Cross Border Charities

The intention is that the new register of charities operating in Scotland will go live in April this year. The newly created Office of the Scottish Charity Regulator (OSCR) will regulate all activities of charities in Scotland, regardless of their country of origin. OSCR will not only be responsible for dealing with initial entry on the new register but will also have an obligation to carry out a rolling review to check that registered charities continue to fulfil the requirements for registration.

OSCR will have certain powers of enquiry and intervention but the intention is that, in the case of cross-border charities, OSCR would confer with the Charity Commission to decide which regulator should carry out any enquiry or whether there should be a joint enquiry.

Dual regulation is upon us - under the new law, if you have operations in Scotland you may find yourself obliged to register in Scotland as well as with the Charity Commission of England and Wales or, in the case of English or Welsh charities which are exempt from registration with the Charity Commission, even where you do not have to register south of the border (there is no equivalent to exempt charity status in Scotland).

To register in Scotland you will need to pass the "charity test". As in England and Wales you will need to be both established for at least one charitable purpose (there are 15 specific purposes set out in CTIS and one general one covering analogous purposes) and provide public benefit in Scotland or elsewhere. None of the charitable purposes is presumed to be for the public benefit.

There is, however, a third leg to the charity test in Scotland. A body cannot be charitable under CTIS if its constitution allows distribution of its property for a non-charitable purpose, or permits the Scottish Ministers or a Minister of the Crown to direct or otherwise control its activities or it is, or one of its purposes is to advance, a political party.

OSCR must consider when assessing public benefit any factors which could militate against public benefit, for example any benefits accorded to the charity’s own members or any other persons (other than as members of the public), any "disbenefit" and, where benefit is provided to a section of the public only, any unduly restrictive conditions on obtaining benefit – such as very high fees that exclude the majority of potential beneficiaries.

There is thus no guarantee that a charity registered with the Charity Commission (or an exempt charity) will pass the charity test in Scotland and case law in the two jurisdictions may well develop in such a way as to emphasise the differences in the two regimes. Nevertheless, the declared intention is that the definitions of charity in both jurisdictions should be compatible.

If you have operations in Scotland and you have not already been recognised by the Inland Revenue as an independent charity in Scotland with an SC number you will need to consider whether you are obliged to register under the new law. Those with an existing SC number will automatically be registered when the Scottish register goes live.

If you have branches in Scotland you will need to decide whether they are autonomous (and therefore require individual registration) or whether they are not autonomous, in which case only the parent would have to register (assuming that it meets the registration requirements).

You will only have to register with OSCR if you fall within Section 14 CTIS, that is if you own or occupy land or premises in Scotland, or carry out activities in any office, shop or similar premises in Scotland.

OSCR and the Charity Commission have issued joint guidance on cross-border charities. The guidance distinguishes between certain activities which are likely to lead to a registration requirement and other activities that are less likely to do so.

You are likely to have to register if :

• You own or lease premises in Scotland;
• You pay rates in Scotland;
• You claim relief for non-domestic rates from a local authority in Scotland;
• You hold meetings in Scotland;
• You charge for events held in Scotland.
• You are less likely to have to register if:
• You advertise in the Scottish Press or other media;
• You award grants by correspondence only;
• You conduct street collections only;
• You hold occasional members conferences in Scotland;
• You use secretarial support provided by volunteers operating from their own homes.

When you are registered with OSCR you will have to submit an annual Return together with your annual Accounts. If you have income of £25,000 or more you will also have to complete a Supplementary Questionnaire, the "Monitoring Return", setting out certain financial and governance information.

As far as the form of accounts is concerned, SORP currently represents only good practice in Scotland and the current regulations in Scotland are the 1992 Accounting Regulations. New Accounting Regulations will be made (there has already been a Consultation on this) and it is anticipated that SORP will be mandatory for charities with an income over £100,000 and that this figure will be the receipts and payments threshold. The audit threshold will be the same as that for charities south of the border – i.e. £500,000.

OSCR will not require separate accounts where SORP applies (i.e. over the £100,000 threshold) and will accept consolidated accounts. OSCR will, however, expect the trustees’ report to contain a section on the charity’s activities in Scotland. Once registered in Scotland there will be certain actions that you cannot take without OSCR consent:

• Name change;
• Amendment of your charitable purposes in your constitution;
• Amalgamations with another body;
• Winding up or dissolution;
• Application to the Court in relation to any of the above.

If you carry out activities in Scotland how you refer to yourself will depend on whether or not you are registered with OSCR.

If you are registered with OSCR and you have been entered on the Scottish Charity Register you can call yourself a "charity", a "charitable body", a "registered charity" or a "charity registered in Scotland".

