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Regulator publishes public benefit guidance for charities

CHARITY COMMISSION News Release (PR 02/08) issued by The Government News Network on 16 January 2008

The Charity Commission, the independent regulator for charities in England and Wales, today publishes its general guidance for charities on public benefit.

Under the Charities Act 2006, all charities must demonstrate that they are established for public benefit. The Act gives the Commission responsibility for issuing guidance, raising awareness about the public benefit requirement, and the task of judging whether a charity can demonstrate that its aims are charitable for the public benefit.

The new guidance, Charities and Public Benefit - the Charity Commission's general guidance on public benefit, identifies and explains two key principles of public benefit. These principles are:

* Principle 1 - There must be an identifiable benefit, or benefits

* Principle 2 - Benefit must be to the public, or a section of the public The guidance explains what charities should consider within these principles, and that how a charity benefits the public must be clear and related to its aims. The guidance also explains how the Commission will assess the public benefit of individual charities and how charities are required to demonstrate and report on their public benefit.

The guidance also covers who must benefit and the effects of any restrictions on who can benefit, and the need to ensure that people in poverty are not excluded from the opportunity to benefit. Charities will not be required to start reporting on the public benefit requirement until March 31st 2009.

The published guidance follows a three month public consultation on draft guidance in 2007 to which the Commission received nearly 1,000 responses. Comments in response to the consultation have been taken into consideration and amendments made in the light of them. Launching today's guidance, the Commission's Chair, Dame Suzi Leather said:

"There is a two-way relationship between charities and society: registered charities enjoy considerable benefits in terms of their reputation and the tax advantages that go with their status. In return, they should publicly account for what they do to benefit society, including people in poverty. This guidance will help charities meet the new requirement and will help the public to see what charities do for their benefit and with their support.

No charity will be expected to make changes overnight and the reporting requirement will not come in until next year, but I do want to encourage charities and their trustees to read the guidance and consider what it will mean for them. We have worked to ensure that this guidance is clear and that the reporting requirements are proportionate to the size of the charity. This is not extra red tape; this is information that people expect to receive from charities. Most charities will have nothing to fear from the public benefit guidance.

I am grateful for the time and thought that individuals and charities have given to this complex issue, and their contributions have helped develop this first key tool for charities to use to show how they meet the public benefit requirement."

The Commission will be issuing draft supplementary guidance for consultation on the public benefit of specific types of charity in February, with consultations on draft supplementary guidance for charities set up to advance religion or education, or to relieve poverty, and for those that charge fees.

Charities and Public Benefit: the Charity Commission's general guidance on public benefit and a summary version are both available from the Commission's website at http://www.charitycommission.gov.uk.

Notes to Editors:

1. A summary of the guidance and Q and A are below. From Wednesday 16th January the guidance will be available at http://www.charitycommission.gov.uk

3. The Charity Commission is the independent regulator for charitable activity in England and Wales.

2. The Charities Act 2006 (which received Royal Assent in November 2006) gives the Charity Commission a new objective, 'to promote awareness and understanding of the operation of the public benefit requirement'.

3. Previously, charities established to advance education or religion or to relieve poverty were presumed to have aims which are for the public benefit, and they were not required to demonstrate this further, unless there was evidence to the contrary. The Charities Act 2006 removes this presumption and all charities now have to demonstrate that their aims are for the public benefit.

4. The Commission published its draft guidance on public benefit for consultation on 7 March 2007. The consultation closed on 6 June and generated nearly a thousand responses.

5. A summary of responses to the draft public benefit guidance and the timetable for the public benefit process is available on the Charity Commission website.

6. The public benefit provisions in the Charities Act 2006 are expected to come into force in late March 2008. For more information please contact: Sarah Miller on 020 7674 2333/2366 or out of hours 07785 748787

CHARITY COMMISSION PUBLICATION OF GENERAL PUBLIC BENEFIT GUIDANCE - QUESTIONS AND ANSWERS

1. Why was there a need for public benefit guidance to be published?

- Following the Charities Act 2006, all charities are explicitly required to have charitable purposes which are for public benefit. That includes charities that advance education or religion or relieve poverty, which the law previously presumed were established for public benefit.

- The Act gives the Commission a new objective to promote awareness of the public benefit requirement, and requires us to consult on public benefit guidance for charities. We will make our decisions on public benefit based on existing case law.

