Under section 14 of the Charities Act 2011 ('CA 2011'), one of the Charity Commission's objectives is 'to promote awareness and understanding of the operation of the public benefit requirement'. Section 17 CA 2011 provides that the Commission must issue guidance in pursuance of this objective, and that charity trustees must have regard to any such guidance when exercising any powers or duties to which the guidance is relevant.

The Commission originally published its public benefit guidance in January 2008. However, following the 2011 decision of the Upper Tribunal in the Independent Schools Council case, in which the Independent Schools Council successfully challenged aspects of the guidance in relation to fee-charging, the Commission withdrew certain passages from the guidance in December 2011. Interim advice relating to fee-charging charities was published, and the Commission subsequently carried out a consultation on its new public benefit guidance between June and September 2012.

The final version of the revised public benefit guidance has now been published, which replaces all previous guidance. The guidance is divided into three short guides, which are all available online: (1) Public Benefit: the public benefit requirement (PB1); (2) Public Benefit: running a charity (PB2); and (3) Public Benefit: reporting (PB3). These guides explain what is required to show that an organisation is a charity; what trustees' duties are in carrying out those purposes for the public benefit; and how trustees should report on the public benefit their charity provides in their Annual Report.

The new guidance reflects the law as set out by the Upper Tribunal in the Independent Schools Counsel case and is significantly shorter then previous guidance, meaning trustees should find it accessible.

The public benefit requirement

The guidance in PB1 now refers to the 'two aspects' of public benefit as the 'benefit aspect' and the 'public aspect'. It explains that in order to satisfy the 'benefit aspect', the purpose must be beneficial and any detriment or harm that results from the purpose must not outweigh the benefit. In order to satisfy the 'public aspect' of public benefit, the purpose must benefit the public in general, or a sufficient section of the public, and must not give rise to more than incidental personal benefit. The guidance also refers to the Upper Tribunal's view that charitable purposes may not exclude the poor but sets out that the meaning of 'poor' is relative does not necessarily mean those who are destitute, but can include those with modest incomes. The guidance sets out that it is a decision for a charity's trustees, rather than the Charity Commission, to decide on the provision to allow the poor to benefit.

The guidance also clarifies that the test of charitable status is an organisation's purpose, rather than its activities.

The guidance includes an annex with a separate test for charities which have the purpose of the prevention or relief of poverty. Such charities can satisfy the public benefit requirement by satisfying the benefit aspect without needing to consider the public aspect of the general test.

Running a charity

There is no objective test for what level of provision a charity must make for the poor but in PB2 the Commission sets out a number of factors which will determine whether or not a charity is excluding the poor from benefit. This might depend on the importance and nature of the service provided and the level of financial commitment required from beneficiaries.

The Commission recognises that 'there is no universal definition of 'the poor' in this context' and that it is a relative term which depends on the circumstances in individual cases.

The guidance goes into some detail for charities such as schools which restrict their benefits to a relatively narrow range of beneficiaries.

In the context of independent schools, the guidance is significantly less prescriptive than the previous guidance prior to the Independent Schools Council case. For schools it is likely to be a judgment made with reference to a school's level of fees as well as the extent to which the trustees make provision to allow the poor to benefit, provision which must be more than minimal or token.

On a practical level this is likely to mean adequate provision of bursaries and other assisted places as well as providing information, services and facilities to non fee-paying schools. The guidance also says factors to be taken into account when assessing adequate provision for the poor will include: relevant local factors, whether the charity provides a 'luxury' service and whether the charity has any endowment funds. Long-term business planning and the salaries of professional staff will also be taken into account.

Schools and other charities can take into account sources of funding from outside their own charity such as payments or loans from local or central government or the provision of scholarship funds from other charities.

Further useful information, which is not formally part of the guidance, is available in the Hypothetical questions considered by the Upper Tribunal at the request of the Attorney-General.

Reporting

The third part of the new guidance sets out how trustees must report each year in their annual report how they have carried out the charity's purposes for the public benefit.

There is a separate regime for charities with income of more than £500,000 in the year who must provide much greater detail on the strategies and objectives adopted and details of what has been achieved with references to the charity's purposes.

Charities are not obliged to set out their public benefit in a separate section in their annual report as it is something which can be conveyed throughout.

It is for trustees to decide the level of detail they wish to provide to the Commission but the Commission believes public benefit reporting can help focus the charity's purposes and demonstrate publically the value of the charity's work and its transparency and accountability.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.