#giveitbackgeorge! A short blog post.


It was very good this morning to see one of the national newspapers, the Guardian, leading with the article George Osborne faces revolt over ‘tax on giving…’

Everyone within the charity sector has been aware of the unpleasant implications of the cap of higher rate tax reliefs since the day of the budget, which I think were well set out in a blog by Rhodri Davies, Policy Manager at CAF (see goo.gl/h1KEP). Hopefully, the rest of the world might now start to cotton on to how bad an idea the cap is for charitable donations as well.

For those without the time to read Rhodri Davies’s very good blog in full, the cap on higher rate tax reliefs applies to Gift Aid, and is likely to deter charitable donations of more than £200,000 (probably, although it has not been made crystal clear how the cap will work) in any tax year.

This won’t be an issue for the majority of people (research by NCVO and CAF indicates that the median amount given by people to charity in the UK is £11 per year – see page 4 of this report), but some very large charitable gifts are made by the wealthy each year, and these are much needed by the charity sector.

The thing that I find most frustrating about the whole situation is the lack of consistency from the Government. I know, I know… By now I should have learnt that consistency is not necessarily a feature of this government. But I don’t understand this particular move from a government which:

  • wants to promote the “Big Society”, and wants charities to play their part in that vision;
  • knows that a number of charities have, in the recent past, been heavily reliant on funding from national and local government; and also
  • knows that government funding has been substantially cut as a result of the economic crisis, with the result that charities are now trying very hard to find other sources of funding.

How can deterring the big donors from making substantial gifts help? And the cap will be a deterrent – a definite ‘nudge’ in the wrong direction.

The cap also seems bizarre, given the Government’s recently declared support for the Legacy 10 campaign, and introduction of a lower rate of Inheritance Tax for people leaving 10% of their net estates to charity.

HMRC tells us that only 3% of all estates actually bear Inheritance Tax, which requires the estate of an individual to be worth more than £325,000 and the joint estate of a married couple to be worth more than £650,000 before any tax is payable.

Therefore, the reduction in Inheritance Tax available on death is very much an incentive for the wealthy to be charitable, rather than the majority of people in this country. That is, the same people who are most likely to be making significant donations to charity during their lifetimes, whether through altruism or as a result of tax planning.

So, the wealthy are only meant to be encouraged to be philanthropic on their deaths? There seems to be a somewhat mixed message here…

What can we learn from the Brotherhood of the Cross and Star Inquiry?


There’s no denying that the situation faced by the the Brotherhood of the Cross and Star (the ‘Charity’) is not one which will be faced by many charity trustees.

However, before Liverpool City Council applied to the court to make the Charity insolvent because of an unpaid debt of approximately £385,000, and the charity came to the attention of the Charity Commission for a second time, the Charity had a governance issue which is not as infrequently found as it should be.

How did the Charity wind up almost being wound up?
The Charity first came to the attention of the Commission in 2001/02, when it was alleged that funds were being misused abroad. There was also a conflict between two groups of individuals within the Charity, with each group complaining that it was the true ‘Council of Management’ (i.e. board of charity trustees). The Commission opened an Inquiry, came to the conclusion that the funds of the Charity were safe, and advised the two groups to enter into mediation to find a way to resolve their difference of opinion about the Charity’s management.

When the Commission opened its second inquiry into the Charity, as a result of the threatened court action by Liverpool City Council, it became clear that this issue over the trusteeship of the Charity had not been resolved.

In fact, the confusion over the management of the Charity had resulted in the bank which held the Charity’s cash removing the funds from the reach of both of the purported Councils of Management. This in turn meant that the cash could not be used to settle the debt owed to Liverpool City Council, prompting the council’s bid to wind up the Charity.

So, which group was the true Council of Management?
Neither of them, as it turned out.

The constitution of the Charity stated that the members of the Council of Management should be elected by the members of the Charity. However, this had not happened for many years, and it had become standard practice that members of the Council of Management should be selected and removed by the Brotherhood of the Cross and Star in Nigeria.

