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Independent

CONTENTS 1-2 The Public Benefit Requirement 2-4 What now for Property post Lord Hodgson’s Review? 4-5 Loss of VAT Relief on Listed Buildings 5  Renewable Heat Incentive (RHI) Scheme 6 And finally...

Schools

Bulletin

Education Law News Autumn 2012

The Public Benefit Requirement The Law

Parliament decided – some would say it was a hospital pass

It is well enough known that since 1st April 2008, all charities have

– to leave it to the Charity Commission to state what public

been required to demonstrate that they operate for the public benefit, and this requirement is now enshrined in the Charities Act 2011. “Public Benefit” is not defined in the Act and that is probably a very good thing: given the changes in perception of charity and in the activities of charitable organisations over the last couple of decades, it is clear enough that a statutory definition would have held back that development.

benefit meant, saying only that public benefit meant the term as “understood for the purpose of the law relating to charities”. So, the Commission were required to consult the charity sector and produce guidance as to what public benefit meant in general and it began this process shortly after the passing of the then Charities Act 2006.

In practice, a charity must now show that its objects fall within

Charity Commission’s key principles for establishing public benefit

one of 13 descriptive purposes in the Act and that those objects

The Commission decided to offer this guidance, based on two

are capable of benefiting the community at large; and the charity

principles:

must then demonstrate that it is in fact engaged in activities, in pursuance of those objects, in such a way that is for the benefit to the public.

Principle 1 – there must be an identifiable benefit. This was broken down into three sub-principles: ◆◆ It must be clear what the benefits are; ◆◆ The benefits must be related to the aims of the charity; and ◆◆ Any benefit(s) must be balanced against any detriment or

harm. Principle 2 – ­benefit must be to the public or a section of the public. This was broken down into four sub-principles: ◆◆ The beneficiaries must be appropriate to the aims of the

charity; ◆◆ Where the benefit is to a section of the public, the opportunity

to benefit must not be limited by unreasonable restrictions;

◆◆ Any private benefits that arise must be incidental.

s

◆◆ People in poverty must not be excluded; and


The Public Benefit Requirement (continued)

s

Public Benefit and Independent Schools

1. S.2(1) Charities Act 2011 says that to be charitable, a purpose

The Commission’s analysis of what the Common Law understood to

must fall within the descriptive list of purposes within the Act

be public benefit and its general advice on the subject was largely

(one of which is the advancement of education) and must be for

of interest to lawyers but it was when the Commission started

the public benefit. The Commission is required to issue guidance

to produce guidance for particular charity sectors that people sat

on the public benefit objective and its general guidance is still

up and took notice. In particular the guidance for fee-charging

in existence which requires charities to report in their Trustees

charities and independent schools appeared to concentrate on

Annual Report how they meet the requirement.

the extent to which financial help was available to people who

2. The hue and cry, against “the iniquity of tax breaks enjoyed by

could not otherwise afford to pay such fees.

schools for the children of the rich”, has not gone away. Every time

When 5 schools were assessed as to how they met the public

there is a report in the media that an independent school appears

benefit requirement and 2 failed, (principally because they were

to be more concerned about improving the facilities of a narrow

unable to show a level of financial assistance to those who could

group of children – the so-called “gold plating syndrome” – than

not afford full fees), the Independent Schools Council decided to

about spreading the availability of benefits offered to less fortunate

take the matter to the courts for decision, with the assistance of

children, commentators refer pejoratively to this fiscal regime and

a reference from the Attorney General. The case was eventually

to the money “lost to the state”. While the Blair government was

heard in the Upper Tribunal in the Spring of 2011 and the decision

happy to throw the problem at the Commission, another left of

made in the following Autumn.

centre government might not be prepared to do so.

The Tribunal was not wholly critical of the Commission’s brave

My advice to governors is:

attempt to produce guidance on the underlying law as to public

◆◆ to keep a record of the many benefits which are provided by the

benefit, but it decided that it must be for the trustees of a charity, not the Commission, to decide how best to run their charity.

