Update | Charity: Public Administration Select Committee (PASC) report, further changes

Until relatively recently, the legal landscape for charities remained largely unchanged. Then along came the Charities Act 2006, the introduction of the Charity Tribunal, the CIO, and the Lord Hodgson report, along with a Public Administration Select Committee (PASC) report published in June and a Law Commission report due next year. The landscape of charity regulation is definitely changing, but what does the latest in a long line of reports have to say about it?

After Lord Hodgson's report in July 2012, PASC published its report on the role of the Charity Commission and public benefit, focusing on eight key areas. The main criticisms in the report centred around the commission's objectives as set out in section 14 of the 2011 Act, the approach to public benefit, and the commission's use of the tribunal. However, not all these criticisms are, at least in my opinion, fairly levelled at the commission, and there may be a case for preserving at least some of the status quo.

The five objectives set out in the Act were criticised for being too "vague" and "aspirational". At first glance, they would certainly seem more suited to a mission statement than a statute. Given the current funding climate, one could also argue that they are too wide to ever be truly effective. This is very true, and the commission has increasingly less time and funding to deal with promotion of the sector and the like. As Lord Hodgson commented, the commission should be a regulator rather than a friend, and this is clearly where the decreasing resources are being allocated, to the detriment of the sector overall. Having said this, one use of the objectives is to serve as a reminder of the overall purpose of the commission, and where you are presenting a particularly difficult and novel case, a reminder of the fourth objective (promoting effective use of charitable resources) coupled with "the desirability of encouraging innovation" at section 16, paragraph 5 can be a useful method for charities and practitioners of encouraging acceptance of your case.

Public benefit

As the public benefit debate rumbles on, the solution proposed by the PASC is to refer the issue back to parliament, with a view to potentially repealing the removal of the presumption of public benefit. On the face of it, this is attractive if it could provide some certainty as to what is meant by the term, but this would not be a quick fix, and would be unlikely to resolve the issues around the margins of public benefit and provide certainty for charities who are currently on the borderline of what might be acceptable.

The removal of the presumption of public benefit has been discussed by academics and practitioners alike since the implementation of the 2006 Act, and was of course debated by the Tribunal in the Independent Schools Council (ISC) and the Benevolent Fund cases but its real impact remains unknown. While the Plymouth Brethren argues that the commission takes a mistaken approach to the effect that the removal of the presumption has had on the existing case law, the commission's position is that the removal effectively negates existing case law and that the Brethren have not (yet) demonstrated on the facts that their faith offers sufficient public benefit according to the new law. Without new case law to resolve these issues, it is difficult to judge what effect repealing the removal would actually have.

If parliament is to take on defining public benefit, any definition would have to provide enough certainty that the definition could be applied in practice, but with enough flexibility to allow for future changes in society and what might be considered acceptable in the future. The issue is not really how the concept is defined, but how it is applied, and that is not something parliament can necessarily assist with.

Confusing purpose

The tribunal should be a low cost solution for those wishing to appeal a decision of the commission, but the PASC report was particularly critical of the use of referrals by the commission, citing the ISC case as an expensive example. The report recommends the use of an informal dispute resolution procedure - but this would appear to confuse the purpose of a referral and an appeal. Where a trustee or interested person is appealing against a decision of the commission, they first have the option of a decision review, and then an appeal to the tribunal if they are not satisfied. This will be at a cost to the charity, but does not necessarily involve the instruction of solicitors, and the tribunal would be under a duty to assist any applicant without any legal representation. A referral, on the other hand, should be on points of law only, and charities that may be affected by the ruling need not be involved. As the commission stated in its evidence to the PASC, it would not be arguing on a referral for a particular outcome - but would simply be seeking guidance on the correct interpretation of a particular piece of legislation or case law. It may be that what is actually required is some guidance on the use of the referral system by the commission (and the Attorney General), or some guidelines from the commission as to when they might use it, and what they consider to be their obligations to the tribunal.

Other interesting comments in the report include agreement with the government that there should be no automatic right to pay trustees, and no charging of fines by the commission. The question of fees for filing was, however, left open, but is something that the commission ought to decide based on the practicalities of such a system, and the likelihood of any real overall increase in its income.

Of course, at this stage all the recommendations and suggestions are purely academic - we are yet to see any practical change arising from the PASC report. The Law Commission report may produce more actionable change, but in the meantime we await further instructions.

Further changes

Following on from the theme of change above, there have been a significant number of consultations over the last three months that are relevant to the sector and may bring further changes.

HMRC seems to currently be in the lead on this process, with an interesting consultation on proposed tax reliefs for social enterprises, and another on the simplification of the rules surrounding Community Amateur Sports Clubs (CASCs).

The former is part of the wider agenda to encourage social entrepreneurship, and if implemented, may encourage existing businesses to take a more responsible approach to investment and operation, and challenge further the traditional idea that "charity" and "commercialism" are somehow separate.

The latter will be a welcome relief for those that have dealt with CASCs in the past, and it is hoped that simplification will lead to an increase in registrations, but whether that does occur will depend very much on the changes made, and the extent to which the rules are simplified.

There has been a long running debate regarding the use of charities to occupy business premises and thereby avoid payment of business rates, and the latest casualty of this debate (the Public Safety Charitable Trust, (PCST)) was wound up by the High Court earlier this month, following a High Court decision that found business rates payable on premises claimed to have been occupied by the charity.

Properties have the benefit of a relief from the payment of business rates where premises are used "wholly or mainly" for a charitable purpose. PCST sought to take advantage of the increased availability of unoccupied commercial premises (on which rates are due) by entering into agreements to lease unoccupied commercial premises at a peppercorn rent, and having the landlord pay a "reverse premium" equivalent to half the rates saving.

PCST placed a broadcasting transmitter into the premises it was leasing, which took up minimal space, but provided free Wi-Fi to anyone within range, as well as a series of messages on crime prevention and public safety via Bluetooth to willing recipients. This was not found to be sufficient "use" for the premises to be considered as mainly used for a charitable purpose, and so a liability for rates relief was upheld.

The commission had issued warnings about this type of arrangement, accepting that it presents an opportunity for a charity to occupy premises on favourable terms, but stating that trustees ought to ensure that it was in the charity's interests to enter into such agreements, and stressing the requirement of actual (not "virtual") occupation.

This case simply gave force to the warnings put forward by the commission about the pitfalls of entering into such arrangements without a full consideration of the potential risks and liabilities.

Business rates have also been on the agenda in Wales, with a further consultation having just closed on reform to the system employed there. One of the proposals was to abolish the relief for charities, and the sector has generally expressed its disapproval at this prospect. Whether the potential savings are too great to give force to that general disapproval we will not know until decisions are made, but it could have a significant impact on all charities with premises in Wales.

Parliament clearly seem keen to review the operation of charity law in England and Wales, and by next year will have three different reports on what could be next for the sector. Some of the more significant changes are likely to be from the Law Commission, but we may yet see some smaller differences in regulation if the PASC report recommendations are taken into account. There will always be a delay in implementing real change, but in the meantime, there are plenty of consultations for lawyers and their clients to get their teeth into, and maybe we will be reviewing the operation of European Foundations and Jersey charity law in the near future too.