A disagreement as to the leadership of the Brotherhood of the Cross and Star in Nigeria brought about the existence of the two purported Councils of Management.

However, no member of either of the purported Councils of Management had been validly appointed and with no valid appointments, no-one at the Charity was legally entitled to manage the assets of the Charity…

What did the Commission do?
It is the Commission’s policy not to involve itself in disputes between trustees of a charity, unless the assets of the charity are at risk. This would explain why, in 2002, once the Commission had ascertained that the assets of the Charity were not being misused, it merely encouraged the members of the two Councils of Management to take part in mediation to resolve the issue of the management of the Charity.

Initially, at the start of the second Inquiry in 2008, the Commission still tried to work with the members of the Councils of Management to deal with the Charity’s problems. It offered to assist with the conduct of a satisfactory electoral process.

However, it became clear that the two Councils of Management could not agree on a way in which a new Council of Management could be appointed and the Commission was finally forced to appoint an Interim Manager (a lawyer specialising in charity law) to deal with the issues threatening the Charity, before the court dealing with the insolvency petition for the Charity lost patience and wound the Charity up.

The Interim Manager was given administrative control of the charity for just over one year. Thankfully, the Interim Manager was able to deal with the bank account issue, and stop the Charity from being made insolvent. He also recommended an administrative restructuring of the Charity, which members of each of the two Councils of Management would be invited to join.

One simple lesson from this tale of two Councils of Management
Every charity should make sure that its trustees are correctly appointed!

First step for appointing a new trustee: check the charity’s constitution for how trustees should be appointed. If it says new trustees are elected by the members at a quorate general meeting, the trustees should make sure this happens. If it says the existing trustees appoint the new trustees by resolution or by deed, then the trustees should do that instead.

They also need to make sure the appointment is documented correctly, as organisations such as banks which hold assets for the charity will need to see evidence that the appointments were made correctly before they will be prepared to update their records.

If trustees are unsure about how trustees should be appointed, or how the appointment should be documented, despite having checked the charity’s constitution, they shouldn’t just guess. Instead, they should seek advice.

Obviously, not all failures to appoint trustees correctly will result in the kind of cataclysmic situation faced by the Charity. However, lesser problems can be encountered – like banks refusing to recognise the authority of new charity trustees, for example. And, as the appointment of a charity trustee can be so straightforward, there seems little reason to get it wrong.

So, what can be learnt from the Inquiry into the Brotherhood of the Cross and Star? The answer may be: more than you might initially have thought.

The full Inquiry can be found here.

The Gift Aid Question


How the Gift Aid Question arose
The simple answer is: Rob and I went on a holiday for the weekend, to Harrogate.

Harrogate is a beautiful spa town, with a fascinating historical enthusiasm for all things curative, especially (at the start of the 20th century) the curative power of electricity. For any illness you might care to name.

There was actually a ‘treatment’ which would involve the patient lying in a wooden bath full of peat, which would then be electrified. Who on earth wakes up one day and thinks, “Well, a peat bath is good – very soothing. But it’s missing something… perhaps a live current?” Thank goodness that doesn’t happen any more. After all, we need to preserve our peat bogs.

Anyway, the countryside around Harrogate is very different to that around my home in Willingham, containing many strange natural features which are simply not to be found in the Fens. Mostly, hills. For those of you from the north Cambridge area, if you can, imagine something like the cycle bridge across the A14 from next to the St John’s Innovation Centre to Milton, but huge, and with stones and grass tussocks to trip you up instead of the miniature sleeping policemen on the pedestrian side of the bridge.

To witness more of these strange things, we struck out on foot, and stumbled upon a number of local and national conservation charities operating in the area. This meant that, in a relatively short period, I was exposed repeatedly not only to hills (my legs are still complaining now) but also to the Gift Aid Question. You know the one – it goes “So, that’s two tickets for two adults… Now, would you like to Gift Aid that?”

