The Scotland Bill was published by Scottish Secretary Michael
Moore MP on St Andrew's Day, with the general intent of taking
forward the recommendations of the Commission on Scottish
Devolution, led by Kenneth Calman ("the Calman
Commission"). Overall, the Bill represents a major transfer of
new powers to the Scottish Parliament across a variety of areas -
including, for example, some aspects of taxation, drink-driving
laws, national speed limits and the control of airguns.
The Calman Commission's report also included two
recommendations on charity regulation. However, the UK Government
has now announced that these recommendations will
not be implemented; so what was the reasoning behind the
recommendations in the first place, why are they not being put into
practice, and what does the UK Government's decision mean for
Scottish charities and voluntary organisations now?
The recommendations
The Calman Commission's recommendations on charity
legislation were as follows:-
1 That there should be a single UK-wide definition of
'charity' and of 'charitable purposes', to be
defined by the UK Parliament;
2 That a charity registered in one part of the UK ought to be able
to operate in any other part of the UK without being subject to
separate registration, reporting and accounting systems.
Rationale and backlash
These proposals represented an attempt to tackle the confusion
caused by separate registration and reporting mechanisms in
different parts of the UK, especially for UK-wide charities, and
the resulting legal issues. For example, the interpretation which
OSCR gave to a particular charitable purpose under Scottish charity
legislation might not be adopted by HMRC for tax purposes - and
vice versa.
As devolution expert Alan Trench stated in his blog on the subject:
"For charities, the key problem is the fact that the legal
status and regulation of charities and their taxation are handled
by separate bodies, and that HM Revenue & Customs has shown a
limited grasp of Scottish law... - the problem isn't so much
who makes charity law but how well HMRC understand that Scottish
law is of equal status to that of England and Wales, and seek to
ensure that tax law takes account of both legal systems'
conceptions of 'charity'."
The Finance Act 2010 has in fact significantly strengthened the
role of English charity law in relation to Scottish charities, and
eliminated the principle of "equal status" which Alan
Trench was arguing for - by stating unambiguously the position
which HMRC Charities had adopted as a matter of practice prior to
the Finance Act 2010 coming into force, i.e. that "charitable
purpose" for tax purposes was to be interpreted in accordance
with the English charity legislation.
At a practical level - and bearing in mind that many of the
charitable purposes are phrased in quite broad terms - the views of
HMRC Charities and the Charities Commission on where the boundaries
lie in relation to particular charitable purposes are now much more
important than those of OSCR. To take one example, if OSCR were to
set the boundaries more widely than the Charity Commission in
relation to eg the "promotion of community development",
and a Scottish charity were to incur significant expenditure in
delivering a project which made use of that additional flexibility,
there would be a significant risk that HMRC Charities would impose
a tax charge on the basis that the expenditure did not directly
further a charitable purpose under the (English) Charities Act
2006. As a matter of practice, there have been few instances to
date where OSCR and HMRC Charities have taken a different view in
this kind of way - but nevertheless the potential for problems of
this nature is evident.
The Scottish Council for Voluntary Organisations expressed concern
at the Commission's proposals, describing them as 'a muddle
to fix a muddle'. They went on to state that:
"The Charities and Trustee Investment (Scotland) Act 2005 is
based on extensive consultation with the public and the voluntary
sector, meaning that we have a system which reflects the Scottish
public's understanding of charity. For example, the Act has a
stronger definition of public benefit than the law in England and
Wales. SCVO is concerned that if the Commission's
recommendations were to be implemented in their current form, the
Scottish charity brand would be significantly weakened."
The SCVO expressed their support for a full parliamentary review of
Scotland's existing charity law to deal with the issues
highlighted by the Calman Commission, and - going further - to
examine in greater detail how well existing legislation is working
in Scotland, and within the context of the UK as a whole. The UK
Government appears to agree.
In the accompanying paper for the Bill, the Government expressed
its intention to review the operation of the (English) Charities
Act 2006 in the near future:
"This will be a review of the whole legislation, and we will
be asking charities from across all parts of the UK to take part in
this process to ensure that they can go about their vital business
without unnecessary interference.
"The UK Government will also engage with the Scottish
Government to ensure that the operation of charities legislation in
England and Wales and in Scotland is consistent in its approach. In
undertaking this review, the Government will ensure that the
Commission's recommendations are taken into account.
"However, the Government does not believe that it is right to
take a piecemeal approach to amending charities legislation, and so
it will not be taking forward the specific recommendations the
Commission made on the operation of charities at this time. It will
instead take forward any change, with the consent of the Scottish
Parliament where necessary, following the review."
What now?
The issues raised by the Calman Commission remain unresolved at
the moment; however, many of those involved in Scottish charities
and voluntary organisations will be breathing a sigh of relief that
regulation will not be handed back to UK control, as proposed. As
stated by the SCVO, such a move would risk "much of the robust
and well-developed Scottish charity law". Having said that,
the value of having a Scottish charity regulator in the form of
OSCR to set the boundaries of charitable activity specifically by
reference to the Scottish context will remain open to question for
so long as HMRC Charities applies English charity law in
determining what is or is not a "charitable purpose" for
the purposes of tax legislation.
Reform is clearly still necessary to tackle the current problems,
but the consensus is that this needs to done in partnership between
the Scottish and UK parliaments, building on existing carefully
tailored systems, and following a detailed review of current
legislation.
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