In-depth

Dundee school rules

Finance | Alastair Keatinge | 1 Oct 2007

Alastair Keatinge reviews recent developments in Scotland.

The Charities and Trustee Investment (Scotland) Act 2005 (the 2005 Act) establishes a new charity test in Scotland. This test is different from that applicable in England and Wales but it does also require that a public benefit test to be met. The Office of the Scottish Charity Regulator (OSCR) has published a pilot study report on its initial rolling review of Scottish Charities compliance with the new charity test. The report has received much publicity north of the border, as it applies for the first time to existing charities.

The pilot study involved 16 charities to which the new charity test could be applied. The test has two elements - firstly meeting one or more of the charitable purposes as set out in the 2005 Act and secondly the provision of public benefit. As is the position under English charity law, no charitable purpose is presumed to satisfy the public benefit test. Even if there is a demonstrable public benefit, no conditions (such as a charge) must unduly restrict public access to the benefit.

Predictably the review of an independent fee paying school attracted most of the media headlines. The charging of fees and academic ability selection were regarded by OSCR as restrictive conditions. This was not a surprise. However, OSCR confirmed that in the case of the school in question (the High School of Dundee) these conditions were not unduly restrictive. OSCR has produced helpful guidance in the pilot study report setting out its methodology in examining restrictive conditions in general. Fees, for example, can be justifiable. OSCR’s approach is that “the profile of beneficiaries of any charity need not reflect the profile of the population as a whole or the profile of the local population”, and “where a fee is charged we expect some form of facilitated access (such as policies to widen access)”.

It is, however, important to recognise that the passing of the test by one charity in a particular sector cannot be seen as a whole sector satisfying the test. In conducting its rolling review over the coming months, OSCR will be targeting further independent schools and so the relevant issues will continue to be tested against other charities in the sector. Public benefit and unduly restrictive conditions will be considered case by case.

OSCR has concluded that the assessment of public benefit in any section will require OSCR to weigh up different aspects to arrive at a holistic view of a charity. The new charity test does not therefore lend itself to a formulaic or precisely calculated approach. Charities must keep their constitutions under review in terms consistent with the new legislation and that annual reports should demonstrate the activities of charities in providing public benefit.

Cross border charities

Any English and Welsh charity that wishes to refer to itself as a charity and occupies any land or premises in Scotland or carries out activities in any office, shop or similar premises in Scotland needs to apply for registration as a charity with OSCR. OSCR has identified over 800 charities required to register on this basis with 147 entered on the Scottish Charity Register to date. However, the governing documents of charities established under the law of England and Wales are interpreted according to that law. The terms “charitable” or “charitable purposes” do not have precisely the same meaning under the 2005 Act as they do under English and Welsh law. The effect of a difference between English and Welsh law and Scots law is that where an English and Welsh charity’s governing document make reference to “charitable” or “other charitable purposes” in its objects and or dissolution clause, it is not clear that the organisation can only use its assets for the purposes which are exclusively charitable in accordance with the 2005 Act. This means it will fail the Scottish charity test. OSCR and the Charity Commission have now agreed a standard form of wording that will enable English and Welsh charities to meet the Scottish charities test if the agreed wording is incorporated into a charities governing document.

While OSCR and the Charity Commission appear to be doing their best to resolve a regrettable situation, an alternative and preferable solution appears to be for a suitable amendment to be made to the Scottish legislation. Under the 2005 Act Ministers have the power to disapply parts of the charity test Act which they have already done for major national bodies in Scotland such as National Museum of Scotland and National Library of Scotland. Ministers could exercise this power to allow charities regulated by the Charity Commission to register in Scotland without having to change their constitutions. It remains to be seen whether the new Scottish government wishes to take forward this solution to the issue.

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