Page 1

the lantern Charity & Education News Summer 2006


Decision-Making for Charities


A recent House of Lords decision

Conference Dates

1–2 Decision-Making for Charities

relating to a state school has interesting


Tax and VAT Round-Up

implications for charities, especially


Charity & Education Articles

those who are operating to any extent


Contracting with the Public Sector

in the public sector and who might be


Spotlight – YWCA Central Club

caught in the judicial review net. The


Digest Stone King News

case, R (Begum) v. Headteacher and

& Did you know?

Governors of Denbigh High School was largely to do with Human Rights issues which do not directly affect most charities

Conference Dates

but the central questions could only be answered after a searching examination of the decision-making processes by

2006 4 Oct Association of Provincial Bursars Conference High Leigh Conference Centre, Hoddesdon, Herts

the school concerned. What emerges will be a comfort to hard-pressed trustees struggling with ever more complicated law.

“The power of decision has 18 Oct Charity Workshop in association with Chantrey Vellacott "Trustees responsibilities – What you need to know" Venue: TBA (Central London) If you would like an invitation please phone Margi or Annette on 01225 481481

been given to them for the compelling reason that they are best placed to exercise disturb their decision”

31 Oct

was generally acceptable to them and to the students generally. The comments of Lord Bingham are of particular relevance in relation to due process:-

“On the agreed facts, the school was in my opinion fully justified in acting as

The issue related to the propriety of the

it did. It had taken immense pains to

school’s decision to impose a particular

devise a uniform policy which respected

uniform requirement on the claimant

Muslim beliefs but did so in an inclusive,

notwithstanding that these requirements

unthreatening and uncompetitive way.

were incompatible with her religious

The rules laid down were as far from

beliefs. The school had undertaken

being mindless as uniform rules could

an extensive consultation exercise with

ever be........

Voluntary Action Swindon Annual Conference, Swindon

had arrived at a mode of uniform that

it, and I see no reason to

24 Oct Trustee Seminar on “Charity Law and Regulation.” Association of Charity Officers at HSBC Investments, London. For details contact them on 01707 651 777

local Muslim community leaders and

Decision-Making for Charities (continued)

“Head teachers and governors cannot be expected to make such decisions with textbooks on human rights law at their elbows”

It would in my opinion be irresponsible

a decision made in any particular way.

In other words, it’s not the way the

of any court, lacking the experience,

What matters is the result: was the right

decision-maker goes about making the

background and detailed knowledge of

to manifest a religious belief restricted

decision that ultimately matters but the

the head teacher, staff and governors,

in a way which is not justified under article

quality of the decision itself. In Human

to overrule their judgment on a matter

9.2? The fact that the decision-maker is

Rights terms, the decision necessarily

as sensitive as this. The power of decision

allowed an area of judgment in imposing

involves a balancing act between the

has been given to them for the compelling

requirements which may have the effect

needs of the individual and those of the

reason that they are best placed to

of restricting the right does not entitle

wider relevant community. In other areas,

exercise it, and I see no reason to

a court to say that a justifiable and

charity trustees are likely to be exercising

disturb their decision.”

proportionate restriction should be

discretions and must, therefore, be able

struck down because the decision

to demonstrate that they have considered

So, trustees are the best people to make

-maker did not approach the question

matters in a sensible way. However,

decisions. Nothing really new here, but

in the structured way in which a judge

thanks to the House of Lords, they no

it is good to have a strong assertion of

might have done. Head teachers and

longer have to do so with legal tomes

the principle from the highest Court

governors cannot be expected to make

by their sides. ■

in the judicial system.

such decisions with textbooks on human

In the Court of Appeal, which had allowed

rights law at their elbows.”