- We are publishing the guidance to enable charities and charity trustees to read and consider the guidance and decide what it will mean for them ahead of beginning to report on their public benefit requirement from March 31st 2009.

2. What does this mean for charities in practical terms? When will charities have to start reporting on their public benefit?

- Trustees will have a new duty to consider the public benefit guidance we publish and report on how their charity meets the public benefit requirement.

- Also, we will assess organisations applying to be registered charities to see whether they meet the public benefit requirement, so it is important to understand the criteria we will use. It is intended that existing registered charities will be asked to report on their public benefit for accounting periods which begin on or after 1 April 2008. Most charities produce accounts in line with the financial year so the first reports will be due from March 31st 2009. Charities then have ten months after their year end to prepare their annual accounts/reports.

- The time frame gives ample time for trustees of charities to consider the guidance thoroughly and decide what it means for their charity in order to demonstrate it is meeting the public benefit requirement. The amount of information needed depends on the size of income of the charity (see Q.10)

3. How will charities have to report on their public benefit - will it be the same for all charities?

- Charity trustees will have a new requirement to report in their Trustees' Annual Report on their charity's public benefit. The level of detail required will depend on whether the charity is above or below the audit threshold, (an audit is required when a charity's gross income in the year exceeds £500,000, or where income exceeds £100,000 and the aggregate value of its assets exceeds £2.8 million). Most charities already explain their activities in their Trustees' Annual Report and so this information now needs to be set in the context of the charity's aims to show how in practice the aims have been carried out for the public benefit. For example, the majority of charities are small, (i.e. below the audit threshold as above) so trustees will only be required to include a brief summary in their Trustees' Annual Report of the main activities undertaken in order to carry out the charity's aims for the public benefit. More details of the requirements for larger charities are in the guidance.

4. What changes have you made to the guidance in light of the consultation?

- We have considered the helpful comments made in the consultation and made some changes in the light of these. For example, some responders said the guidance was too long and detailed, and some raised questions around the language and terminology used, so we have sought to make the guidance more succinct and clear. The four principles of public benefit have been rewritten into two main principles, for clarity, and expanded with important additional points (see Q.4).

- Some responders didn't like the use of the term 'disbenefit' in reference to any potential negative impact that a charities' aims might have. Instead, we have referred to something that may cause 'detriment or harm'. If there is more detriment than benefit, then an organisation's aims would not be charitable.

- Some responders, particularly from religious charities, were concerned about the use of the term 'modern social conditions' and what this might mean. We have worked hard to emphasise that it is not in the remit of the Commission to look into traditional, long-held religious beliefs or to seek to modernise them. We have changed the wording of the guidance to refer to 'changing social and economic conditions'. This might mean altering the wording of a charity's objects so that they have relevance for today. For example, the Commission might agree to alter the wording of the objects of a charity which was established for the provision of 'marriage portions for poor maids', to 'the relief of poverty of women'.

- Some responders disliked the term 'people on low incomes' preferring the term 'the poor'. Responders considered this to be a more relative term than 'people on low incomes'. They also felt that the term "people on low incomes" didn't work well outside the UK. The revised guidance now uses the term 'people in poverty', and makes clear that the meaning of this in individual cases will be considered in the context of the organisation's aims, who those aims are intended to benefit and where it carries out its aims.

- At the request of responders, we have also expanded the section of guidance on reporting requirements (section G) and how the Commission will assess public benefit (section H).

5. Will all charities have to demonstrate public benefit in the same way?

- Clearly every charity is different. We will apply these principles to each charity in the appropriate way given their aims (what they were set up to do).

- Following the publication of our general guidance on the principles of public benefit, we will begin consulting on draft supplementary guidance for fee-charging charities (as there is a great deal of interest concerning this issue) and for those charities where the public benefit requirement has changed - those advancing education or religion or relieving poverty. The consultations on this sub-sector supplementary guidance will start in February 2008.

6. What sort of benefits will count?

- Charities' aims can provide different sorts of benefits to the public. Most charities provide direct, measurable benefits to individuals; some benefits may be harder to see and measure, such as those that benefit society as a whole. Provided they are clear, we will take all benefits that are related to the charity's aims into account.

