The Charity Test

To become a charity there is a five part charity test:

1. Its purpose must match one or more of the charitable purposes laid down by the Charities Act and
2. It must provide public benefit and
3. It must be independent from government and
4. Its constitution must not permit it to distribute any of its property to a non-charitable purpose ie do something not in accordance with its charitable aims and
5. It must not be a political party or set up to advance a political party

Charitable Purposes

Under the new Act, there are 16 charitable purposes as opposed to the 4 which previously existed.

1. The prevention or relief of poverty
2. The advancement of education
3. The advancement of religion
4. The advancement of health (including the relief of sickness, disease or human suffering)
5. The saving of lives
6. The advancement of citizenship or community development (including rural or urban regeneration, the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities
7. The advancement of the arts, heritage, culture or science
8. The advancement of public participation in sport (which involves physical skill and exertion
9. The provision of recreational facilities, or the organisation of recreational activities, with the object of improving the conditions of life for the persons for whom the facilities or activities are primarily intended (but these facilities or activities must be (i) primarily intended for persons who have need of them by reason of their age, ill-health, disability, financial hardship or other disadvantage, or (ii) available to members of the public at large or to male or female members of the public at large)
10. The advancement of human rights, conflict resolution or reconciliation
11. The promotion of religious or racial harmony
12. The promotion of equality and diversity
13. The advancement of environmental protection or improvement
14. The relief of those in need by reason of age, ill-health, disability, financial hardship or other disadvantage (includes relief given by the provision of accommodation or care
15. The advancement of animal welfare
16. Any other purpose that may reasonably be regarded as analogous to any of the preceding purposes.

charity reorganisation schemes

• A reorganisation scheme is necessary when a charity wishes to make changes not allowed by the constitution eg

• Variation to the constitution

• Amalgamating with another charity

• Transferring property to another charity.
  

Accounts

• A charity must keep proper accounts, produce annual accounts (which include an annual report on activities) have them independently examined or audited and send a copy to OSCR

• The detail will be governed by the Charities Accounts (Scotland) Regulations 2006. Key points are:

• New regulations will only apply to charities whose accounting year began after 1st April 2006

• Charities will have 9 months from the end of the financial year to submit their accounts to OSCR An audit will not be required unless the annual income reaches £500,000

• Charities with an income of less than £100,000 need only produce receipts and payments accounts

• Charities with an income of over £100,000 must produce accrued accounts

• The regulations bring the Statement of Recommended Practice for Charity Accounting 2005 (SORP) into legal effect in Scotland

• Receipts and payments accounts may be examined by an independent examiner whom the trustees believe to have the ability and experience necessary to carry out a competent examination

• Accrued accounts up to £500,00 must be independently examined by a professionally qualified independent examiner (a list of such professions will be in the regulations)

• Charities with an income of over £500,000 must have their accounts audited by a professional auditor

• If a charity fails to submit accounts on time OSCR may appoint someone to prepare the accounts and make a report of what is going on

• The trustees of the charity will be liable for the costs of doing this

monitoring

• Each year all charities on the Scottish charity Register will receive an annual return from OSCR which must be completed and returned with a copy of the annual accounts

• Charities with an income of between £25,000 and £100,000 will be required to fill in most sections of a monitoring return

• Those with an annual income of over £100,000 will have to complete the whole monitoring return

• The monitoring forms have not been produced yet.

scottish charitable incorporated organisation (SCio)

• This will be a new type of legal entity available to organisations sometime in 2007 when detailed regulations will be produced

• It will give a charity the benefits and legal protection of an incorporated body – specifically the limited liability of its members – without the hassle associated with being a company limited by guarantee

• It will be regulated by OSCR rather than Charities House

• It will be particularly relevant for organisations employing staff or owning or leasing property

• It can be one tier (similar to an existing trust where the trustees are the only members) or two tier (similar to a co ltd by guarantee where there are members who may or may not be trustees)

charity trustees

• Charity trustees are those who are responsible for the general control and management of a charity ie committee members or board of directors

• They must act in the interests of the charity and

1. Ensure that the charity does what it was set up to do
2. Act with care and diligence that it is reasonable to expect of someone who is managing the affairs of another person c. Where there could be a conflict of interest, put the interests of the charity before those of the conflicting party eg the organisation which they represent or, if this is not possible, take no part in the discussion or decision making

payment of trustees

• No trustee can be paid for doing the work of a trustee although they can receive expenses for expenditure incurred

• If they are the best person to do a specific piece of work for an organisation, other than their duty as a trustee, they can be paid for doing this. There must be a clear distinction between what they are being paid for and what they are doing as a trustee

• No more than 49% of the Trustees can receive any remuneration; this includes payment to family and partners of Trustees.
• The issue of Trustee Indemnity Insurance is being looked at by OSCR and the Scottish Executive. Under the current legislation it can be argued that all Trustees would receive this benefit and therefore break the 49% rule. However, the Scottish Executive has agreed that no organisation will be refused charitable status on these grounds and that the legislation will be looked at when a suitable opportunity arises.
  

• The most common situation where a trustee receives remuneration from an organisation is when a treasurer is paid an honorarium. This should only be paid for any work that is over and above what would normally be expected of a trustee eg if there is an element of book-keeping as well as overseeing the finances of the organisation

• There should be a clear distinction between staff and trustees – staff attend meetings to advise and inform the trustees

disqualification of becoming a charity trustee

• A person is not allowed to be a charity trustee if he/she:

• Has been convicted of an offence involving dishonesty

• Has been convicted of an offence under the Charities and Trustee Investment (Scotland) Act 2005

• Is an undischarged bankrupt

• Has been removed under section 7 of the Law Reform (Miscellaneous Provisions) Scotland) Act 1990 from being concerned in the management or control of any body

• Has been removed under Section 34 of the Charities and Trustee Investment (Scotland) Act 2005 from being concerned in the management or control of any body

• Has been removed from the office of charity trustee by the Charity Commission of the English High Court

• Is disqualified under company law in Northern Ireland

fundraising

• It is illegal for anyone to raise money for a benevolent body without an agreement between it and the benevolent body

• An organisation can object to anyone raising funds on its behalf because:

1. It objects to the method of fundraising
2. It considers that the person is not a fit and proper person to raise funds for the body c. It does not wish to be associated with the particular promotional or other fundraising venture

• Local authority consent must still be sought to hold a public benevolent collection.