My experiences over the weekend have brought me to an unpleasant conclusion. I have been labouring under a misapprehension that normal people, not just charity law specialists, know what Gift Aid is. In fact, it turns out that there are not only people out there who not only do not know what it is, but there seem to be a number of reasonably large charities with staff or volunteers who cannot explain how it works when asked.

At this stage, given Rob’s comments about my approach to solving this problem over the weekend, I would like formally to apologise to all the charity staff and volunteers, and visitors in front or behind us in queues, who may have been confused or annoyed by a talkative, surprisingly knowledgable visitor, inexplicably keen to share her understanding of the mechanics of Gift Aid.

As Rob pointed out, he has grown used to a steady flow of charity related news and information from me. Others are unlikely to be. Therefore: I am sorry for any confusion caused. I shall try to restrain myself in the future.

Although, actually, I’m pretty sure that my helpful information persuaded at least one man to Gift Aid his entrance fee when he wouldn’t have done so otherwise. Or, I suppose Rob might suggest, he may just have agreed to stop me from talking to him about it. But, in any case, the charity got its Gift Aid.

A quick guide to Gift Aid
If a donor to a charity has paid or will pay the right amount of income or capital gains tax in the UK in the tax year in which a donation is made, and makes an appropriate Gift Aid declaration, the charity can reclaim the income tax on the ‘gross’ equivalent of the donation (i.e. its value before income tax was deducted at the basic rate) from HM Revenue & Customs (HMRC).

As a simplified example, let’s say that one of my friends, Julie, is paid £25,000 each year for her work as an administrative assistant. After her personal allowance is taken into account (presently £6,475), she will pay income tax at the basic rate of 20% on her remaining pay. This will amount to £3,705 of income tax on £18,525 of pay. Her ‘net’ pay will be £14,820.

Julie decides that she would like to make a donation of £20 to Jimmy’s Night Shelter. Julie is asked whether she would like her donation to be subject to Gift Aid, and, being familiar with the concept (as she has a friend who cannot stop going on about such things), she agrees to this. She knows that she will have paid income tax on at least £25 this tax year. In fact, she will be paying income tax on a gross amount of £18,525 of her pay, so more than enough to cover the Gift Aid on this donation and all her other donations to charity this tax year.

The charity takes her details, and applies to HMRC to reclaim the income tax which Julie paid previously on her £20. HMRC repay the sum of £5 to the charity (25p for each pound donated). As a result of Julie agreeing to Gift Aid her donation, the value of Julie’s gift to the charity has been increased by a quarter, to £25, at no cost to Julie.

This is why Gift Aid is great. The only person who ‘loses out’ in any way is HMRC. And it actively promotes the scheme, so we shouldn’t feel too bad on its account.

I should mention that if Julie had been a higher rate payer of income tax, at present, the situation would be even better from her perspective. The charity would still get to reclaim the basic rate of income tax paid by Julie on the amount given, but Julie should also get to reclaim from HMRC the difference between the basic rate and higher rate of income tax paid for herself. Anyone whose financial affairs involve higher rate income tax and gifts to charity should talk to their tax advisor about this.

Recent changes – charities beware!
On 24 February 2012, without fanfare, HMRC changed some of its online guidance on Gift Aid. The two key changes are:

1. The phrasing of the donor declaration.
Donors have previously had to declare that they had or would pay an amount of income tax and/or capital gains tax in the tax year of the donation at least equal to the amount of tax which would be reclaimed by the charity to which the ‘Gift Aid-ed’ donation was being made.

Now, the amount of income tax and/or capital gains tax must at least equal the amount of tax to be reclaimed by all charities to which they make ‘Gift Aid-ed’ donations that tax year. The new model declaration for a single donation can be found here, and the model declaration for a specific donation and all past qualifying donations / future donations can be found here. Charities should update their declarations as soon as possible.

2. The retention of Gift Aid records by a charity.
The time that a charity must retain its Gift Aid records has increased in the new guidance, from 4 years to 6 years. Charities will have to adjust their record-keeping arrangements accordingly.

