Becoming a Charity in Scotland Part 1: Charitable Purposes and Public Benefit

(Act Reference: Sections 7, 8, 9, 102)

New Charity Law in Scotland: The Charities and Trustee Investment (Scotland) Act 2005

The Charity Test

To be a charity in Scotland an organisation must satisfy what is, in effect, a five part charity test:

• its purpose(s) must match one or more of the charitable purposes laid out in the Charities Act and
• it provides public benefit and
• it is independent from Scottish Ministers or Ministers of the Crown and
• its constitution does not permit it to ‘distribute or otherwise apply any of its property’ to a non-charitable purpose (i.e. do something with any of its possessions - including money – that is not in accordance with its charitable aims) and
• it is not a political party nor is it set up to advance a political party

Charitable Purposes

These are taken verbatim from the Act but disparate subsections of the Act have been brought together here for the sake of clarity:

• the prevention or relief of poverty
• the advancement of education
• the advancement of religion
• the advancement of health (including the prevention or relief of sickness, disease or human suffering)
• the saving of lives
• 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)
• the advancement of the arts, heritage, culture or science
• the advancement of public participation in sport (meaning sport which involves physical skill and exertion)
• 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)
• the advancement of human rights, conflict resolution or reconciliation
• the promotion of religious or racial harmony
• the promotion of equality and diversity
• the advancement of environmental protection or improvement
• 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
• the advancement of animal welfare
• any other purpose that may reasonably be regarded as analogous to any of the preceding purposes (the advancement of any philosophical belief (whether or not involving belief in a god) is analogous to the purpose set out in paragraph (c)).

Public Benefit

None of the charitable purposes are presumed to be for the public benefit. Instead the Office of the Scottish Charity Regulator (OSCR) must apply the public benefit test, which is that:

“regard must be had to

• how any
benefit gained or likely to be gained by members of the body or any other persons (other than as members of the public), and
 
disbenefit incurred or likely to be incurred by the public, in consequence of the body exercising its functions compares with the benefit gained or likely to be gained by the public in that consequence, and
 
• where benefit is, or is likely to be, provided to a section of the public only, whether any condition on obtaining that benefit (including any charge or fee) is unduly restrictive.”

This means that OSCR will have to weigh up whether the benefit provided to the public at large by the services/activities of an organisation (either a current charity or one that wants to become a charity) is greater than

• any benefit gained by the people involved with the organisation itself or any small group of people who couldn't be described as 'the public' - including ‘members’ of the organisation
• disbenefit to (i.e. negative consequences for) the public

and whether there are 'undue restrictions' - particularly charges or fees - on 'the public' accessing those services.

This doesn't mean there can't be any

• benefit to the organisation itself or any small group of people who couldn't be described as 'the public'
• disbenefit to the public
• charges or fees

but, since a charity or would be charity must demonstrate that it provides public benefit, then presumably the idea is that the overall public benefit must be great enough to make these things less significant.

It may help to imagine a set of scales where some organisations will very heavily tip the scales on the public benefit side and have no problem remaining /becoming charities whereas some may only just end up weighing in on that side. Others will tip too far in the other direction and won't get to remain/become charities.

At the time of writing (January 2006) OSCR has not yet published the final version of its guidance on how it will determine public benefit etc, although it has consulted on a first version. This is, in fact, a rather complicated area of the Act and, since it is OSCR who will make these decisions, charities should consult OSCR’s guidance to be clear about their position. The guidance will be available on the OSCR website.

Independence & Property

The rule about Scottish Ministers or Ministers of the Crown is meant to ensure that charities are free from control by Scottish or UK central government and also that charities cannot get hold of a bunch of money and other possessions because they have charitable status and then do something with them that is not charitable.

However, Scottish Ministers decided that some charities are allowed to be charities even though they - or Ministers of the Crown - do control them and those charities are allowed to ‘distribute or otherwise apply any of (their) property’ to a non-charitable purpose. Ministers intend to exempt them from needing to comply with this bit of the law. The main ones are the Scottish ‘National Collections’ (national museums, art galleries etc). The Scottish Ministers can also change ‘enactments’ (usually Acts of Parliament) to allow organisations to remain charities even if they fail the charity test on the same grounds.

• There were specific reasons for the intended exemptions and there is little expectation that Scottish Ministers would ever want or need to exempt an ‘ordinary’ charity from this part of the Act. Similarly they have not yet sought to alter an enactment, although either circumstance could change in future.