- Benefits that are not related to the charity's aims will not be taken into account. For example, an opera house with the charitable aim of advancing the arts might also benefit the public by maintaining the facade of the beautiful and historic building it occupies. In this example, we would not take that benefit into account unless preserving an historic building was also one of its specific charitable aims.

7. What criteria will you use to assess if a charity meets its public benefit requirement?

- Our approach to assessing the public benefit of existing charities will be proportionate, accountable, consistent, transparent and targeted. We will carry out research studies to show the extent to which charities are fulfilling the public benefit requirement, and will work with professional and umbrella bodies and where appropriate commission more wide-ranging research on how the aims of particular charities are for public benefit. We will then use the information we gather to help inform how we select individual charities and how we make those assessments. Detailed assessments might be desk-top, by telephone or by visit. More details are in section H4 of the guidance.

8. What does the general public benefit guidance mean for independent schools and religious charities?

- The general guidance applies to all those charities, as it does to all charities, but there will be additional draft supplementary guidance published for consultation for any specific points relating to those charities.

9. What will happen if a charity does not meet the public benefit requirement?

- We will not expect charities to make changes overnight. The Commission will be carrying out a great deal of discussion about how particular types of charity will be expected to meet the public benefit requirement. We will take reasonable account of how much time and resource might be needed by a charity to make changes in order to meet the public benefit requirement.

- Where charities are not meeting the requirement but are able to, we will work with them to help them to explore ways in which they can do so. This could include looking at and altering the charity's objects so that it is able to meet the requirement.

- In extreme cases, if an organisation was unable to provide public benefit we may need to ensure that any charitable assets will in the future be used for other charitable purposes. Any new charitable purposes would be close to the original purposes which no longer provide public benefit.

- A further possibility may be that we decide that the aims were never for the public benefit and the organisation should not have been registered as a charity. If the trustees were not co-operating with looking to find ways to meet the public benefit requirement we might also use our regulatory powers, but we think that this would happen in very few cases.

- Charities will be able to appeal against a decision by the Charity Commission, firstly through the internal decision review system and then to the Charity Tribunal when it is established, but we would hope that by working closely with charity trustees, such circumstances would be rare.

10. What support will you provide for charities as this new approach is introduced?

- We are sending information about the public benefit requirement to all charities on our register through our newsletter. We will provide information on our website - http://www.charitycommission.gov.uk - which will include the full guidance, a summary of the guidance and the legal basis of the guidance. We do want to encourage charity trustees at this stage to read and consider the guidance thoroughly. Charities are not required to start reporting on their public benefit until March 31st 2009.

Charities and Public Benefit: Summary Guidance for Charity Trustees

Introduction

All charities must have charitable purposes or 'aims' that are for the public benefit. This is known as the 'public benefit requirement'. Although all charities already have to meet this requirement, the Charities Act 2006 highlights it by explicitly including public benefit in the definition of a charitable purpose. We expect these changes to take effect from 1 April 2008. From that point, all organisations wishing to be recognised as charities must demonstrate, explicitly, that their aims are for the public benefit. Previously the law presumed this to be the case for charities that advance education, or religion or relieve poverty. The Charity Commission has to ensure all charities meet the public benefit requirement and provide guidance on what the requirement means. Charity trustees will be required to have regard to the Commission's public benefit guidance and to report on their charity's public benefit.

This summary covers the key principles of our general guidance to charities about public benefit. The full version of this guidance can be found on our website at http://www.charitycommission.gov.uk under 'About charities' and hard copies are available by calling Charity Commission Direct on 0845 300 0218

Charitable Purposes

Charitable purposes (or aims) are those that fall within the various descriptions of charitable purposes in the Charities Act 2006, set out below, and any new charitable purposes that might be recognised in the future.

a) the prevention or relief of poverty;

b) the advancement of education;

c) the advancement of religion;

d) the advancement of health or the saving of lives;

e) the advancement of citizenship or community development;

f) the advancement of the arts, culture, heritage or science;

g) the advancement of amateur sport;

h) the advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity;

i) the advancement of environmental protection or improvement;

j) the relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage;

k) the advancement of animal welfare;

l) the promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services;

m) other purposes currently recognised as charitable and any new charitable purposes which are similar to another charitable purpose. You can find out more about charitable purposes in our Commentary on the Descriptions of Charitable Purposes in the Charities Act on our website. Public Benefit

