In the recent case of Helena Partnerships Ltd v HMRC the Court of Appeal unanimously dismissed a Registered Provider’s appeal against the decision that before it became a registered charity, its purposes were not charitable and therefore, did not qualify for £6 million of corporation tax relief on profits from rental income received at this time.
Helena Partnerships Limited (Helena), a company limited by guarantee and a Registered Provider, was set up in 2001 to take over a large amount of council housing stock.
In 2004 Helena changed its memorandum and articles of association and also registered as a charity.
Between 2001 and 2004 Helena was not a registered charity but it sought to claim back the tax paid for this period on the basis that during that time its objects were still charitable and it was therefore, eligible for charitable tax relief.
The court decided that Helena’s objects during 2001-2004 were not charitable and therefore, it could not reclaim the £6 million paid in corporation tax.
Helena argued that the objects clause in its articles of association stated that all of its objects were 'for the benefit of the community'. However, the court decided that Helena had not been established for purposes that were exclusively charitable. Instead, Helena's principal activity was intended to be, and had in fact been, the purchase of housing stock from the local authority, its refurbishment and its letting. Whilst it was agreed that some of the council’s housing was let to persons who were in need, in the charitable sense, some of it was let to persons who were not in such need.
The court also held that the provision of housing accommodation otherwise than for those in some charitable need (ie due to poverty or old age) was not a purpose which was recognised as charitable. The judge commented that the direct benefits to the occupants of the housing far outweighed the indirect benefit that other members of the community would derive from the existence of the housing stock.
The judge commented that this case raised important and difficult issues of charity law, some of which had been the subject of debate for many years. It is likely this decision too will be subject to much debate. However, the decision does provide guidance on the extent to which providing social housing can be classified as a charitable purpose. It also highlights how simply using the words 'for the benefit of the community' in an organisation’s objects clause will not automatically make its purposes charitable.
The court acknowledged in this case that a body which is registered as a charity is conclusively presumed to be a charity. Therefore, those organisations which are capable of qualifying and registering as a charity should do so to ensure that they can benefit from charitable tax reliefs.