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...
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
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.
◆◆ People in poverty must not be excluded; and
The Public Benefit Requirement (continued)
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 email@example.com
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 (firstname.lastname@example.org) 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
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 email@example.com.
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,
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 firstname.lastname@example.org.
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: email@example.com
© 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