Public benefit and fee charging charities
On 21 December 2011, the Charity Commission published an update for charity trustees on its guidance on public benefit. This followed the publication of the decision, on 14 October 2011, of the Upper Tribunal Tax and Chancery Chamber in relation to private fee paying schools with charitable status and the public benefit requirement.
The update shows which parts of the Charity Commission’s guidance have been withdrawn as a consequence of the Upper Tribunal’s decision and provides interim advice to trustees by way of questions and answers.
The Charity Commission is aiming to produce draft guidance for public consultation by the end of March 2012.
The Upper Tribunal
The Upper Tribunal’s decision resulted from the Independent Schools Council’s challenge to the guidance issued by the Charity Commission.
The Tribunal confirmed that a charity must provide public benefit and to do so the poor must not be excluded whether the exclusion results from the charity’s objects or from the level of charges, for example, school fees.
The decision has been welcomed by the Independent Schools Council as bringing clarification of the law and returning responsibility for public benefit decisions to school governors and away from the Charity Commission.
Although, the Tribunal concluded that parts of the Charity Commission’s guidance were wrong and required amendment, nevertheless, the Charity Commission has also welcomed the decision as agreeing with their interpretation of the law on key issues.
The decision, while addressing specific issues relating to fee paying schools, also provides valuable guidance on public benefit in relation to charities which charge for their services.
The Charities Act 2006 provided a new statutory definition of charity and reinforced the public benefit requirement. It was no longer to be presumed that certain charitable purposes, such as education, were for the public benefit. The Act did not define public benefit but required the Charity Commission to issue guidance to which charity trustees must have regard.
The Charity Commission issued general guidance on public benefit together with more specific guidance targeted at education and fee charging charities (Charities and Public Benefit, Public Benefit and Fee Charging and The Advancement of Education for the Public Benefit, all of which can be found on the Charity Commission website). In 2009, the Charity Commission undertook the assessment of five independent schools from which great emphasis was placed on the provision of means tested bursaries.
The Tribunal described the concerns of the Independent Schools Council as essentially two fold. The first being that the Charity Commission’s guidance was erroneous and over-prescriptive and should not enable the Charity Commission to usurp the function which is properly that of the trustees in determining how the purposes of the charity should be furthered and the public benefit requirement fulfilled and, secondly, that the requirements of the law should be clear so that they may be properly understood by the many volunteers who act as trustees for many charities.
The Tribunal ruled that parts of the Charity Commission guidance were either wrong or obscure and should be corrected.
The Tribunal felt unable to provide the clarity requested to identify what it is that trustees have to do to meet the public benefit requirement but set out principles which the trustees should apply.
To be charitable an entity must have aims which exclusively fall within the definition of charitable purposes in Section 2 of the Charities Act 2006 AND the poor must not be excluded from benefitting.
Where an entity is established and funded as a charity it is the responsibility of the trustees to ensure the charity’s objects are pursued so as to provide public benefit and that the poor are not excluded. If they fail to do this then it is the trustees who are in breach.
It is necessary for there to be more than a de minimis or token benefit for the poor. It is up to the trustees, acting in the interests of the community as a whole and in the circumstances of the particular school in question, to decide what provision should be made once the token level had been met. Each case would then depend upon its own facts and the resources available to the charity would be an important element. A well endowed charity is likely to be required to make a greater contribution than one dependent on its fees for its income.
The Tribunal identified three types of benefit:
- Direct benefits – which benefit the persons whose needs it is a purpose of the charity to relieve which are received as part of the main service of the charity;
- Indirect Benefits – which benefit the same persons as above but which are received otherwise than as part of the main service of the charity; and
- Wider Benefits – which are received by the community at large.
In addition to the provision of education to fee paying students fulfilling the public benefit requirement, other activities, which would be taken into account as part of the public benefit requirement, would include:
- The provision of scholarships and bursaries (a direct benefit)
- Arrangements under which students from local state schools can attend classes in subjects not otherwise readily available to them (a direct or indirect benefit and possibly a wider benefit)
- Sharing of teachers or teaching facilities of local state schools (a direct or indirect benefit and possibly a wider benefit)
- Making available teaching materials used in the school (a direct or indirect benefit and possibly a wider benefit)
- Making available to students of local state schools other facilities such as playing fields, sports or swimming pools or sports grounds (a direct or indirect benefit and possibly a wider benefit)
It will be for the trustees to ensure that any benefits are within the objects of their charity. Primary focus must be on the direct benefits provided by the charity, the most important of which would include scholarships or other forms of direct assistance to students. Where the fees are subsidised by bursaries some of the bursaries must result in a reduction of fees to a level that a “poor” family could afford. Attending classes and sharing of teachers would also carry some weight, as would covenanting monies to state schools but the provision of teaching materials would carry less weight. The provision of facilities to students at local state schools presented the Tribunal with more difficulty but should still be taken into account.
Whilst the Tribunal emphasised that the scope of its decision was limited to educational charities, the principles in relation to the public benefit requirement will no doubt have a broader relevance to other fee charging charities.
The Tribunal’s decision has returned decision making on public benefit to the trustees and, as such, will be welcomed by governors of fee charging schools. However, as the Tribunal was not able to provide clear guidance to trustees as to what is sufficient to meet the public benefit requirement, the difficult task (as recognised by the Tribunal) of making such decisions will rest with the trustees who will need to take into account all relevant circumstances.
Independent Schools Council v Charity Commission for England and Wales and others  UKUT 421 (TCC)
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