I don’t know how many charities regularly check HMRC’s online guidance. However, I suspect they are few in number. Charities which are unaware of the changes may be in for an unpleasant surprise come their next Gift Aid audit. If you’re involved in a charity, make sure the person in charge of Gift Aid knows about the changes. If your charity produces its own Gift Aid forms, there’s a new checklist of the information which must be included in your version of the declaration. You can find this here

How should the Gift Aid Question be asked?
My experiences with charities near Harrogate suggest the need for those ‘on the door’ to have a better understanding of Gift Aid, or to be better trained to explain how it works.

Charities who are revising their declarations and checking their record retention complies with the new guidance may want to revisit the issue of training at the same time. Perhaps they could provide a flow chart to those tasked with asking the Gift Aid Question at the entrance. If we assume the entrance fee is £7, off the top of my head, it could go something like this:

1. We participate in the Gift Aid Scheme, which means you can increase your donation by a quarter at no cost to you personally. Would you like to know more about this? If yes, go to 2. If no, go to 7.
2. Will you pay income tax and / or capital gains tax in the UK this tax year? If yes, go to 3. If no, go to 6.
3. The value of your gift to the charity today is £8.75, if you are able to take part in the Gift Aid scheme, rather than £7. Will you pay income tax on an amount at least equal to £8.75 and the value of all other donations you have made or will make to charity this tax year? If yes, go to 4. If no, go to 6.
4. Would you like us to be able to reclaim 25p from HMRC for each pound you donate today, increasing the size of your donation by a quarter at no cost to you? If yes, go to 5. If no, go to 7.
5. Would you please read and complete this Gift Aid declaration for your donation today? Go to 7.
6. Unfortunately, you are not eligible to take part in the scheme. Go to 7.
7. Thank you for your time.

Question 3 will be the tricky one. I can’t help but wonder how many individuals will be able to keep track of the amount they give to charity in any tax year. However, presumably the fact that most people only give a small amount to charity (compared to their earnings on which they pay income tax) will give people the confidence to answer ‘yes’ to this question.

So, I think that such a series of questions should do the trick for most people, but any comments or suggestions as to how it could be simplified or improved are welcomed.

Good news from HMRC – charities have until 31 December this year to update their Gift Aid declarations, and donors who have completed the old form enduring declarations will not have to complete new declarations.

When is a letter of pledge not enough?


Well, according to a telephone conversation I had with a Charity Commission employee on the helpline today, a letter of pledge is now never going to be sufficient proof that a charity will receive more than £5,000 in income in its first year of operation for registration purposes.

I asked why this change had come about, and the answer was the Charity Commission had been told by a number of fairly newly registered charities that the funds pledged never came through from the donors. Fair enough, I suppose.

I asked when this change in approach had occurred, and was told that it was “ages ago”, and, when I pressed for more detail than this, that it must have been close to the beginning of the year.

I asked whether this change had been publicised to those assisting with the creation and registration of charities, and was told that I had missed nothing. It had not been publicised at all.

This was slightly annoying. When you’re trying to help people to set up and register charities as quickly and efficiently as possible, it seems perverse for the regulator to make such a decision but not publicise it.

Gritting my teeth slightly, and trying to find out what might now do the job of the letter of pledge, I asked whether a copy of a contract under which the charity is entitled to at least £5,000 of income in its first year of operation would be sufficient proof of income. It would. I then asked if a deed of gift by an individual, which is similarly enforceable by the charity in the courts, would also be sufficient evidence. It would.

So, it looks as though there’s more paperwork for me to prepare (and so more costs incurred for the client), and more paperwork to submit to the Charity Commission on registration. Joy…

For the public benefit, initial thoughts on the judgement


Firstly, my apologies for the delay in the arrival of this post, but the judgement was the length of a short novel (at 116 pages), even without the inclusion of any summary of the submissions made by the parties.