Richard Gold

Shabina Begum’s claim that her Human Rights had been infringed, one of the

“It would in my opinion be irresponsible of any court, lacking

judges formulated a six-part series of

the experience, background and detailed knowledge of the

questions. Lord Hoffman, in his judgment in the House of Lords, described that

head teacher, staff and governors, to overrule their judgment

as an “examination paper” that the Court

on a matter as sensitive as this”

of Appeal said the school should have taken in order to reach a procedurally correct decision. Saying in passing that it was a test that the Court of Appeal would have failed (!) Lord Hoffman went on to say that:“In domestic judicial review, the court is usually concerned with whether the decision-maker reached his decision in the right way rather than whether he got what the court might think to be the right answer. But article 9 [of the European Convention on Human Rights] is concerned with substance, not procedure. It confers no right to have

Tax and VAT update – Summer 2006 New substantial donor rules

the sale, letting or exchanging of property between a charity and a substantial donor;

As flagged up in the last edition of The Lantern, the 2006 Budget proposed some widely welcomed, anti-avoidance

a charity and a substantial donor;

measures in relation to charities. It is unfortunately the case that there are unscrupulous people around, intent on

the provision of services between

provisions of loans, guarantees or indemnities between a charity and

using charities’ tax-free status to further

a substantial donor; and

their own ends. We are of course concerned that the great majority of genuine philanthropists should not be

investment by a charity in the business of a substantial donor.

put off giving substantial sums to their charities simply because they might

The consequence of a charity being

Given 30% corporation tax rates, this

have their gifts attacked by the Revenue

caught by these provisions is that if the

could mean the charity being liable to a

as a sham.

transaction involves the charity paying

£9,000 tax charge. In addition the trustees

the substantial donor, an amount of

of Charity X could be held to be in breach

One of the new measures introduces

the charity’s income equivalent to the

of their duties by virtue of allowing the

provisions to avoid ‘substantial donors’

payment will be taxed. If the charity

charity to make non-charitable expenditure.

receiving inappropriate benefits.

is receiving money or benefit then any

Charities need to be careful that they

difference between the actual terms

The aim of the measures is to target tax

are not unwittingly caught by the

and what HMRC consider would be

avoidance and not to penalise legitimate

changes as there are potential tax and

‘commercial’ terms will be taxable

commercial or charitable transactions.

charity law consequences.

on the same basis.

Accordingly there are exceptions to allow

In order for the new provisions to take

These provisions dovetail with another

if they are done in the course of the

effect there must be:

change brought in by the Budget which

business of the substantial donor and

means all non-charitable spending will

on fully ‘commercial’ terms. Equally,

incur loss of tax relief on a £1 for £1

where a charity provides benefit or

basis (there was previously an allowable

money to a substantial donor, there

limit of £10,000.)

is an exemption if the charity is pursuing

for applicable transactions to be exempt

1. a ‘substantial donor’; and 2. an ‘applicable transaction’.

its primary purpose and providing the A ‘substantial donor’ is someone (company


benefit on the same terms as is provided to others.

or individual) who gives a particular charity £25,000 in any year or £100,000

One year Charity X receives a £30,000

over a period of 6 years. The monetary

donation from Mr Donor via Company A

Certain particular scenarios are also

limit relates to the value of gifts made

which he owns. As part of an informal

offered exemption from the rules.

and includes not only cash gifts but also,

arrangement, in return, Charity X leases

These include any transactions between

amongst others, gifts of shares and assets

office space to Mr Donor at £75,000 per

trading companies and their parent

otherwise subject to CGT. Once a person

year (which is only 75% of its commercial

charities. Charities providing services,

qualifies as a substantial donor for any

value). Under the new rules Charity X

land etc to substantial donors need to

chargeable period they remain classified

would be taxed on £30,000 of its income

be careful that they do not unwittingly fall

as such for the following five years.

– Mr Donor qualifies as a ‘substantial

foul of the new legislation. ■

An ‘applicable transaction’ includes

donor’ by virtue of being a connected party to Company A.

Matt Waters

Charities operating in Scotland/Northern Ireland and Republic of Ireland The Office of the Scottish Charity

will have new powers in respect of

Regulator (OSCR) is currently compiling

charities and fundraising. New legislation

a list of crossborder charities who will

is also expected in Northern Ireland

need to register with them by next

which will create the first register of

February. They are hoping to send

charities in Northern Ireland.

specialised application packs to these charities by the end of September 2006.

Charities operating throughout the

If you think you may be required to

United Kingdom and the Republic of

register either contact them direct on

Ireland will, after the introduction of the

01382 220446; refer to their website

Charities Bill 2006 in England and Wales,

( or contact us.

potentially be asked to comply with four different regulatory authorities!

