The act of giving
24 July 2006
12 September 2013
20 November 2013
9 July 2014
24 March 2014
18 December 2013
The main body of the Charities and Trustee Investment (Scotland) Act 2005 came into force on 24 April 2006. As well as creating a complete code for charity law in Scotland, it introduces a new charity test, a new regulator and registrar, and new duties and powers for charity trustees. It is the first-ever proper piece of Scottish charity legislation.
The new regulator of charities in Scotland is the Office of the Scottish Charity Regulator (OSCR). It is responsible for recognising new charities and acting as the regulator and registrar of all Scottish charities. Trustees must now ensure that their charities comply with the 2005 act, and with any directions or notices issued by the OSCR. Failure to do so will be treated as misconduct in the administration of the charity and could eventually lead to disqualification from acting as a trustee.
The Scottish Charity Register, kept by the OSCR, will be open to the public online and by personal inspection. The act makes provision for easier reorganisation of charities, for new rules on fundraising and for a new form of charity - the Scottish Charitable Incorporated Organisation. These parts of the act have not yet been brought into force.
As the new duties of trustees have now been expressed in legislation for the first time, trustees need to be aware of these duties and also of the particular provisions of their own charity's constitution.
To summarise their duties under the act, charity trustees must: seek to ensure that the charity acts consistently with its purposes; act with the care and diligence reasonably expected of a person managing the affairs of another person; ensure that any conflicts of interest between the charity and any appointing body are dealt with by putting the charity's interests first - if this is not possible, the trustee must withdraw from taking any part in decisions relating to the conflicted interest; and ensure compliance with the act generally.
Auditors are also now subject to a statutory duty to report to the OSCR certain matters that relate to its functions.
Charity trustees need to be aware of new requirements under the 2005 act that must be followed in order to: change the charity's name; amend its constitution; amalgamate with another body; wind itself up or dissolve itself; or apply to the court for certain constitutional changes.
The OSCR's consent is required for all of these actions, which in most cases can be assumed if the OSCR does not object within 28 days; although in the case of a proposed amendment to a constitution relating to the charity's purposes, the OSCR must consent specifically to the proposed change. The OSCR can prevent a charity from making any proposed changes for a period of up to six months.
Charities are also required to give the OSCR retrospective notice of these and other changes, including a change in its principal office or its principal contact named on the Scottish Charity Register.
The charity test
The act introduces a new three-part charity test that must be complied with in order to obtain or retain charitable status in Scotland. First, the body must exist for one or more of the extended list of approved charitable purposes. It must also provide public benefit in Scotland or elsewhere and must not allow distribution of its property for non-charitable purposes, nor be subject to ministerial control or exist to advance a political party.
The 16 charitable purposes are very similar, but not identical, to those in the Charities Bill currently before the Westminster Parliament. There could be some divergence in definition on both sides of the border, and this may have interesting implications as the legislation develops in each jurisdiction.
The relationship between the OSCR and other regulators, such as the Charity Commission (for English and Welsh charities) and HM Revenue and Customs (for tax purposes) will determine the climate for charities in Scotland.
Entry into the new Scottish Charity Register is essential for obtaining and retaining charitable status in Scotland. Existing charities have been entered in the register and are entitled to continue to describe themselves as a 'Scottish charity', or another approved term. New charities will be added to the register as they meet the charity test and are approved.
The OSCR intends to institute a rolling review of charities on the register. This will probably start some time in 2007, and as it proceeds, older charities will be reviewed to ensure that they meet the new charity test.
As charities receive and lodge their annual returns with the OSCR, the Scottish Charity Register will develop into an accurate and useful list.
The OSCR will also receive and record each charity's annual accounts. Charities will continue to have a requirement to keep their accounting records in order and, depending on their size, to have their accounts audited or examined.
Charities not based in Scotland, but which own or operate from land or premises in Scotland, will have to register with the OSCR in early 2007. To register they will have to meet the Scottish charity test in addition to any other domestic charity test. Without OSCR registration, organisations cannot describe themselves as charities in Scotland.
Because the legislation creates two registers in the UK, charities will be restricted in how they can describe themselves in each jurisdiction. Those established under Scottish law or managed from Scotland can use the terms 'Scottish charity' or 'registered Scottish charity'. Those managed from England and registered with the OSCR can refer to themselves in Scotland as a 'charity', a 'charitable body', a 'registered charity' or a 'charity registered in Scotland'.
English charities that do not have to register with the OSCR may, in Scotland, still refer to themselves as charities, but they must also state that they are established under the law in England - for example, 'a charity registered with the Charity Commission' or 'recognised by HMRC as a charity and established in England and Wales'. The same principles hold good for Northern Irish or US charities operating in Scotland.
Further parts of the act will be introduced later in 2006 and during 2007. The OSCR's practice will develop and trustees will need to keep themselves fully informed not only of their full range of duties, but of the way in which that practice is developing. For example, the OSCR has recently issued guidance on trustee indemnity insurance, an area in which the legal position is not entirely clear.
Charity trustees need to recognise that they are now operating under a regulator with real enforcement powers that needs to be consulted on a fairly wide range of possible activities.
That said, the act introduces a system of regulation that aims to protect charitable funds from misconduct, while constructing a modern definition of charitable purposes and an innovative public benefit test.
Simon Mackintosh is a partner and head of the charities group at Turcan Connell