CHARITY LAW ASSOCIATION UPDATE

NOVEMBER 2005 – FEBRUARY 2006

Contents Page

1. Legislation

1. Charities Bill

The Bill had its Commons First Reading on 9 November. No date has been set for the Commons Second Reading.

2. National Lottery Bill

The Bill has completed its passage in the Commons and will begin its Lords Committee stage on 13 March.

3. Equality Act 2006

The Act received Royal Assent on 16 February. It establishes the Commission for Equality and Human Rights which will promote equality and tackle discrimination in England, Scotland and Wales from October 2007.

4. Civil Contingencies Act 2004 (Contingency Planning) Regulations 2005, SI 2005/2042

The regulations define the extent of the duties that local emergency planning bodies have in relation to some charities and businesses. They must have regard to and provide advice and assistance to such organisations to enable them to continue their work in the event of an emergency.

5. Charities and Benevolent Fundraising Regulations

The Scottish Executive has published a consultation paper, Draft Charities and Benevolent Fundraising Regulations, which outlines the Executive’s proposals for regulations under section 83 of the Charities and Trustee Investment (Scotland) Act 2005.

The deadline for responses to the consultation paper is 10 March.

6. Rules for the Scottish Charity Appeals Panel

The Scottish Executive has issued a consultation on rules for the Scottish Charity Appeals Panel to be made under the Charities and Trustee Investment (Scotland) Act 2005.

The deadline for responses to the consultation paper is 10 March.

2. Budget 2006

The Chancellor’s 2006 Budget Statement will take place on Wednesday, 22 March 2006, at 12.30 pm.

The Pre-budget report was delivered to Parliament on 5 December. Proposals particularly affecting charities were:

1. Encourage charities to work together by allowing a company to gift aid profits to its joint owners;

2. Establish a cross-departmental ministerial group on youth volunteering;

3. Use money from dormant bank accounts to benefit good causes;

4. Simplify and modernise VAT; and

5. Charge Planning Gain Supplements in all cases except home improvements. This would mean that charities are liable to the charge.

3. Cases

   1. College of Estate Management v Customs and Excise Commissioners http://disraeli.butterworths.co.uk/wbs/netbos.dll?RefShow?Ref=%5BALL_ENGLAND%3DCATEGORY%5D+2005|4All|ER933%3AHTCASE" TARGET="_top1">[2005] 4 All ER 933

The supply of written material and teaching services on a long distance learning course was, on the facts, a single supply of exempt educational services for the purposes of VAT. It was not two supplies, one of zero rated written material and the second of exempt teaching services.

2. Debenhams Retail plc v Sun Alliance and London Assurance Co Ltd [2005] EWHC 2940 (Ch)

The Court of Appeal held that the phrase “gross amount of the total sales”, used to calculate rent for the lease of a shop, would include the VAT element of the tenant’s turnover. This was not altered by the fact that the lease was granted before VAT was introduced.

3. X v A [http://disraeli.butterworths.co.uk/wbs/netbos.dll?RefShow?Ref=%5BALL_ENGLAND_DIGEST%3DCATEGORY%5D+2005All|ER|D379Nov%3AHTCASE" TARGET="_top1">2005] All ER (D) 379 (Nov)

Trustees of a marriage settlement applied for directions as to whether they could release capital to the wife, the life tenant, so that she could discharge her moral obligation to donate to a charity. It was held that the trustees could not make the advancement because the transaction was not for the wife’s benefit. Her perceived obligations to donate to charity were not legally binding and so she would not benefit from an advancement.

4. Longborough Festival [Opera 2006] All ER (D) 206 (Jan)

Longborough Festival Opera (LFO) was entitled to tax exemption on its ticket sales. HMRC had argued that because LFO’s founder was a guarantor for the charity he had a financial interest in the ticket sales and so the LFO lost its eligibility for tax relief. The Court held that a director does not have a financial interest just because he stood as guarantor or made a no interest loan to the charity.

4. Charity Commission

   1. Press Releases

      1. 22 December 2005 – Community Interest Companies Memorandum of Understanding

The Charity Commission and the Regulator of Community Interest Companies (CICs) signed a Memorandum of Understanding on the 19 December. This is intended to enable the two regulators to exchange information and to ensure consistency of policy. The Memorandum also contained provisions to aid the transition for charitable companies seeking to become CICs.