In the Republic of Ireland, the Charities Regulation Bill 2006 is the first major

Martha Burnige

piece of legislation affecting charities in over 40 years. It establishes the Irish Regulatory Authority For Charities which

Europe challenges UK ‘discriminatory’ tax policy for foreign charities

Licensing in the Private Rented Sector

The European Commission has recently

This is obviously a huge potential

A new law which impacts dramatically

sent the UK a formal request to end the

change and we eagerly await the

on residential landlords has quietly come

current law whereby tax relief is not

Government’s response.

onto the statute books. It is the 2004

available for gifts to charities which are established in other European Member

Housing Act. It contains a number of Matt Waters

changes regarding Local Authority

States. The European Commission

powers in relation to empty properties

believes the discrimination is contrary to

as well as a new regime for disrepair.

the free movement of persons and capital. The European Commission, has

It also contains a new regime regarding

anticipated the UK’s likely response, and

HMOs (Houses of Multiple Occupation).

argued that the UK can obtain assistance

It introduces a fresh definition and

from other Member States on whether

system of registration. It essentially

charities are using their money for

codifies and widens the definition of

charitable purposes on the basis of the

what is an HMO.

Mutual Assistance Directive. The UK has two months to reply. If the

Those that are already registered should have been notified by their Local Authority.

European Commission do not receive a satisfactory response they may refer the

For advice, please contact Geraldine

matter to the European Court of Justice!

Winkler on 01225 324403

Contracting with the Public Sector

Spotlight YWCA Central Club YWCA Central Club is a charity which aims

Last year, the Charity Commission

to make a difference to the lives of women

published the Trafford and Wigan

living in London regardless of economic,

decision. As reported in the Summer

religious or cultural background. Situated

2005 edition of The Lantern, the

in an Adam terrace close to Oxford Circus

Commission stated that charities could

the Charity provides a number of services

provide both discretionary and also

and facilities aimed at supporting women

statutory services subject to charities

in their personal and professional

being able to satisfy certain criteria.

development and physical health To our minds, this case saw a useful

and wellbeing.

clarification of the position, rather than The Charity’s commitment to the advancement of women’s health is further

a significant restatement of the law. However, there is no doubt that the

contracts, with few signs of improvement.

decision has helped to provide a greater

The Commission’s policy statement

degree of clarity to the sector such that,

recognises this reality and, while the

in the intervening period, the drive

Commission indicates that charities

towards charities providing public sector

should aspire to full-cost recovery, it

services has arguably gathered pace.

does provide guidance to charities which

Against this background, the Charity

still wish to provide services where the

Commission has published a Policy

full costs are not being met by the local

The personal and professional development

Statement on Charities and Public

authority concerned. In particular,

of women is encouraged through a varied

Service Delivery (

it makes it clear that charities should

programme of courses and events. Classes

“only enter into contracts which do not

range from tai chi, yoga and pilates to

polstat.asp). This very helpfully sets out

cover these costs when they are fully

languages, creative writing and starting

a series of legal requirements which

satisfied that this is in their beneficiaries’

your own business. Events include talks,

charities must follow when providing

interests.” Until such time as all public

films, visits and fundraising events.

such services, including that charities

sector funders appreciate the need for

In addition, informal Women’s Networking

must only undertake activities which fall

full cost recovery, the Commission’s

Events encourage women to exchange

within their objects and powers and that

statement provides comfort to those

ideas and experiences and offer those new

they must be independent of government

charities which, having considered the

to London the opportunity to forge links.

and other funders.

position very carefully, wish to provide

Other facilities include a computer suite

Full Cost Recovery

underpinned by the availability of fitness assessments, training programmes and general advice on a range of health issues and concerns including osteoporosis, pregnancy, heart conditions and cancer. Access to reasonably priced complementary therapies is also available.

services on a less than full cost recovery basis.

with fast internet access, darkroom, café and lounge. YWCA Central Club aims to be

