:

  • owns or occupies land or premises in Scotland; or
  • carries out activities in any office, shop or similar premises in Scotland.

Guidance, jointly issued by the Commission and OSCR, suggests that if an organisation’s only activities in Scotland are:

  • advertising in the Scottish press;
  • awarding grants by correspondence;
  • holding occasional members’ conferences; or
  • using secretarial support provided by volunteers operating from their own home;

then it is unlikely that it will be required to register with OSCR.

What if an organisation fundraises in Scotland?

The guidance indicates that if an organisation conducts street collections or other fundraising activity in Scotland this does not in itself mean that registration with OSCR will be necessary.  As long as the fundraising activity does not operate from an office, shop or similar premises in Scotland then Scottish registration will not be required.

Implications for charities who are not required to register with OSCR

Charities whose activities do not require them to be registered with OSCR may refer to themselves as ‘charities’ in Scotland but only if, in making that reference, they also refer to the fact that they are established as charities under the law of England and Wales. For example, such a charity could refer to itself as ‘a charity registered with the Charity Commission’ or, where it is an exempt charity, as an organisation ‘recognised by HMRC as a charity and established in England and Wales.’

So are charities not registered with OSCR unaffected by the Act?

Not entirely – OSCR has powers to make inquiries into any body that operates in Scotland and holds itself out as a charity.

In addition, any charity carrying out fundraising in Scotland will have to comply with the Charities and Benevolent Fundraising Regulators which are expected to come into force later this year.

Regulation following registration with OSCR

OSCR will have substantial powers to intervene in the affairs of Scottish charities and other charities entered on the Scottish Charity Register.

There will be continuing compliance requirements.

Reporting requirements: OSCR registered charities will be required to submit annual returns and annual accounts to OSCR.  Supplementary questionnaires will be required of larger charities.

Consents: The consents regime is more limited than that in force in England and Wales. The prior consent of OSCR will be required for changes to a charity’s name, amendments of a charity’s constitution in so far as it relates to the charity’s purpose and plans to amalgamate, wind up or dissolve a charity and forty two days’ notice must be given to OSCR.

Inquiries: OSCR will be able to make enquiries, either of its own accord or on a third party’s application, about charities, bodies controlled by charities and bodies who hold themselves out as charities, as well as persons who act on behalf of such entities.  OSCR will be able to direct any body subject to an inquiry not to undertake activities for a period of up to six months.

Dual registration

The Act provides that OSCR ‘must, so far as consistent with the exercise of its function, seek to secure co-operation between it and other relevant regulators’.  This will include working in conjunction with the Commission. 

In May 2005 a Memorandum of Understanding was issued by the Commission and OSCR setting out the broad principles of the way in which those regulators will work together. These ‘regulatory partners’ are committed to minimising ‘the burden of regulation for those charities operating across the jurisdictions’. Their intention is to work together to ensure ‘consistency of decision making’ and ‘a seamless regulatory regime’.

The two regulators have agreed to establish, where possible, common technical standards and consistency at an operational level. This will include the areas of charity registration and the format and content of charities’ annual reports and accounts. This should avoid the need for charities registered with the Commission to produce separate accounts or reports for OSCR.

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