2. 17 January 2006 – Geraldine Peacock to retire

Geraldine Peacock will stand down in June as the Chief Charity Commissioner and Commission’s first Chair Designate.

3. 31 January 2006 - Conference on Charities and Public Service

Geraldine Peacock will chair a conference on 21 March “for charities to share experiences, solutions and explore the particular needs of charities delivering public services”. Places are limited to 150 and the findings of the conference will be part of guidance for charities in relation to public service delivery. This is due to be published in the summer.

4. 20 February 2006 - New SIR Online Database

“The Charity Commission today launched its new look on-line access for Summary Information Returns (SIRs), making them quicker and easier to access.”

Charity Commission Website

2. Operational Guidance

OG63 and OG68 Updates

Following the Licensing Act 2003 the Charity Commission updated 2 operational guidance notes. These were OG63 – Providing Alcohol on Charity Premises and OG68 – Management of Village Halls.

3. Publications

   1. Research on Public Trust and Confidence in Charities

The Charity Commission published research into what makes the public trust a charity. Their findings are available on the Commission’s website. They include a break down of the factors that most encourage public confidence in a charity. Also the study covers public perceptions of the extent to which charities affect respondent’s lives.

2. Statements of Recommended Practice 2005

The Commission has launched a web page with extensive guidance on completing accounts and trustees’ reports. This includes advice, templates, illustrative examples and links to the accounts of several charities whose accounts are already compliant with the SORP 2005 provisions. SORP 2005 will apply for accounting periods starting on or after 1 April 2005, although smaller charities can opt out of many of the provisions.

3. The Charities Bill – Descriptions of Charitable Purposes

Following the changes to the Charities Bill in the House of Lords, the Commission published a revised Commentary on the Descriptions of Charitable Purposes in the Charities Bill. This is available on the Charity Commission’s website and is based on the Bill as printed on 9 November 2005.

5. HM Revenue & Customs

   1. VAT

      1. Business Briefings

Following the Church of England Children’s Society Case, HMRC has published Business Brief 19/05 and Business Brief 21/05. This summarises the VAT position regarding what charities can treat as input tax and when it is recoverable.

Following the College of Estate Management Case, HMRC has published Business Brief 20/05. This summarises the VAT position regarding the provision of distance learning courses.

2. VAT Notes 4/2005

HMRC has issued VAT Notes 4/2005 (December edition), which includes items on distance learning courses; revised treatment of foreign exchange (forex) transactions; liability of credit and debit card handling services; and overcharged interest.

3. Place of Supply of Service to Private Consumers

On 16 February the House of Commons European Standing Committee expressed support for EU Document No. 11439/05 which enshrines the “principle that tax is due in the country where the service is consumed and that there is a need to create a level playing field for businesses engaged in cross border transactions of services which are subject to VAT”.

4. VAT Refunds on Memorials

VAT will be refunded on supplies made after 16 March 2005 to construct, renovate or maintain memorials. The Department for Media, Culture and Sport will administer the scheme alongside the Listed Places of Worship scheme.

2. Charitable Remainder Trusts

On 7 February the House of Lords debated whether Charitable Remainder Trusts should be introduced to provide appropriate tax reliefs. Discussions are currently taking place between HMRC and HM Treasury but no commitment has been made.

6. National Council for Voluntary Organisations

   1. News

21 February: NCVO released an opinion poll showing that over 80% of people believe that local charities are important in representing local opinion, campaigning for a fair society, fundraising and supporting the vulnerable in local communities. Nine out of ten people said they hadn’t written to their MP in the last twelve months, but 54% had given unpaid help to an individual not related to them, 34% had volunteered for a local group and 24% had attended community or residents’ meetings.

2. New Publications

   1. Guide to the Freedom of Information Act

A guide providing information for Voluntary and Community Organisations (VCOs) on how to request information under the Freedom of Information Act 2004 and the Environmental Information Regulations 2004. It also contains details of training and further links (November 2005).

2. Board Answer Boook

Case studies demonstrating common board dilemmas, including advice on how to deal with each situation (December 2005).

