Until 1990, there was little statute or case law in Scotland which related specifically to charities. The law of charities was largely derived from the law of trusts, more specifically, public trusts. We knew, from the cases of Pemsel [(1891) 3 TC 53] and Inland Revenue v City of Glasgow Police Athletic Association [(1953) 34 TC 76] that, for taxation purposes, the English definition of “charitable” was imported into the law of Scotland. We knew, with some feelings of relief, that the jurisdiction of Charity Commission did not extend to Scotland, and that the Inland Revenue (Claims Branch) would recognise our charitable trusts and administer our charities’ tax reliefs. If things went badly wrong with the charity then the Lord Advocate could intervene in the public interest, but very few people could have told you when that last happened.
Things changed in 1990, with the coming into force of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, the first part of which deals with Scottish charities and establishes the regulatory system we have today. The legislation contains the following main elements
- a The only bodies which are entitled to call themselves Scottish charities are bodies recognised as such by the Inland Revenue, the name “charity” being reserved for Scottish charities or those under the jurisdiction of the Charity Commission for England and Wales;
- b There is a duty placed on all of those in management or control of Scottish charities to maintain proper accounting records, and to produce Annual Reports and Accounts;
- c The Lord Advocate is given a range of powers to intervene in the affairs of charities;
- d The Court of Session may impose a number of measures, including, for example, interdicts or removal from office of trustees;
- e There are provisions designed to make the merger or winding up of smaller public trusts (including charities) easier;
- f There is a requirement for any charity to make available to any member of the public who asks, on payment of a reasonable charge for copying and postage, a copy of the latest Annual Report and Accounts and of the charity’s constitutive document.
The functions of the Lord Advocate under the 1990 Act are discharged through the Scottish Charities Office. This regulatory system applies to all bodies which are recognised as charities by the Inland Revenue, thereby making the English definition, imported into Scotland for tax purposes as mentioned above, doubly important.
The McFadden Commission
During the 1990’s it was widely felt that this Scottish charities legislation was inadequate. There were a number of different agencies involved in the regulation of charities, but no central regulatory and support body; there is an obligation to produce annual reports and accounts but no obligation to lodge them with any particular body. The Scottish Charities Office is essentially a reactive body, lightly staffed, with no overall regulatory, advisory and support function for Scottish charities. The Scottish Charity Law Review Commission (known as the McFadden Commission, after its Chair, Jean McFadden) was established in April 2000 and reported in May 2001. The Commission’s report contained 114 recommendations in discharge of its remit to review the law relating to charities in Scotland and the structure of regulation and support for them. The proposals included a new definition of “charity” based principally on public benefit; the establishment of a new body to be known as CharityScotland to recognise, register, regulate and support Scottish charities; and new controls on fundraising activities.
The Cabinet Office Strategy Unit Report
Shortly after the publication of the McFadden Report and the May 2001 General Election, the UK Government announced that the then Performance & Innovation Unit (now merged into the Strategy Unit) had been asked to look at the law and regulatory structures governing the charitable and voluntary sectors. The Strategy Unit Report was published in September 2002, and deals with some matters which are of relevance throughout the UK, and some matters which are limited to England and Wales.
Of most relevance to us here in Scotland is the proposed new definition of a charity. The present definition, used throughout the UK, is based on the 1601 Statute of Elizabeth, as interpreted in case law and practice since then. The Pemsel case classified the then existing charitable purposes into four recognised heads of charity including the relief of poverty; the advancement of education; the advancement of religion; and other purposes beneficial to the community, not falling under the other three heads.
What the Strategy Unit now proposes is that a charity should in future be defined as an organisation which provides public benefit, and which has one or more of ten charitable purposes. These ten include the existing purposes and added to that are health; social and community advancement (including care, support and protection of vulnerable people); the advancement of culture, arts and heritage; the advancement of amateur sport; the promotion of human rights, conflict resolution and reconciliation; and the advancement of environmental protection and improvement.
Under the existing law, charities which exist for the relief of poverty, advancement of education and advancement of religion are presumed to provide public benefit. What is proposed is that in all cases, there should be a test of public benefit. The report goes into some detail on the question of the public benefit provided by religious bodies and independent schools. The Strategy Unit proposals would also move the law on quite considerably in the area of amateur sport.
How does this affect Scotland?
It is clear from the Strategy Unit Report that its proposed definition is expected to apply for tax purposes throughout the UK. The supervision and regulation of charities in Scotland is devolved to the Scottish Executive and by the time this article appears it is likely that the Executive will have made a statement on its future intentions in this area. The proposed definition broadly meets the “public benefit” recommendations of the McFadden Commission. In my view, the proposed definition could be used throughout the UK for tax purposes, and also in the separate jurisdictions of England and Wales, Northern Ireland and Scotland for regulatory purposes appropriate to those separate jurisdictions.
Whatever the definition of charity, we should not lose sight of the fact that in Scotland we are still without a body whose function is to register, regulate and support Scottish charities. Charities here have proportionately much less resource devoted to them than charities south of the border. One only needs to consider the funding and staffing of the Charity Commission compared with the funding and staffing of the Scottish Charities Office. Whatever the definition of “charity” I suggest that legislation should be put in place as soon as possible to establish CharityScotland. This would provide advice at the registration and pre-registration stages of new charities; would receive annual reports from all Scottish charities and thus build up an important source of information on individual charities, particular types of charities and the charitable sector as a whole; would have regulatory powers to intervene in the affairs of charities where things appear to be going wrong; and would provide a support and advice function. CharityScotland would give advice on best practice on matters as diverse as accounting, investment policy, campaigning, trustee insurance and trust contracts. It is expected that this advice would take the form of general guidance on best practice rather than case-specific advice, for which referral to appropriate professionals or industry groups would be made.
CharityScotland (or whatever name is chosen) would be responsible for keeping the definition of “charity” under review together with the Charity Commission – thereby providing, at last, a Scottish input into a definition which is of vital importance, but which at present simply has to be adopted from the practice of the Charity Commission and the Inland Revenue in England and Wales.
This is an interesting and challenging time for charity law in Scotland: within the next two years we should have both a modern definition of “charitable” and a new regulatory body for Scottish charities.
Simon Mackintosh is a partner in Turcan Connell. He was a Member of the McFadden Commission and has recently served as Convener of the Law Society of Scotland - Tax Law Committee and sits on its panels on Accreditation of Trust and Charity Law Specialists.
The McFadden Report is available from the Civil Law Division, Spur VI, Saughton House, Broomhouse Drive, Edinburgh, EH11 3XD
The Strategy Unit Report is available through www.strategy.gov.uk or from the Cabinet Office 4th Floor, Admiralty Arch, The Mall, London, SW1A 2WH
In this issue
- Chaos theory explained
- Time to embrace English approach
- ‘Single gateway’ to handle complaints
- Justice for Rwanda
- Reforming registration of company charges
- Time to clarify rules on additional evidence
- Scottish Solicitors’ Discipline Tribunal
- Website reviews
- Travel broadens career horizons
- Recruitment issues
- Where now for charity law?
- Data protection report card
- No excuses for missing critical dates
- Book reviews