Analysis: Are charities still special?

With the rise of social enterprise, many in the sector believe the concept of charity is getting blurred. Stephen Cook reports on the debate and David Ainsworth analyses the various not-for-profit legal forms

The dilemna of social businesses
The dilemna of social businesses

Sue Davie, chief executive of the Meningitis Trust, says there is growing confusion about what being a charity means. "It used to be clear," she says. "Now it encompasses so many things - the business model of charities has changed.

"Now they trade, have shops, sell Christmas cards - they are businesses in their own right. It's become hard to draw the line between sectors. Charities still pull on people's heartstrings, but they use business methods as well."

Davie will be taking part in a debate at the Charity Accountants Conference in September about whether charity is an outdated concept, and concerns similar to hers are increasingly voiced in the sector.

Last week, Dame Suzi Leather, outgoing chair of the Charity Commission, told the Almshouse Association she was concerned about whether charity will continue to mean something special, worthy of tax breaks and public trust.

She said the past few years had brought in new organisations, ranging from social enterprises to community interest companies, and interest in older forms, such as mutuals and cooperatives (see table below).

"The definition of these organisational forms is sometimes hazy, and they can, superficially, appear quite similar to charities," she said. "Indeed, many do have a lot in common with charities - some have a social mission, some are not for profit, some work with and for vulnerable people and worthy causes. At the same time, charities are becoming ever more similar to other types of organisation."

Leather's conclusion was that the requirement for charities to provide public benefit was the justification for their status and tax advantages and was widely approved of by the public. But others say public benefit can also be seen as a problem.

Kate Sayer, partner at Sayer Vincent accountants, will also speak at the September conference about whether charity is outdated. "We are getting a steady stream of inquiries from new organisations and quite a few are saying 'we aren't sure we want to be a charity'," she says.

"They perceive that having the Charity Commission as a regulatory body could restrict their activities. We also have some charity clients who are concerned about the requirements of public benefit. They are worried that charging for services might breach public benefit rules because the service might not be accessible to people on low incomes.

"So charities could find themselves providing the same service to two sets of people. One service would be run as a charity, without charging VAT, and the other as a trading subsidiary, which could charge VAT. The broadening of beneficiary groups creates tax and legal problems for charities - the charitable model might not be the best option for some organisations."

Some charities call themselves social enterprises, but still retain charitable status, not least because the assets of a charity that closes cannot be passed on to non-charitable organisations.

June O'Sullivan, chief executive of the London Early Years Foundation, says that when she was appointed she thought it could not remain as a charity. "It was wrong for us." she says. "We're a social business. That means we can be independent and sustainable, not relying on handouts and grants."

But the foundation, which runs London nurseries including one at the Houses of Parliament, is still a charity eight years on. "We've discussed getting rid of that status," she says. "But we've kept it because of the governance requirements. A social enterprise has no legal status, but a board of trustees ensures checks and balances."

Additional reporting by John Plummer and Andy Hillier

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