The Charities Act 2006 introduced a new definition of charity (now contained in the Charities Act 2011) with a twofold requirement:

  • the charity’s purposes must fit within one of the 13 categories listed in the Act; and
  • the charity’s purposes must be for the public benefit and charity trustees have a duty not only to have regard to the Charity Commission’s statutory guidance but also to demonstrate their compliance with it - both at inception and in their annual reports.

The Charity Commission published the first version of the public benefit guidance in 2008. This included a requirement that people in poverty must not be excluded from the opportunity to benefit and that access to benefits should not be restricted by high fees charged. This had particular relevance for the education sector because of the issue of fee-charging. The Charity Commission conducted a series of public benefit assessments which found some schools and colleges did not appear to be doing enough to provide sufficient affordable places.

This sparked considerable debate about whether the Charity Commission’s approach was correct. Many commentators asserted that it was wrong in law. The controversy culminated in 2011 in a high profile legal case which decided that parts of the 2008 guidance went too far and had to be rewritten.

How does the new guidance differ from the old?

The basic principles of the guidance remain the same: that the public benefit requirement is a fundamental part of charitable status. However, the new framework is quite different in four aspects:

  • Individuality - The new guidance places much more emphasis on the fact that the Commission makes decisions about compliance with the public benefit requirement based on the facts of the individual case. This is a different approach from the old guidance, which was much more specific and which tried to set out general rules about what would and would not be acceptable.
  • Certainty - It follows that the new approach results in less certainty but it also means that the public benefit requirement is much more tailored to the specific circumstances of each charity (taking account its size, objectives, funding levels etc).
  • Structure - The new guidance is separated into three different parts
    • PB1, which sets out the general guidance (aimed at new charities being formed, and to existing charities thinking of changing their purposes)
    • PB2 which provides guidance specific to running the charity
    • PB3 which deals with reporting requirements

The new public benefit guidance divides the requirement into two aspects: the 'benefit aspect' and the 'public aspect' (except in the case of charities whose purposes are to relieve poverty).

  • Fee-charging - The old guidance distilled the public benefit requirement into seven sub-headings, one of which stated that 'the opportunity to benefit must not be unreasonably restricted… by ability to pay any fees charged'. This was the element of the old guidance that proved problematic for fee-charging charities. It also provided a separate guidance note, with examples, specifically addressing the issue of fee charging, and published detailed examples of the extent to which charities were expected to provide low-cost or free access to its services (such as bursaries).

However, the new guidance does not provide such a high level of detail about the issue of fee-charging, but leaves this issue up to the trustees of each charity to decide what fees they consider to be justifiable in the context of to their own organisation. It would be considered as part of the general requirement to provide benefits that are available to a sufficient section of the public (ie not exclusive to the wealthy). The new guidance acknowledges that 'poverty' is relative and takes account of other sources of funding that 'poor' people could access.

What happens if a charity does not follow the guidance?

The guidance is not law - it is merely intended to assist charity trustees. It provides a framework for assessing new charities applying for registration and a vital resource for trustees making decisions, particularly those about who benefits from the charity’s work. The trustees are required to take into account the guidance but this does not oblige them to follow it if they consider that a particular course of action is in the best interests of the charity.

A departure from the guidance would be acceptable as long as the trustees had good reasons for doing so. However, they would be expected to address this in their annual report to the Charity Commission.

If the Charity Commission becomes aware that a charity is not providing sufficient public benefit without good reason, the result is likely to be that the Commission would work with the charity’s trustees to improve compliance. If that fails, then the Commission has powers to intervene in the running of the charity. For example, it could remove existing trustees, replacing them with new trustees who are more willing and able to comply.

Conclusion

The new guidance provides more flexibility and reduces the emphasis on affordable fee-charging but the underlying principles are the same. It is essential that trustees and governing bodies familiarise themselves with the new guidance.