However, maybe that’s only to be expected, given that work on this decision by the Hon Mr Justice Warren, Judge Alison McKenna, and Judge Elizabeth Ovey began long, long ago…

How this all started
Those of you with long memories who can remember the origins of this case are to be congratulated. For those with less good memories, briefly, its origins were as follows.

The Charity Commission issued guidance, in accordance with its statutory duty under the Charities Act 2006 (the 2006 Act), on the application of the public benefit principle. It gave general guidance, and also guidance specific to fee charging charities (amongst others).

The Independent Schools Council (ISC) considered that the guidance provided went beyond mere interpretation of the existing law on public benefit, which was meant to be unchanged by the legislation, and in a way which would particularly affect its membership. So, it made an application for judicial review of the guidance, on the grounds that the guidance was incorrect and that the law should be clear in its requirements.

The Attorney General (post change of government) also raised a number of points in a reference to the tribunal on the matter of public benefit and fee charging schools, and the application for judicial review and the reference were dealt with at the same time, at the end of May.

The judgement
Both the ISC and the Charity Commission have claimed success in their press releases, and considering the number of points addressed in the judgement, that’s not altogether surprising.

For those of you who can’t be bothered to wade through the entire decision, I made a summary of what seem to be the main points, while reading the judgement, and these are set out below. I must emphasise that there is a lot more to be found in the judgement itself. However, even my summary is quite lengthy in itself, and some of you may just want to skip to the end!

1. Did the 2006 Act change the existing law?
Immediately before the 2006 Act, the meaning of ‘public benefit’ incorporated both the need for (i) the nature of the purpose itself to be such as to be a benefit to the community, and (ii) those who may benefit from the carrying out of the purpose to be sufficiently numerous as to constitute a ‘sufficient section of the public’.

Public benefit in the sense of (i) above can be presumed where a trust falls into the category of being for the advancement of education (although this is a rebuttable presumption), but there is no case law to suggest that there is also a presumption of public benefit in the sense of (ii) above for such trusts.

Section 2(2) of the 2006 Act, which sets out the descriptions of charitable purposes, reflects the pre-existing categories of charitable purposes, and is includes in the 2006 Act to provide a hurdle – in order to be charitable, the purpose of a trust must fall within one of the descriptions. If it does not, then the question of public benefit, i.e. falling within section 3(3) of the 2006 Act, does not arise.

The statement in section 3(2) of the 2006 Act, that it is not to be presumed that a particular purpose is for the public benefit, reflects the conditions relating to public benefit applied in the past, but transforms them into a separate element of the ‘charity’ test.

2. Should ‘dis-benefits’ be taken into account in the test as to charitable status?
It was noted that no-one suggests the provision of mainstream education is not for the public benefit in the sense of (i) above, but it is right to ask whether the public benefit in this first sense is outweighed by the ‘dis-benefits’ caused by such provision being made for a fee.

The Education Review Group (also joined as a party to the proceedings) had suggested that impaired social mobility and diversity were dis-benefits caused by the provision of education by the private schools. However, the judges decided that a clear case would have to be shown that a purpose which would ordinarily be charitable is not because of the resulting consequences for society, and this not had been provided in respect of the dis-benefits allegedly caused by private schools.

3. What is a sufficient section of the public?
Although there is no case which decides the point, it is right as a matter of principle that a trust which excludes the poor from benefit cannot be a charity.

‘Poor’ does not mean destitute, and can cover people of modest means and even people of ‘some means’. It might on occasion even include people who might be seen as ‘quite well off’. Therefore, charging fees is not a bar to an institution being a charity, where the cost is within the ability of the ‘not very well off’ to meet, without any element of subsidy.

It is correct to look beyond the immediate beneficiary to ascertain whether the beneficiary is poor (i.e. to look at the beneficiary and his/her family), but this is not necessarily appropriate where a beneficiary is supported by a third party – a beneficiary who is supported by a grant from an educational grant making charity because he/she comes from a poor family is still poor notwithstanding the financial position of the grant making charity!

