The English Upper Charity Tribunal has published its long awaited decision on the level of public benefit that a charitable independent school must provide in England and Wales. As a result the Charity Commission will be reviewing their public benefit guidance and rewriting certain sections entirely. The consensus seems to be that this case will have an effect for all fee charging charities in England and Wales.

OSCR has now confirmed that four independent schools which had previously failed the charity test will now retain their charitable status, having gone through a lengthy regulatory examination. They have all been required to increase their bursary provision.

These two decisions demonstrate the differences between the obligations placed on charities in Scotland and England which may eventually result in changes to charity law in one or both jurisdictions.

For some time OSCR has accepted that the legal definition of charity in Scotland is subtly different from the legal definition in England and Wales, and in Northern Ireland. It seems that the difference may in fact be more substantial than that. OSCR’s recent annual report recommended that the time was right for a general review of Scottish charity legislation, possibly in parallel with the review of the English Charities Act 2006. On 17 November 2011 OSCR confirmed that the independent schools, which had been directed to improve their public benefit provision, will now retain their charitable status. An examination of the OSCR reports and the Upper Tribunal decision shows the differences which now exist between the public benefit requirements in Scotland and England.

• In England charity trustees have a much freer hand in running their charity. It is up to the charity trustees of the school to decide how best to treat their potential beneficiaries fairly, taking into account the particular circumstances of their school. OSCR’s examination of independent schools has proceeded on the basis that schools must satisfy an objective test as to the level of public benefit to be provided, scrutinising bursary assistance particularly closely. This is not surprising because the Scottish legislation establishes a charity test which applies to all charities, but which does not make it easy for OSCR to take account of such things as whether a charity’s individual financial circumstances can support a particular level of expenditure on bursaries.
   
• In England, charitable status depends on what an organisation was established to do, rather than what it actually does. The Scottish position is quite different. It is part of our charity test that a charity’s activities must provide public benefit, so OSCR is obliged to examine a charity’s activities quite closely. If OSCR is not satisfied that the activities comply with the test the charity risks removal from the Scottish charity register, something which would not occur in England.
   
• The Upper Tribunal says that the English Charities Act 2006 has made very little difference to the existing law on public benefit in England. There are many ways in which an English charity may provide public benefit, and it is not for the regulator or the courts to prescribe how it must be done. In Scotland OSCR is required to assess activities and decide whether they meet the public benefit test. OSCR must, to some extent, be prescriptive.
   
• The Upper Tribunal appears to say that, in principle, the charging of substantial fees would not result in a loss of charitable status in England, even if the result is that the charity’s facilities are available only to persons of some means. However, provision for the poor must go beyond the merely tokenistic and bursaries may be one way of doing that. While there will be a minimum level for benefits beyond which no reasonable English charity trustee would go, the level of provision and the method of its provision is properly a matter for the charity trustees and not for the Charity Commission or the court. This is certainly not a summary of the Scottish position.

The full Upper Tribunal decision may be read at:

http://www.judiciary.gov.uk/media/judgments/2011/independent-schools-council-charity-commission-decision

It is recognised by English commentators that this case will have an effect for all fee charging charities in England and Wales. English law affects Scottish charities too as it determines which Scottish charities qualify for charitable tax reliefs. One of the policies underpinning the Scottish charity legislation was said to be that the Scottish charity test should be compatible with that of England and Wales, so that tax reliefs would continue to apply equally to both Scottish and English charities. However, there must now be a question as to whether that policy has been achieved.

OSCR has recommended that Scottish Ministers explore with Ministers in England and Wales and Northern Ireland, a route by which HMRC might accept, for the purposes of UK tax relief, all organisations recognised as charities by a UK regulator. However, the tax system needs to treat all parts of the UK equally and whether that is possible standing the differences which currently exist may now be doubtful. It must also be borne in mind that further divergence is quite possible. This may be another pressure leading us towards legislative changes. OSCR is certainly correct in recommending that reviews of the Scottish and English legislation should proceed together.

Further Information

If you require further information on this matter please contact Anne Swarbrick, Head of Charities, Victoria J W Simpson, or your usual contact at Anderson Strathern.

This bulletin is for general information only and does not constitute legal, investment or other professional advice. Please contact us if you require advice on any particular issue. Anderson Strathern LLP accepts no responsibility for any loss that may arise if reliance is placed on any information or opinions expressed in this bulletin.