3. Improving Services, Improving Lives

The Social Exclusion Unit’s work program, “Improving Services, Improving Lives”, is in response to evidence that disadvantaged groups have less successful experiences of public services than the general population. The NVCO’s briefing paper explores the background to the program and summarises the evidence of social exclusion. It also informs VCOs how they can contribute to the evidence (January 2006).

4. Local Strategic Partnerships: Shaping their Future

The Office of the Deputy Prime Minister’s consultation paper “Local Strategic Patnerships: Shaping their Future” was launched to reconsider the role of Local Strategic Partnerships (LSPs) in the light of other developments. The NCVO’s briefing paper covers the history, role, governance, accountability and capacity of LSPs. It summarises key issues and asks for comments from VCOs to inform its response to the consultation at the end of February (January 2006).

5. Terms of Engagement for Public Service Delivery

Following its series of briefings in June 2005 for VCOs on public service delivery, NCVO has published terms of engagement for VCOs to use when involved in public service delivery (January 2006).

7. Home Office

   1. Self-regulation of Fundraising

On 6 February a written ministerial statement by Paul Goggins MP set out the basis that the Government would use to judge the success of self-regulated fundraising. The Government will annually review the Regulation of Fundraising Scheme according to agreed targets. It is aware that it will take time to build up a high level of voluntary participation across all sectors. If the scheme is deemed to fail then Parliament will be consulted before any statutory scheme is implemented despite the reserve power in the Charities Bill. In Scotland any decision on the failure of the scheme would be made by the Scottish Executive.

Further details of the scheme are available on the Institute of Fundraising’s website.

2. GoldStar Volunteering Program

The new volunteering, mentoring and befriending program, GoldStar, was announced in November. It will by 2008 pay grants totalling £5 million to projects with a proven track record of excellence. At least a third of each grant has to be spent on sharing knowledge with other practitioners. Projects will benefit from the grants in regions “where resources are most needed to raise the level of volunteering activity amongst groups at risk of social exclusion”. The regions are the North East, North West, London and Yorkshire & Humber.

3. Report – “A Generous Society”

The Home Office launched a report, “A Generous Society: next steps on charitable giving” which reviews Government measures to encourage charitable giving. It also looks forward to what more can be done to support charitable donations. Two areas of concern are that the rate of charitable giving has not kept up with the growth in national income and that those who can least afford it tend to give proportionately much more than the wealthy.

One of the proposed solutions is to work with young people to instil a culture of giving. As part of this, Paul Goggin MP announced the launch of School Charity Accounts. Students will receive a £500 grant which they will be encouraged to increase with fundraising and then they will choose how the resulting money should be distributed amongst charities.

8. Welsh Assembly

“Building Strong Bridges” Scheme

Dr Brian Gibbons, the minister for health and social services, announced funding of almost £3 million over the next three years to strengthen links between health and social care and the voluntary sector in Wales. Most of the money will be spent on the Welsh network of Health and Social Care Facilitators in County Voluntary Councils.

9. The Department of Trade and Industry

   1. Match Winners

The DTI’s Small Business Service published “Match Winners, a guide to commercial collaborations between social enterprise and private sector business”. The Guide was developed with the Community Action Network and provides advice on how to make voluntary sector / private business partnerships succeed. The guide contains 8 case studies demonstrating the potential benefits of such collaborations.

2. Common Commencement Dates

On 27 January the DTI published a Statement on its Common Commencement Dates. It will issue statements on 1 October and 6 April listing all legislation and other regulatory changes as well as any sector specific, European and International regulations which will commence at other dates.

10. Europe

    1. Consultation on Governance of Non-profit Organisations

The European Commission’s Directorate-General for Freedom, Security & Justice held a consultation on draft recommendations to EU member states on the governance of non-profit organisations. The main emphasis was on the prevention of abuse of the voluntary sector by terrorist financiers and other criminals. The other two areas covered were a code of conduct to promote transparency and accountability and a tentative consideration of a European charity label for non-profit organisations which comply with the code of conduct. A report is expected within the next three years (December 2005).