4. How do you determine whether a fee charging school’s purpose is for the benefit of the community?
Whether or not an school is established for a charitable purpose is to be ascertained by reference to its constitution, and not its subsequent activities. Generally, a school which, by its constitution, is open to all, will be considered as being established for charitable purposes only.

The status of a fee charging school registered before the 2006 Act remains the same – if it was eligible to registered as a charity then, impliedly it complied with the public benefit condition within the sense of (i) above. Whether such a school is a charity under the 2006 Act does not depend on the way in which it operates now any more than it did prior to the 2006 Act.

5. What kind of benefits can be taken into account if it is queried whether the public benefit requirement under section 3 (3) of the 2006 Act is met?
When considering whether a school which is a charity is operating for the public benefit in accordance with its charitable purposes, the primary focus must be on the direct benefits it provides. Scholarships and other direct assistance to students are therefore important.

Account can also be given to arrangements allowing children educated in the state sector to attend classes at the private school, or teacher sharing arrangements. To a lesser extent, account can also be given to arrangements to share teaching materials, via the Internet, for example.

Making facilities available to students of the local state schools was considered to be more difficult to identify as appropriate benefits to assist to demonstrate meeting the public benefit requirement, because it is not usual for a school’s objects to include the provision of facilities. In addition, there was some consideration as to whether it would make a difference if the facilities provided were classrooms or, for example, a swimming pool. However, it was included that making facilities should be taken into account in deciding whether a school established as a charity was operating for the public benefit.

If the same facilities are made available to the general public, however, this could not be taken into account, as the benefits were too indirect.

While it might be said that there was a benefit provided by private schools in their removal of pupils from the state sector, who would otherwise have had to be educated at the expense of the state, it was noted that this point could not be taken too far, as the suggested benefit to the state is highly speculative!

6. What does a fee charging school have to do to meet the public benefit requirement under section 3 (3) of the 2006 Act?
Bearing in mind that the concern regarding fee charging schools that they must be seen to be doing enough to benefit those who cannot afford the fees, the judges considered whether:

  • the test would be satisfied if the school provided some benefit to the poor which is more than token, or de minimis, benefit at which the school can point to ‘cock a snook’ at the Charity Commission, or
  • a more nuanced approach should be taken, and it was necessary to look at what a trustee, acting in the interests of the community as a whole, would do in all the circumstance of the particular school under consideration, and ask what provision should be made once the threshold of the de minimis has been met.

The judges decided that the second approach must be correct, although they acknowledged it would be a difficult approach to apply, and would make the laying down of guidelines difficult. It would not be possible to be prescriptive about the benefits which a school must provide. It is for the trustees of the school concerned to address and assess how their obligations might be fulfilled, in the context of their own particular circumstances.

However, it was noted that where “facilities at what [they] might call the luxury end of education” are provided, it will be more incumbent on the school to demonstrate a real level of public benefit.

The judges concluded that while the trustees must seek to conduct the school in such a way that its pupils or other beneficiaries include the poor, there is no legal requirement on the trustees to act in a way that the Charity Commission would consider reasonable.

7. Decisions on the points raised in the judicial review
The judges came to the conclusion that, while it is not possible for them to provide clarity on the requirements of the law on public benefit in the context of fee charging schools, the Charity Commission’s guidance was incorrect in its interpretation of the public benefit requirements when it stated as follows:

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

      i) geographical or other restrictions or
      ii) the ability to pay any fees charged.

    2c People in poverty must not be excluded from benefit.”

These statements were then amplified upon in further guidance provided by the Charity Commission.

The judges considered the interpretation to be incorrect because it implied a need for ‘reasonable’ provision of benefits to the poor, when this is not the case (see point 6 above). Therefore, the Charity Commission should be required to amend its guidance.

