The Charity Commission has guidance on the role of charities in regeneration work, and the Office of the Scottish Charity Regulator noted in its recent consultation on the Scottish charity test that the charitable purpose of community development included regeneration. In most cases, other charitable purposes, such as the relief of poverty, are also furthered through regeneration projects.
Charities can provide an excellent spearhead for regeneration, enabling good governance, effective engagement, public reassurance and appropriate tax benefits. However, the special nature of charitable status must be recognised when regeneration projects involving charities are being designed.
A charity is legally obliged to carry out only charitable purposes. For other activities, trading companies or community interest companies are often used. The initial investment must be considered carefully, and setting up a trading entity can encourage social enterprise investment into the regeneration programme to maximise the range of investment sources.
Tax issues must also be considered. There will need to be proper accounting of Gift Aid for the return of profits to the charity. It is also crucial that VAT should be reclaimed where possible. Other fiscal matters such as non-domestic rates can also make a charity an attractive entity for a regeneration project.
On occasion, semi-dormant organisations on the charity register have been brought back to life to speed up the start of regeneration projects. Trustees of such organisations should be aware that their charitable status will be subject to future scrutiny. Their constitution should be reviewed, and any benefits should be documented in the annual report. The beneficial class or community to be regenerated should be identified. The anticipated lifespan of the project can have an impact because there may come a point when the regeneration has been completed while other social enterprise elements continue.
Independence is also important. Directors must act in the best interests of the charity, not other interests in the regeneration project. The interests of various partners and agencies will often be aligned, and the project will be designed on that basis.
- Alan Eccles is a solicitor at Maclay Murray & Spens LLP