2. Money Transfer Regulations

The European Commission published Special Recommendation VII on ‘Wire Transfers’. It should be transposed into a regulation by December 2006. A relatively strict regulatory environment concerning storage and reporting of transaction information is proposed. However, Article 19 of the draft regulations creates an exemption for:

“organisations carrying out activities for charitable, religious, cultural, educational, social, or fraternal purposes, provided these organisations are subject to reporting and external audit requirements or supervision by a public authority, and that those transfers of funds are limited to a maximum amount of €150 per transfer and take place exclusively within the territory of that Member State”.

The recommendation should be transposed into a regulation by December 2006, but it will be directly effective. Therefore it will come into force straight after its adoption and so organisations must be prepared in advance.

11. The Law Commission

    1. Discussions on Trustee Exemption Clauses

The Commission is currently holding talks with professional regulatory bodies and trust organisations about a non-statutory approach to the regulation of trustee exemption clauses. It is intended that a final report will make recommendations to the Government in May 2006.

2. Postponement of Consideration of Capital and Income in Trusts

The consideration of the classification and apportionment of trust capital and income has been postponed pending completion of the trustee exemption clauses work. It will be resumed in the summer of 2006, starting with an analysis of the 40 responses to their 2004 discussion paper.

12. Institute of Fundraising

    1. News

       1. 9 November 2005 – Payroll giving by SMEs Doubles

The number of small and medium-sized enterprises (SMEs) signed up to Payroll Giving has more than doubled following the launch of the Payroll Giving Grants programme. Launched in January 2005, the Payroll Giving Grants programme aims to provide sustainable income sources for UK charities through Payroll Giving. The programme rewards SMEs for making Payroll Giving available to staff before the end of 2006 with up to £500 and matches the first £10 donated by each of their employees, every month, for a period of six months.

2. 5 December 2005 – Institute welcomes plan to use unclaimed assets to benefit good causes

Following the Pre-budget report, the institute welcomed the plan but expressed concerns about how the assets would be distributed.

3. 11 January 2006 – Warning on Gift Aid Time Limits

The Institute today warned charities that for the first time this year they could miss out on Gift Aid Tax Claims. When a donor makes a Gift Aid declaration a charitable company can reclaim tax on all of their donations for the past six years. Because Gift Aid was set up in 2000, this is the first deadline for many charities.

2. New Fundraising Codes

The Institute has a collection of over 20 Fundraising codes which aim to set out best practice standards for UK fundraising.

1. Major Donor Fundraising Code

The new Code defines major donor fundraising, addressing legal issues, prospect research, data protection, legacies and tax issues in major donor fundraising. The Code also covers the relationship between donor and fundraiser, the opportunities to expand those relationships, alongside major donor programmes, membership or friend schemes.

2. Fundraising Contracts

The new Code covers the various stages involved in creating a fundraising contract, from providing a brief and choosing a provider to individual clauses outlining risk, specifications, standards, payment and success measures. It also emphasises the need to regularly review the contract as the partnership evolves, ensuring it remains up-to-date and reviewing the provider’s performance against the clauses of the contract.

3. In Development: Code for Fundraising Consultants

The Code will cover client acquisition, operational procedures, contracts and fees, confidentiality, legal and tax issues, as well as ethical issues that may arise, including conflicts of interests such as consultants that represent rival charities.

4. In Development: Accountability and Transparency Fundraising Code

The Code will cover:

- How to communicate information about the purpose and benefits of fundraising to donors, funders, beneficiaries and the general public.
- How to comply with relevant finance and reporting initiatives and regulations to enhance donor and public understanding.
- How to be transparent in fundraising and reporting materials about the investment organisations make in fundraising.

5. Being Revised: Legacy Code to include Legacy Administration and Fulfilment of Legacies

Outlining best practice guidance for charities engaged in legacy fundraising, the current Code will be revised and updated to take into account improvements in best practice and new legislation. The Schema for the proposed revisions has been published online in the Codes Development section of the Institute’s website.

13. Institute for Philanthropy

Launch of GuideStar UK

The new charity information website GuideStar was launched in December. Its aim is to provide detailed information on every charity and voluntary organisation in the UK. It is free to use and is targeted at the public although it also wants to become an invaluable source of statistical and financial information for grant makers, researchers and public policy makers.