8. Responses to the points in the Attorney General’s reference
This part of the judgement contained responses to the questions regarding hypothetical fee charging schools, which the judges recognised were designed to elicit from them conclusions as to where the line can be drawn between what is and is not a sufficient element of public benefit for a fee charging school. They specifically declined to give any sort of ruling which was intended to be definitive!

As this is intended to be a summary of the judgement, I will not go into detail on the responses, but it is interesting to see the application of the judges’ approach. Those who are interested will find the text of the judgement here, and should refer to pages 101 to 108.

So, who did win, and how much help is this judgement going to be?
Well, it seems fair to say that there were successes on both sides.

The ISC can legitimately claim success because it was decided that the Charity Commission guidance was incorrect in some respects in its interpretation of the public benefit requirements, and should be amended.

However, the Charity Commission’s stance that it cannot provide detailed information on what is required of each fee charging school to meet the public benefit requirement in its guidance was clearly endorsed by the judges. The particular circumstances of each school must be taken into account.

The decision that, effectively, a de minimis provision of benefits to the poor is required in order for the school to meet the public benefit requirement, and that what more is required will be for the trustees to decide, taking into account the particular circumstances of the school, may provide some comfort to trustees.

It remains the case that trustees do not know what constitutes a de minimis provision, so there is still some uncertainty. However, it seems, potentially, there is a much lower bar for the trustees to achieve, and it is recognised in the judgement that what further provision may be needed above the de minimis provision may be quite modest, in some cases.

The judges acknowledge that their judgement does not give the clarity in the requirements of the law which was hoped for, and will please neither side of the political debate. They are right, but they are also right that the political issue in question – whether fee charging schools should have the fiscal advantages granted to charities – is one for Parliament. Whether Parliament ever finds the political will to address this question is another matter.

Love them or hate them…


Despite my (almost four) years of acting for charities, it still never ceases to amaze me quite how many charities seem to be trying to get along without trustees.

I don’t mean the charities out there without trustees, although they do exist. I mean the charities that, nominally, have trustees, but some or all of those trustees are so disengaged that they may as well not exist.

Charity trustees have many duties and responsibilities, but chiefly their role is to direct the affairs of the charity, and ensure that it acts in pursuance of its Objects, with the aim of delivering these for the public benefit. It is not possible to do this from a distance!

Unfortunately, the nature of voluntary work like charity trusteeship is such that it can easily get squeezed out by other important family or work commitments. If one charity trustee is too busy to be involved for a short period, but others can step in to fill the gap temporarily, a lapse of this sort is likely not to be disastrous. However, it is not something that can be tolerated in the long term.

If a charity trustee is suffering from a prolonged period of ill health, or lack of interest, it can sometimes be best for a fellow trustee to take the absentee trustee to one side and suggest that he or she has a bit of a break from the trusteeship until he or she has the time, energy or inclination involve him or herself more fully in managing the charity.

Charity trustees who feel they may have slipped into bad habits of absenteeism, or charity trustees who have colleagues who may have slipped into such bad habits, may find the information provided by the publication ‘Good Governance – A Code for the Voluntary and Community Sector’ (prepared by The Code Founding Group) helpful. It is on the Charity Commission website here.

Sensibly, the first principle is that an effective board will provide good governance and leadership by understanding their role.

Many charity trustees are aware of their basic legal responsibilities, in terms of providing reports and accounts to the Charity Commission / Companies House / the CIC Regulator / HMRC, and their responsibilities to safeguard the assets of the charity, and to seek to further the Objects of the charity.

However, a considerable number seem to forget that they are also are responsible for setting the vision of the organisation, overseeing its work, and managing and supporting any staff and volunteers.

This last area of managing staff can be a particular minefield. All too frequently, charity trustees can delegate duties and powers to paid staff, and then forget that they retain overall supervision for the exercise of those duties and powers.

Of course, the real problems start when the staff forget that their duties and powers are only delegated and not absolute, and try to run the charity while the trustees take a back seat. This is bad news for all concerned.