The statement also stresses the

a safe venue for women to meet with

importance of full-cost recovery: this

others and feel refreshed and invigorated

has long been a cause for concern for

to meet the challenges and excitement of

charities, and recent support for this

life in London.

concept has come from the review of Visitors are always welcome at 44 Portland Place, London W1 or visit our website www.44portlandplace

Public Sector Efficiency by Sir Peter Gershon and also from the Compact and more recently Compact Plus. However, evidence suggests that very few local authorities are currently implementing these policies: all too often one hears of short term and inadequately funded

It is beyond doubt that the voluntary sector will continue to have an everincreasing role in the provision of public sector services. It is therefore helpful to have these clarifications of the position from the Charity Commission. It is also hoped that the moves to ensure that charities are able to cover the full costs of providing these services will help to secure the future financial stability for charities operating in this area. ■ Stephen Ravenscroft

Digest Stone King News

Did you know?

Collaborative Working and Mergers (CC34) – this explores the various

News in Brief

structures available and is illustrated by case studies.

Here outside our London Office are the

Charities Bill Update ●

solicitors in our Charity Team. Absent (with leave!) is Elizabeth Bowes-Smith

The Bill is still on track to be passed

and our three trainees. The team is now

into law by October/November 2006.

one of the largest dedicated Charity

Responsibility for the Bill has now passed

Teams in the country.

from the Home Office to the Office of

Registering as a Charity: Evidence of CRB Checks – this lays out the CC’s approach to CRB checks for trustees of charities working with children and vunerable people. We are involved, via the Charity

the Third Sector (part of the Cabinet

Law Association in ensuring that

Office). Even now members of our

the CC's guidance in this matter

team are involved in consultations

is a proportionate response to the

over amendments to the Bill.

perceived problem. ◆

What’s New at the

Charity Commission? – May saw the launch of a new Model Trust Deed for Independent Churches. Left to right: Robert Meakin, Jonathan

A model Memorandum and Articles

Burchfield, Vladka Thwaites, Ann Phillips,

of Association is in the pipeline.

Michael King, Martha Burnige, Alexandra

It represents the culmination of

Whittaker, Stephen Ravenscroft.

extensive consultation with the sector and aims to provide a framework to manage conflicts of interest and

Company Law Reform Bill

The Bill represents a major overhaul of company law and will repeal and amend parts of the Companies Act 1985. In particular, it will provide a codification of directors duties; changes to company constitutions, administration and accounts and shareholder responsibilities. It has completed its first and second reading in the House

payments to trustees.

of Commons and is expected to come – June saw New Guidance Notes

into force next year. We will cover this in more depth in later issues of

issued on:

the Lantern.

Your Contacts

Stone King LLP 13 Queen Square Bath BA1 2HJ Tel. 01225 337599 Fax. 01225 335437 28 Ely Place London EC1N 6TD Tel. 020 7796 1007 Fax. 020 7796 1017 email:

Charity: Michael King Partner Johnathan Burchfield Partner Robert Meakin Partner Ann Phillips Partner Stephen Ravenscroft Partner Alexandra Whittaker Solicitor Vladka Thwaites Solicitor Martha Burnige Solicitor Education: Richard Gold Partner Michael Brotherton Solicitor Jane Graham Solicitor Naseem Nabi Solicitor

Legacy Disputes: Nick Watson Partner Robert Meakin Partner Paul Sutton Associate Dispute Resolution: Nick Watson Partner Paul Sutton Associate Michael Brotherton Solicitor Commercial Property: Hugh Pearce Partner Catherine Sanderson Solicitor Stephanie Howarth Solicitor Donna Del-Greco Solicitor Kathrine Wardle Paralegal Amandeep Basi Paralegal

The Lantern 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.

Corporate & Commercial: Roy Butler Partner Ross Eaglestone Associate Employment: Nick Watson Partner Peter Woodhouse Partner Naseem Nabi Solicitor Child Protection: Steven Greenwood Partner Housing: Geraldine Winkler Legal Executive Trust and Taxation: Andrew Mortimer Partner Alison Allen Partner Charles Hayward Partner

© Stone King LLP 2006

Stone King LLP - registered limited liability partnership no OC315280, registered office 13 Queen Square, Bath BA1 2HJ