There are two key principles of public benefit and, within each principle there are some important factors that must be considered in all cases. These are:

Principle 1: There must be an identifiable benefit or benefits

Principle 1a It must be clear what the benefits are

Principle 1b The benefits must be related to the aims

Principle 1c Benefits must be balanced against any detriment or harm

Principle 2: Benefit must be to the public, or section of the public

Principle 2a The beneficiaries must be appropriate to the aims

Principle 2b Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted:

* by geographical or other restrictions; or

* by ability to pay any fees charged

Principle 2c People in poverty must not be excluded from the opportunity to benefit

Principle 2d Any private benefits must be incidental

The principles of public benefit apply to all charities, whatever their aims. Each charity must be able to demonstrate that its aims are for the public benefit. Public benefit decisions are about whether an individual organisation is a charity and not about whether particular types of charity or groups of charities, as a whole, are for the public benefit.

Principles of Public Benefit

Principle 1: There must be an identifiable benefit or benefits

Principle 1a It must be clear what the benefits are

It must be clear what benefits to the public arise from carrying out a charity's aims. Examples of different sorts of benefit include providing housing for the homeless or giving medical care to the sick. It should be possible to identify and describe the benefits provided but that doesn't mean they must be able to be quantified or measured; non-quantifiable benefits will be taken in account as long as it is clear what they are. Most benefits are self evident but sometimes we may need evidence depending on the type of benefit provided. Sometimes benefit can be shown by a consensus of objective and informed opinion. In some cases we may ask for evidence of independent, expert opinion from someone suitably qualified. It will usually be for the organisation's trustees to provide evidence that their organisation's aims are for the public benefit but we may sometimes need to check evidence from other sources. Principle 1b The benefits must be related to the aims

Benefits must be related to the charity's aims, so benefits which arise from the charity's work that are not related to its aims will not be taken into account. Where a charity has more than one aim, each of those aims has to meet the public benefit requirement; it will not be enough if only some do.

Principle 1c Benefits must be balanced against any detriment or harm

Finally, benefits must be balanced against any detriment or harm which arises. Examples of detriment or harm could include something that is damaging to the environment or mental or physical health or encourages hatred towards others. In judging whether this detriment occurs, we would need to see real evidence; we will not just assume it. Where there is more detriment than benefit, or where the organisation has aims that are illegal or is a sham, it would not be charitable.

Principle 2: Benefit must be to the public, or section of the public

Principle 2a The beneficiaries must be appropriate to the aims

While this sounds like a statement of the obvious, who constitutes the 'public' or 'a section of the public' varies according to the charitable aims. Sometimes a charity's aims are intended to benefit the public generally, sometimes a specific section of it. Who benefits, and how, will depend on the organisation's aims. Considering who the charity's aims are mainly intended to benefit is important when deciding whether the public benefit requirement is met.

It is not a simple matter of numbers, but the number of people who can potentially benefit must not be insignificant. The 'class' of people who can benefit must be sufficiently large or open given the charitable aim being carried out. The actual number of people who can benefit at any one time can be quite small as long as anyone who could qualify for the benefit is eligible. So, for example, it is fine to offer only a small number of rooms in a care home as long as anyone who is eligible to apply can be considered for those limited places.

It is important that the opportunity to benefit is not unreasonably restricted given the nature of the charity's aims and the resources it has. If the benefit is to a 'section of the public', rather than the public generally, then the restrictions must be reasonable and relevant to the charity's aims. If they are not, this will affect public benefit. Principle 2b Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted:

* geographical or other restrictions; or

* ability to pay any fees charged

Ways in which restrictions might apply to the 'class' of people who can benefit include geographical restrictions, those involving charitable need, such as poverty, age or ill-health, and those involving personal characteristics, such as gender, race or religion for example. We will consider the circumstances in each case when deciding whether that restriction is reasonable. At the extreme, charities must not be seen as 'exclusive clubs' that only a few can join. So, where the aims of a charity are more closed, inward-looking and exclusive, greater justification for the restriction may need to be provided.

Many different sorts of charities can, and do, charge for their services or facilities. Charities can charge fees that more than cover the cost of those services or facilities, provided that the charges are reasonable and necessary to carry out the charity's aims, for example, in maintaining or developing the service provided. However, where, in practice, the charging restricts the benefits only to people who can afford to pay the fees charged, this may result in the benefits not being available to a sufficient section of the public.