‘GuideStar’ can be found at:

http://www.guidestar.org.uk

14. Journal Articles

    1. Charities update (November)

Author	Alan Thomson
Source	Tax Journal - Tax J. 2005, 815, 6
Abstract	Outlines changes to Gift Aid law introduced in October and November 2005. Explains: (1) how the changes will simplify the securing of Gift Aid donations for gifts made by telephone, but how these provisions may be difficult for small charities to implement; and (2) the provisions for the claiming of Gift Aid on admission fees for people to enter charity property.

2. Charities' input VAT

Source	Taxation - Tax. 2005, 156(4029), 34-35
Case	Church of England Children's Society v Customs and Excise Commissioners [2005] EWHC 1692; [2005] S.T.C. 1644 (Ch D)
Abstract	Summarises the Revenue and Customs response in Business Brief 19/2005 to the High Court judgment in Church of England Children's Society v Customs and Excise Commissioners on the VAT treatment of a charity which paid professional fundraisers and sent a newsletter to its supporters. Considers whether charities can recover input tax on payments and whether newsletters are a deemed supply.

3. Better be good!

Author	James Kessler
Source	Taxation – Tax. 2005, 156(4034), 174-177
Legislation	Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2005 (SI 2005 2790)
Abstract	Explains the stricter requirements for gift aid declarations under the Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2005. Refers to the Revenue and Customs guidance for charities about the contents of the gift aid declaration, the procedure for declarations by telephone and the requirement for written confirmatory statements. Considers the Revenue and Customs powers to cancel gift aid retrospectively and require the charity to pay back the tax.

4. Thanks, but ...

Author	Keith M. Gordon
Source	Taxation – Tax. 2006, 156(4042), 422
Legislation	Donations to Charity by Individuals (Appropriate Declarations) (Amendment) Regulations 2005 (SI 2005 2790)
Abstract	Reports on reforms to the tax rules on gift aid declarations, considering whether charities which operate automated telephone donation lines will no longer qualify for relief.

5. Germany: Italian charity should be exempt on property income

Author	Andrew Miles
Source	Tax Planning International Review - T.P.I.R. 2006, 33(1), 26
Case	Centro di Musicologia Walter Stauffer v Finanzamt Munchen fur Korperschaften (C386/04) (Unreported, December 15, 2005) (AGO)
Abstract	Comments on the Advocate General's Opinion in Centro di Musicologia Walter Stauffer v Finanzamt Munchen fur Korperschaften (C-386/04) on whether the German tax office should exempt the rental income of an Italian registered charity in line with the EC principle of free movement of capital and whether it needed to do so if the Italian registration was deficient under local law. Considers the implications of the potential outcome for charity relief and resident foreign nationals donating to charities in their home countries.

6. SORP 2005 and beyond: the future of charity accountability

Author	Karen Atkinson
Source	Legal Executive - L. Ex. 2005, Nov, 54,56
Abstract	Considers the changes to the Charities Statement of Recommended Practice (SORP) in 2005 aimed at improving the accountability of charities to their stakeholders. Summarises consultation responses to the exposure draft of SORP 2005, planned future guidance from the Charity Commission, anticipated legal and regulatory measures and non regulatory initiatives planned by the charity sector aimed at increasing accountability.

7. Public funding, governance and passthrough efficiency in large UK charities

Author	Gregory O. Jobome
Source	Corporate Governance - C.G. 2006, 14(1), 43-59
Abstract	Discusses the results of research on the relationship between organisational performance in the charity sector and various internal and external corporate governance mechanisms. Reviews the range of these mechanisms applicable to the sector, and considers the extent to which they are linked to passthrough, or conversion, efficiency.

15. Miscellaneous

    1. National Youth Volunteering Service

On 10 January the Government’s launch of its Respect Agenda contained a commitment in the action plan to develop a national youth volunteering service.

2. Better Regulation for Civil Society

The Cabinet Office Better Regulation Task Force published its report in November on reducing red tape for volunteer and community sector workers. “Better Regulation for Civil Society: Making life easier for those who help others” makes 11 recommendations to remove obstacles which discourage potential volunteers and workers.

Dickinson Dees

28^th February 2006