New Consultation The Commission has now embarked on a 3 month consultation

school to others, in the light of the school’s objects, ◆◆ to record in their annual report, on the school’s website and

in newsletters and bulletins all that the school does for its children and for others in the local and wider community and

on new, draft, online guidance, which on the face of it is less

◆◆ to recognise that, if they are outgoing and provide clear

prescriptive than that criticised by the Tribunal. The online

benefits other than merely to fee-paying pupils, they have a

format has its drawbacks, but on the whole, the guidance is more

good story to tell which is not only good marketing but gives lie

accessible, and leaves more to the Trustees to decide.

to suggestions that the great majority of independent schools

So can Independent Schools ignore the Public Benefit issue for the moment? The answer is a resounding “No” for two reasons:

are only interested in their own pupils.

Michael King 01225 324447 mk@stoneking.co.uk

What now for Property post Lord Hodgson’s Review? On the 16th July, Lord Hodgson laid his long awaited report on the

considered by Parliament. Amongst those proposals were some

Charities Act 2006 before Parliament. The 160 page document

significant changes to the way charities deal with property, which

contains no less than 113 recommendations, which will now be

are outlined below.


‘Accordingly the grant of a tiny cable easement to a utility company over 1m of playing field needs a formal report and process but the purchase of a £40m new school building subject to existing leases etc does not.’

Independent Schools are almost all set up as charities and are bound by the current regulations which impose rather inflexible processes (see below). There are special rules for charity to charity transactions; or transactions involving persons connected to the School (eg lettings to staff); a distinct process for leases up to 7 years; a blanket process for any other lease or sale or indeed other disposal, but no express rules for granting a licence to occupy nor for an acquisition. Accordingly the grant of a tiny cable easement to a utility company over 1m of playing field needs a formal report and process but the purchase of a £40m new school building subject to existing leases etc does not. Clearly improvement will help save confusion and cost to Independent Schools.

Disposals of land “Disposals” of charity land include sales, exchanges and leases, but also other transactions that involve interests in land, such as

set out in the Charities Act. These requirements are a stringent set of rules that can operate in a very arbitrary manner, and are particularly disproportionate where land of small value is involved. Many commentators in the past have made the point that charities often have a variety of high value assets, but it is only the disposal of land which attracts these additional rules. The evidence gathered by the Review was clearly in favour of a change, and many were firmly of the view that the current requirements are disproportionate. Lord Hodgson clearly listened to the evidence, and recommended that disposals of charity land be deregulated. Rather than a set of statutory requirements, trustees would be expected to act in accordance with their general duty of care, and relevant Charity Commission guidance. If accepted, this deregulation will be a welcome relief to trustees (and to property lawyers!), and should make disposing of land a much less complicated process.

granting easements or rights of way. Charities make thousands

Lord Hodgson has also recommended that the Commission work

of sales and other disposals of interests in land each year, and

with relevant professional bodies to develop guidance, and to

although the Charities Act 2006 did not change the law on charity

specifically include common transactions, including acquisitions

land disposals, the Government asked that this Review consider

as well as disposals. Given the very “hands off” approach adopted

whether wider changes to the regulation of disposals of charity

by the Commission in their new draft public benefit guidance, it

land were needed.

will be helpful for trustees to have more specific, tailored guidance

Under the current law, in most cases, charities can dispose of their land without the need for the approval of the Charity Commission, provided that the charity’s trustees comply with the requirements

with relevant examples where land transactions are being carried out, and we look forward to the publishing of such guidance if this recommendation is adopted.

Disposals to connected persons Currently, the Charity Commission has to approve all disposals of land to “connected persons” of the charity, as per the relevant statutory definition. This includes disposals to trustees or staff. The classic for schools is the lease to staff of staff accommodation. The Report concluded that these disposals are one point on which regulation remains necessary, as Charity Commission approval of such sales exists to help identify and prevent fraud and abuse, and so this requirement is likely to stay. However, the Report recommended that the definition of “connected person” be amended to exclude charities’ wholly owned subsidiary trading companies. We understand that this is based on the basic principle that such disposals are reasonably commonplace and generally used in pursuit of the charity’s mission through ring fencing of commercial risk and the like. Independent Schools


may recognise VAT efficiency leasing structures for sports centres

relied upon instead, as with disposals, and we expect this to be

etc. Again, this amendment will significantly ease the burden for

supplemented by published guidance.

trustees when dealing with wholly owned subsidiary trading companies, which many do.

