Commission's final guidelines amend the definition of poverty

One of the main changes in the Charity Commission's final public benefit guidance, published today, is the use of the term 'people living in poverty' instead of 'people on low incomes', which had been suggested in the draft guidance last year.

Many of the 900 responses to the consultation had criticised the phrase, arguing that it was unclear who it referred to in the UK or abroad. 'The poor', although old-fashioned, at least had the merit of being universally understood, they argued.

The question relates to the second of two main principles charities will have to satisfy to demonstrate they provide public benefit - that the benefit is not unreasonably restricted by, for example, the ability to pay fees.

Dame Suzi Leather, chair of the commission, told Third Sector that the phrase had been changed to make its meaning clearer. "'Poverty' is also a more relative term," she said.

The guidance says 'poverty', in charity law, "means people who are financially disadvantaged". The notion of poverty in individual cases would be considered in the context of the aims of the organisation.

For instance, in developing countries, the phrase could mean those "who lack even the most basic essentials to sustain life, such as clean water, food or shelter". But in the UK, it could refer to those "living on less than 60 per cent of the average income or below the level of 'income support'".

What you lose if you can't show public benefit

There are several reasons, mostly financial, why charities should be keen to demonstrate their public benefit and thereby retain their charitable status.

Most charities are exempt from income tax, corporation tax and capital gains tax. Charities also pay no more than 20 per cent of normal business rates on buildings they use to further their charitable purposes. Outright gifts and bequests made to charities are also exempt from inheritance tax.

If a charity is involved in trading to raise funds, it will also get tax relief if the turnover is small.

Some fundraising events are exempt from VAT, and charities can maximise the financial benefit by encouraging donors to sign up to Gift Aid.

Employees can augment donations to charity by asking their employers to deduct contributions from their gross pay. This means they can avoid paying income tax on the donations. People are also more likely to offer time or money to registered charities, which tend to enjoy high levels of public trust.

A disadvantage is that being a charity can inhibit the freedom to campaign. However, the Charity Commission is currently reviewing its guidance on this issue.

- Indira Das-Gupta


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