If, on the other hand, you are not registered with OSCR then in Scotland you will need to make this clear, for example by referring to yourself as a "charity registered with the Charity Commission" or (if you are exempted from or excepted from registration with the Charity Commission) a "charity recognised by the Inland Revenue as a charity and established in England and Wales".

Unless you are on the register in Scotland you will not be entitled to call yourself a "Scottish Charity" or a "registered Scottish Charity".

Regulations will make it clear, where you are registered in both jurisdictions, whether you have to give both your English/Welsh number and your Scottish Charity number. Regardless of whether there is a statutory requirement to give both, it would be good practice to do so in order to avoid any confusion.

Section 66 of CTIS sets out the duties of trustees of Scottish charities, including a statutory duty of care and an obligation to avoid conflicts of interest. Any breach of the obligation to comply with any direction, requirement, notice or duty imposed on the charity under CTIS is to be treated as misconduct in the administration of the charity.

Trustees will be obliged to take such steps as are reasonably practicable to ensure:

• That any breach of a duty under Section 66 is corrected by the relevant trustee and not repeated;
• That any trustee who has been in serious or persistent breach is removed as a trustee

There are restrictions on trustee remuneration. Generally speaking a trustee (or a connected person) should not be paid unless there is authority and certain conditions are met. Conditions include the need for a written agreement, that there should only ever be a minority of paid trustees, that the amount of payment must be reasonable and that the constitution should not contain an explicit prohibition against remuneration.

Nevertheless, a Charity trustee or connected person can be paid if he is acting under a specific authorisation in the charity’s constitution that existed prior to the date of introduction of the Bill (15 November 2004). Similarly, payment is allowed where specifically provided for by other legislation or by a Court Order (although this does not extend to a consent or direction from the Charity Commission).

The fact that you fundraise in Scotland will not, of itself, require you to register in Scotland. There will be a prohibition on professional fundraising without a formal agreement and there will be separate fundraising regulations. These are likely to follow existing regulations in England and Wales. The licensing of public benevolent collections will remain with local authorities in Scotland and will cover both cash donations and promises to pay, such as direct debts and standing orders (common in face to face fundraising initiatives). Until the new regulations come into force existing regulations will continue to apply. As an alternative to seeking separate approval from each local authority it is possible in Scotland to apply for the status of "designated national collector". To do this you will, however, have to have been entered on the new Scottish register.

OSCR is intended to start to operate in April 2006, whereupon the Scottish Charity Register will come into being. Cross-border charities will, however, have a 12 month transitional period during which they can continue to call themselves charities in Scotland prior to being entered on the register. There will be an application process for cross-border charities which will probably be invited to apply for registration between September and December 2006. If you are likely to be affected by the new legislation you can register your interest by emailing contact details to: cross.border.charities@charitycommission.gsi.gov.uk This will ensure that you are kept up-to-date with consultation and guidance.

If you do have any assets or activities in Scotland you should be reviewing them and considering whether you are likely to be required to register in Scotland. If your current activities and assets in Scotland mean that you are going to have to register you can either accept the fact or, if you do not wish to deal with the burden of dual regulation, consider whether you can carry out a reorganisation to take the charity outside the requirement to register, if this can be done without compromising the charity’s effectiveness in delivering on its charitable objectives. One possibility might be to consider linking up with a separate Scottish charity with objects and activities similar to your own and ceasing to own property in the jurisdiction.

The creation of a Scottish register has a number of positive aspects that many see as outweighing the additional burdens imposed on cross-border charities. It gives potential donors greater reassurance about the charity’s status in Scotland and should increase the level of confidence in the sector.

Even if you are not required to register, if you operate in Scotland at all you will have to review all your stationery and communications (including your cheques and your website) and make any changes necessary to show your place of establishment, for example by referring to yourself as a "charity registered in England and Wales" or a "charity registered with the Charity Commission" or, if you are an exempt charity, a "charity recognised by the Inland Revenue as a charity and established in England and Wales".

This Briefing can only highlight some of the implications of dual regulation of cross-border charities. Please contact us if you would like advice on your own charity’s position.

The Charity Commission has published a revised Commentary on the Descriptions of Charitable Purposes in the Charities Bill. This takes account of changes in the Charities Bill as printed on 9 November 2005.

Guidestar UK was launched in November 2005. This is a new resource and access is free. Charities can access and edit their information on line so, if you have not already looked at your entry, it would be worth checking out. Guidestar holds itself out as the most comprehensive webbased encyclopaedia of registered charities and is a new resource for researchers and policy analysts. It receives a certain amount of public data from the Charity Commission and will sell a range of additional information.

The Charity Commission is inviting comments on deregulation and ideas for simplification. If you have any contribution to make on this subject you should email it to the Charity Commission on simplification@charitycommission.gsi.gov.uk.

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