Land disposal by administrators The Report recommends that formally-appointed administrators, acting in the winding up of a charity, should be authorised to execute disposal documents. This is unlikely to have much

Overall, the removal of inconsistency, the decrease in regulation and move to more reliance on trustees general duty of care is to be welcomed, and fits with Nick Hurd’s priority of making running a charity easier. We are sure Independent Schools will be pleased with that. The Law Commission will take up the baton in its upcoming review and report of Charity Law. We plan to stay close to that.

relevance for Independent Schools, save perhaps where related

We also plan to be providing workshops in the autumn on the

historic supporting trusts come to light.

issue of the review of charity property law, as well as sessions

The regulation of mortgages of land

bespoke to Independent Schools. Please let Hugh Pearce (hp@stoneking.co.uk) know if you are interested. We shall also be

Currently, most mortgages taken out by charities do not need the

providing bulletin updates on the Charity Law review in upcoming

approval of the Charity Commission or the courts, but a report

months. Please let Charlotte Foster (charlottefoster@stoneking.

is still needed by the Trustees. Many Schools will be affected by

co.uk) know if you are interested.

this in relation to borrowings.

Hugh Pearce and Venetia Phipps

The Report recommends the adoption of the same approach as in relation to the wider land disposal regime, and so the recommendation is that the current restrictions are removed. It is anticipated that the trustees’ overarching duty of care will be

Loss of VAT Relief on Listed Buildings In the 2012 Budget the Chancellor George Osborne announced

However this distinction has now been lost and it is proposed that

proposals to address a number of ‘loopholes and anomalies’ in

from 1 October both ‘alterations’ and ‘repair and maintenance

VAT which included an extension of VAT to approved alterations

works’ will be subject to VAT at the standard rate (currently 20%)

to listed buildings. These works had previously been zero-rated

whatever the status of the building concerned. The change removes

and will now be taxed, bring ‘alterations’ in line with ‘repairs or

the zero rating from building materials and construction services

maintenance’.

supplied in the course of an approved alteration to a listed building.

The proposals could have a serious financial impact on schools

Under European VAT law no member state can introduce any

with listed buildings who need to make better use of the buildings

new zero rates of VAT, however they may continue charging any

through alterations or extensions.

lower rates, including zero rates, that were in place on 1 January

Previously zero-rating was applied to ‘alteration works’ to a protected building, as opposed to works of ‘repair or maintenance’. The Department’s guidance explains that ‘works of repair or maintenance are those tasks designed to minimise, for as long

1991. There is concern therefore, that once scrapped, it may not be possible to reinstate the zero rating for listed building alterations as this could potentially comprise a ‘new’ zero rating. We are looking into this issue and hope to report further.

as possible, the need for, and future scale and cost of, further

It has been argued that the change is partly to remove the discrepancy

attention to the fabric of the building’.

between repairs and alterations to ensure that there is no VAT


Loss of VAT Relief on Listed Buildings (continued)

incentive to alter rather than repair. It is true that to date the vat

To date, VAT relief has helped schools with the preservation of listed

treatment could be seen to favour alteration of a listed building

buildings by offsetting some of the greater costs associated with

rather than its preservation ie approved ‘alterations’ which are

listed building works, enabling schools to bring their buildings up

zero rated, allow changes to the fabric of the building, whereas

to modern standards and helping to ensure their future survival.

‘repair and maintenance’ works, which are standard rated, make good and preserve the existing fabric.

This proposed change in the legislation may end up discouraging schools from carrying out vatable alterations to listed properties,

It is equally arguable that if the primary incentive is to remove

with schools instead favouring new build schemes which may

the discrepancy between repairs and alterations to ensure that

be eligible for zero rating if the supplies have a social purpose.

there is no VAT incentive to ‘alter’ rather than ‘repair’, rather than increase the VAT rate, the government could instead have proposed a reduced rate of VAT for all alterations and repair and maintenance works to listed buildings. A standard reduced rate would have both removed the discrimination between the types of works undertaken, and helped maintain the heritage of buildings of architectural or historical interest.

It is currently intended that these changes will come into force on 1 October 2012, however there is a strong lobbying movement against the changes, we are keeping an eye on any developments and will therefore keep you informed of any changes through our quick-points and bulletins. For further assistance please contact Sally McFadden on 01225 326794 or email smf@stoneking.co.uk.