Principle 2c People in poverty must not be excluded from the opportunity to benefit

The fact that the services will be charged for and therefore provided mainly to people who can afford to pay does not necessarily mean the organisation's aims are not for the public benefit. However, if an organisation excluded people from the opportunity to benefit because they could not pay the fees, then its aims would not be for the public benefit. In particular, people in poverty must not be excluded from the opportunity to benefit. So it would not, for example, be enough to reduce very high fees slightly to enable more 'middle income' people to benefit, if people in poverty were still excluded from the opportunity to benefit.

In general, the lower the fees that are charged, the greater the opportunity there is likely to be for most people to have the opportunity to benefit. But where the fees charged are, of necessity perhaps, very high, then trustees of those charities will have to think about other ways in which people who cannot afford those fees can benefit in some material way related to their charity's aims. This does not mean charities have to offer services for free, or offer concessions on fees, although clearly that would help. There could be other ways of benefiting people who cannot afford the fees in a way that is related to the aims. For example, one way of doing this might be an independent school working in partnership with a local state school, or an arts charity might broadcast concerts or operatic performances via TV or radio to a wider audience. What matters is that people unable to pay are not excluded from the opportunity to benefit, whether or not they actually choose to take up the opportunity.

Principle 2d Any private benefits must be incidental

Where people or organisations benefit from a charity, other than as a beneficiary, then those sorts of 'private' benefits must be incidental, which means they are a necessary result, or by-product, of carrying out the charity's aims. Where private benefits are more than incidental this might mean the organisation is set up for private, rather then public, benefit and so might not be charitable.

Reporting on your charity's public benefit

Charity trustees have a new duty to report in their Trustees' Annual Report on their charity's public benefit. The level of detail you will need to provide in your public benefit report will depend on whether your charity is above or below the audit threshold. An audit is required when a charity's gross income in the year exceeds £500,000, or where income exceeds £100,000 and the aggregate value of its assets exceeds £2.8 million. Most charities already explain their activities in their Trustees' Annual Report and so this information now needs to be set in the context of the charity's aims to show how in practice the aims have been carried out for the public benefit.

Trustees will also need to confirm that they have had regard to our public benefit guidance where relevant.

For smaller charities, below the audit threshold, trustees are required to include a brief summary in their Trustees' Annual Report of the main activities undertaken in order to carry out the charity's aims for the public benefit. Trustees can, of course, provide fuller public benefit statements if they wish.

For larger charities, above the audit threshold, trustees are required to provide a fuller explanation in their Trustees' Annual Report of the significant activities undertaken in order to carry out the charity's aims for the public benefit, as well as their aims and strategies. They are required to explain the charity's achievements, measured by reference to the charity's aims and to the objectives set by the trustees. It is up to the charity's trustees to decide how much detail they want to provide to clearly illustrate what their charity has done in the reporting year to meet the requirement; the Commission will not be prescriptive about the number of words or pages needed. But a charity that said nothing on public benefit in its Trustees' Annual Report, or produced only the briefest statement with no detail, would be in breach of the public benefit reporting requirement.

Assessing public benefit

The Charity Commission will assess whether the aims of all organisations applying to register as charities are for the public benefit. Charities that are already registered have to continue to meet the public benefit requirement. We will do this by carrying out research studies on the extent to which different types of charity are meeting the requirement and by working with representative professional and umbrella bodies and with users of those charities.

In some cases we may need to carry out detailed assessment of individual charities. Where that needs to happen we will advise the trustees on what needs to change in order to meet the public benefit requirement, and give clear reasons and advice on what happens next where it is not possible for the organisation to meet the requirement. No charity will be expected to make changes overnight and we will take reasonable account of how much time and resources might be needed by a charity that needs to make changes in order to meet the requirement. A charity or anyone affected by one of our public benefit decisions, that disagrees with it, can seek a review of that decision using our internal decision review procedures and, if they consider it necessary, can make a further appeal to the new Charity Tribunal and, ultimately, to the courts. However, by working constructively with charity trustees and undertaking extensive public consultation on our public benefit guidance, we would hope such circumstances would be rare.

For more information go to http://www.charitycommission.gov.uk/benefit/default.asp