What does it mean to be a charity? This used to be fairly well understood, but it seems to be getting murkier these days. Since the Charities Act 2006, the meaning of 'charity' under charity law is becoming an ever more moveable feast. And soon there will be another statutory definition of 'charity' for tax purposes, which will, it appears, leave a significant element of discretion to HM Revenue & Customs.
The Charities Act 2006 enshrined in statute the meaning of 'charity' as a body established for exclusively charitable purposes: that is, purposes recognised as capable of being charitable and that are "for the public benefit". The Charity Commission was charged with producing guidance to raise awareness and understanding of this public benefit requirement. Concerns have been expressed over the accuracy and clarity of that guidance, but it has lately been assigned a new use in the commission's refusal to register the Gnostic Centre as a charity.
The decision on whether an organisation should be registered has important financial implications. It is a legal decision, to be determined on the basis of the statutory definition of 'charity' and the underlying case law. Applicants should be clear about the legal basis for the decision reached. For example, when the Church of Scientology applied to be a charity, the decision of the Charity Commissioners in 1999 ran to 49 pages and analysed case law extensively.
But in refusing the Gnostic Centre's application, the commission board cited sections of its own public benefit guidance and underlying legal analyses as authority for the decision. Yet the guidance documents are clear that they are not the law, and nor do the analysis documents amount to legal authority.
Even more worryingly, the commission's report of its decision indicates that the board read only the "summary law and guidance" and "applied the principles and approach" from those documents. If this statement is accurate, it means that the decision was made without recourse to the proper legal authorities. Instead, it was based upon documents produced for a different purpose (raising awareness and understanding of the public benefit requirement) and a different audience (primarily charity trustees).
The difficulty with this approach is that it takes the law out of what has to be a legal decision. It would appear to make any such decision capable of being appealed, but do we want a situation in which charities have to appeal decisions to a tribunal or court simply to have the proper legal principles applied?
Meanwhile, concern has arisen over the new definition of 'charity' announced by the Chancellor in his March Budget as a qualification for obtaining tax reliefs and exemptions. This definition will require that the applicant be established for "charitable purposes" only and, crucially, supervised by "managers" who are "fit and proper" persons.
It is not yet clear what the criteria will be for being a fit and proper person. The rationale for the new test is to assist HMRC in tackling fraudulent claims for tax exemptions and reliefs. There must be every sympathy with this, but it seems likely that the criteria and their application will increase administrative costs for charities and put a significant level of discretion in the hands of HMRC, with little indication of how such discretion will be applied.
The meaning of 'charity' now seems to be being placed in the hands of more than one regulator for differing purposes, but how that meaning is to be interpreted in accordance with the law remains in doubt.