Renewable Heat Incentive (RHI) Scheme The Renewable Heat Incentive (RHI) has been introduced to

as meeting the eligibility criteria. Ofgen who are regulating this

focus attention on renewable energy such as biomass and away

scheme have produced guidance on the eligibility criteria (see

from fossil fuels such as oil. Biomass fuels include wood pellet,

www.ofgem.gov.uk/RHI).

woodchip, logs, grain, cereals, and energy crops.

The Department of Energy & Climate Change (DECC) has stated

The government has pledged to provide a continuous income

that “Once an installation is accredited under the scheme they

stream for 20 years to any organisation that installs an eligible

will receive a fixed level of support which will be adjusted annually

renewable heating system to help enable the UK to meet its

in line with inflation”.

target to generate 15% of energy from renewable sources by 2020.

Whilst the income from the RHI is designed to cover both the

The RHI scheme makes a payment under a tariff system dependant

installation and running costs differential between conventional

on the type of technology used along with the amount of kW’s

heating systems and renewable energy heating systems, the lack

consumed and is intended to create long term support for

of upfront payments may prevent many Schools from applying

renewable heat technologies like heat pumps, biomass boilers

for this scheme.

and solar thermal panels through financial incentives.

However schools can claim the RHI providing they own the

The government is very keen to see schools take-up the incentive

installed renewable heating equipment and often have great

as a way of teaching and informing young people and local

potential, for example in setting up anaerobic digestion plants

communities about the potential for local renewable generation.

using school waste.

Similar to the Solar feed-in-tariffs reported on previously, the RHI

For more information contact Sally McFadden on 01225 326794

will only be paid when a heat installation has been accredited

or email smf@stoneking.co.uk.


And finally…

aspects of governance, charity law, pupil and staff issues, and employment disputes.

We are pleased to announce the appointment of independent

Head of Education Roger

schools expert John Clarke as a partner in the firm’s rapidly

Inman said “John’s profound

expanding education team. John previously was Senior

knowledge of independent

Partner and headed the education and employment teams at

schools, and his recognition

education specialists Rickerbys LLP and more recently at Bevan

as one of the few genuine

Brittan LLP. John has earned a national reputation in advising

experts in that field, will greatly compliment and strengthen

education clients, in particular independent schools on all

the growing work that we are doing for schools of all kinds”.

Your Contacts Education: Roger Inman Partner Graham Burns Partner Stephen Ravenscroft Partner John Clarke Partner Richard Gold Consultant Geoffrey Davies Consultant Laura Berman Senior Associate Michael Brotherton Senior Associate Kate Grimley Evans Solicitor Nicola Berry Solicitor Lydia Brookes Solicitor Ciara Campfield Solicitor Laura Giles Solicitor

Charity: Michael King Partner Jonathan Burchfield Partner Robert Meakin Partner Ann Phillips Partner Alexandra Whittaker Associate Hannah Kubie Associate Tom Murdoch Associate Vicki Bowles Barrister Sarah Clune Solicitor Darren Hooker Solicitor Reema Mathur Solicitor Commercial Property: Hugh Pearce Partner Stephanie Howarth Partner Hugo Greer-Walker Partner

Corporate and Commercial: Roy Butler Partner Brian Miller Senior Associate Caroline Leviss Associate Employment: Nick Watson Partner Peter Woodhouse Partner Jean Boyle Associate Tamsin Wilkinson Associate Victoria Blake HR Consultant Sarah Turner HR Consultant Health & Safety: Andrew Banks Partner David Milton Associate Solicitor

Stone King LLP 13 Queen Square Bath BA1 2HJ Tel. 01225 337599 Fax. 01225 335437 16 St John’s Lane London EC1M 4BS Tel. 020 7796 1007 Fax. 020 7796 1017 Wellington House East Road Cambridge CB1 1BH Tel. 01223 451070 Fax. 01223 451100 New Hall Market Place Melksham Wiltshire SN12 6EX Tel. 01225 337599 Fax. 01225 335437

www.stoneking.co.uk email: education@stoneking.co.uk

© Stone King LLP 10/2012

Independent Schools Bulletin deals with some current legal topics. It should not be used as an alternative to specific legal advice on the individual circumstances of a particular problem. Stone King LLP - registered limited liability partnership no OC315280, registered office 13 Queen Square, Bath BA1 2HJ

independent_schools_newsletter_autumn_2012  

http://www.stoneking.co.uk/sites/default/files/literature/independent_schools_newsletter_autumn_2012.pdf

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