The trustees retain their responsibilities, and possibly incur liabilities, while exercising no actual control over the management of the charity. Meanwhile, the staff are quasi-trustees, as they have control of the day-to-day management of the charity, and as such as also are potentially exposing themselves to liabilities, but often believe that the trustees still have ultimate responsibility for actions they, as staff, carry out on behalf of the charity.

A good induction pack and training can help remind trustees of their responsibilities, and I would certainly recommend at least one training session per year for trustees. The cost of training, provided it is reasonable, is a legitimate expense of the charity.

However, a number of organisations offer this kind of training for free – for example, the Cambridge Council for Voluntary Service runs governance workshops which are free to member organisations. In addition, there are now online resources. So, there’s no excuse for charity trustees to plead ignorance of their role!

‘Tainted donation’ rules: worth the wait?


Welcome to my blog. At the moment I’m feeling more than a little aggrieved by the drafting of the new ‘tainted donation’ rules, intended to replace the old ‘substantial donor’ rules from 1 April 2011. Therefore, it seemed a good topic for a first post.

A brief history of the ‘substantial donor’ rules

The ‘substantial donor’ rules were introduced by the Finance Act 2006 (without any prior consultation by the then Government) with the intention of preventing the misuse by individuals of the tax reliefs available on donations to charities.

The rules applied where an individual made a relievable donation to a charity in excess of either £25,000 in any 12 month period or £100,000 over any six year period, and subsequently entered into one of a number of transactions specified in the legislation with the charity on terms which were favourable to the donor.

Even before the rules came into force, they were subject to widespread criticism for being too broad in their effect, and too likely to catch innocent transactions.

In addition, the rules placed a significant administrative burden on charities which received such donations, and, if the charity was found to have infringed the rules, the charity lost the benefit of any income tax or capital gains tax reliefs which would otherwise have been available.

The ‘substantial donor’ rules have now been under review since 2008 and, finally, with the Finance Bill 2011, replacement legislation has been unveiled in the form of the ‘tainted donation’ rules.

The ‘tainted donation’ rules

The new rules come into force on 1 April 2011. They differ in two key ways from the existing ‘substantial donor’ rules:

  • not only ‘substantial’ donations are caught – any donation can be open to scrutiny, no matter how small; and
  • the donor is liable for any penalties, jointly and severally with the charity in certain circumstances.

A donation will be considered to be tainted if:

  • a donor or connected person enters into an arrangement (involving, for example, a transaction such as the sale of property, the provision of services or a loan, or investment in a business) whether before or after the donation is made, and it is reasonable to assume that the arrangement and the donation would not have been entered into independently of each other (Condition A); and
  • the main purpose of the donation is to obtain an advantage directly or indirectly from the charity which is the recipient of the donation (Condition B); and
  • the donor or connected person is not a wholly owned subsidiary of the charity in question (Condition C).

So, were the new rules worth the wait?

Unfortunately, it appears not. The ‘tainted donation’ rules seem as likely to catch innocent transactions as the ‘substantial donor’ rules, if not more so. In addition, there are no de minimis provisions for the ‘tainted donation’ rules, which means that many more charities will be affected by the new rules than are currently affected by the ‘substantial donor’ rules.

One particular problem is that, although the purpose of the donor in making the donation seems to be key as to whether a donation is tainted or not, the rules seem to apply where there is no intention on the part of the donor to obtain an advantage. This is a result of proposed s.809ZK of the Finance Bill 2011, which ‘deems’ an advantage to arise and for Condition B to be satisfied in certain circumstances.

As a result of this, matched funding gifts would appear to be treated as ‘tainted donations’, as would a donation conditional on the completion of a marathon, for example. It is hard to believe these are the kind of donations the Government intended to target!

Therefore, it seems the only significant improvement in relation to the ‘tainted donation’ rules is that this Government has as least seen fit to consult with the sector before bringing the new rules into force.

Now, it can only be hoped that the Government listens to the criticisms of its legislation which have emerged during the consultation. The charity sector does not need another set of anti-avoidance rules which are not fit for purpose.