Upper Tribunal tells Charity Commission to withdraw public benefit guidance

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Upper Tribunal tells Charity Commission to withdraw public benefit guidance 7

Governance | Tania Mason | 5 Dec 2011

The Upper Tribunal has ordered the Charity Commission to withdraw its existing guidance on public benefit of fee-charging charities while it writes its new guidance.

The Tribunal, comprising the original team of judges that heard the Independent Schools Council’s case against the Commission, was asked by the ISC two weeks ago to declare whether the intention of its initial judgment was that the existing guidance should be totally quashed, or simply reworded, as the Commission contended.

But the Tribunal decided that simply rewriting the guidance would be confusing for trustees. They said that their original 116-page judgment on the case “does not give the detail necessary to tell trustees what they need to do to be able to ignore one sentence or another of guidance which has not been quashed”.

And they added that because the law imposes upon trustees a statutory obligation to have regard to the guidance and to make a statement in their annual report about whether they have done so, it is “unsatisfactory” that they should have to consider guidance which has been found to be flawed.

So in their order, published on Friday, the Tribunal said it would use its powers to quash the guidance unless the Commission withdraws it. It gave the regulator seven days to decide whether or not to withdraw the offending parts of the guidance and 21 days after the date it agrees to withdraw it, to do so. The Commission told civilsociety.co.uk that it would withdraw the guidance.

The parts that are to be withdrawn include the whole of the section on fee-charging charities and key parts of the general public benefit guidance.

However, in its latest decision, the Tribunal judges stressed that the Charity Commission had not acted unlawfully in coming up with the guidance it did. It said: "This case is of course … not a case in which illegality has been shown or in which the Charity Commission has taken an unlawful action or promulgated an unlawful decision.

“What has happened is that… it has issued guidance based on a very detailed analysis of the complex and difficult case law relating to public benefit and following thorough consultation. We have decided that limited parts of the guidance are wrong or obscure.”

Commission still considering an appeal

But this may not yet be the end of the matter. The Charity Commission has applied for an extension of time that the parties can apply for permission to appeal the Tribunal's judgment on the original Attorney General’s reference and the judicial review application.

The extension sought is until 21 days after the date of this latest decision – so 23 December. The Tribunal has granted the extension. The Commission said it has not yet decided whether to appeal.

Directory: Charity Commission

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Carl Allen
8 Dec 2011

Anyone, where is the survey on compensation packages for management staff of these charities?

[Reply]

Richard King
Head of Charities
Tozers LLP
5 Dec 2011

If by 'private' you mean for the benefit of only a very few individuals then I agree! But presumably you are referring to schools that are not publicly maintained, and the law is now pretty clear on that.

As to '...holds onto profits...' - what do you suggest it should do with them? The whole point of charities is that they cannot distribute profits to their members and must use any surplus for the proper purposes of the charity i.e. for the public benefit. Again, the recent ISC case confirms that independent schools have every right to exist as charities so long as the trustees find a way of bringing a more than tokenistic benefit to those that cannot afford the fees.

[Reply]

Stephen Lulsley
Independent commentator and consultant
6 Dec 2011
Response to [Richard King]

We all know that there are schools that have charitable status that don't use ALL their profits for charitable purposes, so why are they allowed to remain as charities?

[Reply]

.
Trustee
9 Dec 2011
Response to [Stephen Lulsley]

I am a Trustee - though not in the education sector - and Mr Lulsley makes a very serious allegation; one that would open the Trustees to serious problems, HMRC if aware could take action to reverse financial benefits. Have Mr Lulsley reported the specific schools to Charity Commission and/or HMRC?

The responsibilities of a Trustee are not to be taken lightly and to quote CC "If the trustees act imprudently, or are otherwise in breach of the law or the governing document, the position is different. Here, trustees may be personally responsible for liabilities incurred by the charity, or for making good any loss to the charity. Since trustees act collectively in running a charity, they will usually be collectively responsible to meet any such liability."

However, whilst the focus of this case has been primarily on schools, as Gareth Morgan pointed out similar public benefit issues face all/most fee-charging charities and I will be interested to see whether the guidance will affect other sectors.

[Reply]

Richard King
Head of Charities & Schools
Tozers LLP
9 Dec 2011
Response to [Stephen Lulsley]

Do we? I may be naive, but the independent schools that I deal with plough every penny back into education; the fee-paying parents would expect nothing else. What kind of non-charitable activity are you thinking of?

[Reply]

Stephen Lulsley
Independent Commentator and Consultant
5 Dec 2011

Absolutely right that these have been withdrawn.

Let's now have some clear guidelines put in place, not least stating that any private educational organisation that charges fees and holds onto profits does not qualify as a public benefit charitable organisation.

[Reply]

Gareth Morgan
Professor of Charity Studies
Sheffield Hallam University
7 Dec 2011
Response to [Stephen Lulsley]

I think Mr Lusley's comments are a bit confused. I am neither a supporter nor opponent of charitable independent schools, but we should remember that a vast range of charities undertake work for which they charge fees and they may sometimes make a profit on those activities. This includes lots of charities doing work under contract with the public sector. But the important thing is that as charities, any profit on a specific activity is retained by the charity and used to advance the work of the charity in other ways.

Whether you like them or not, charitable independent schools don't have private shareholders who can take out profiits. The issue in this case is all about fee-charging charities and whether the charges limit those who can access the services. It's not about anyone taking private profits out of charities (which would be illegal for any type of charity.)

[Reply]

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