Charities Act 2011

Charitable purposes

For the first time in English statute law, the Charities Act 2006 listed 12 specified charitable purposes (provided those purposes are for the public benefit). This list is now found in Section 3 of the 2011 Act.

It is possible for other purposes to be charitable if they are similar to, or in the spirit of the specified purposes, or if they have previously been recognised as charitable.

The 12 specified charitable purposes are:

• prevention or relief of poverty
• advancement of education
• advancement of religion
• advancement of health or saving of lives
• advancement of citizenship or community development
• advancement of the arts, culture, heritage or science
• advancement of amateur sport
• advancement of human rights, conflict resolution or reconciliation, or the promotion of religious or racial harmony or equality and diversity
• advancement of environmental protection or improvement
• relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
• advancement of animal welfare
• promotion of efficiency of the armed forces of the Crown, or of the police, fire and rescue services or ambulance services.

There is no longer a presumption that the first three purposes are always delivered for the public benefit, and the law now requires trustees to report annually on how they have done so.

Registered and exempt charities

Registered charities

Unless it has been designated as an exempt charity, a charity with total annual income of more than £5,000 must register with the Charity Commission. It is required to maintain a Register of Charities and to decide what information about each registered charity it will make publicly available.

All registered charities are subject to monitoring and regulatory oversight by the Commission. It has a range of enabling, investigative and enforcement powers to ensure that charities continue to deliver their objectives for the public benefit and that charitable assets are protected and are not misapplied.

17 English HEIs are registered charities and so are currently monitored and regulated as charities by the Charity Commission. This is in addition to, and may duplicate elements of, HEFCE's own accountability oversight. At some future date, it is possible that the registered-charity HEIs will be made exempt so that all HEIs become subject to the same monitoring and regulatory processes.

Register of Charities

The Register of Charities provides a range of key information about the constitution and trustees of each registered charity and about its work and finances. It also records whether the trustees have complied with their reporting and accounting responsibilities.

The entry for larger charities - with income in excess of £500,000 - includes a financial profile. The Register is maintained from information provided by charities in their annual return. Also available via the Register are the charity’s audited financial statements and Trustees Annual Report and its Summary Information Return (which supplements information provided in the annual return).

Exempt charities

Exempt charities are those charities that are exempt from registration with the Charity Commission and, until 1 June 2010, were not subject to its regulatory powers. All such charities are now exempt under the terms of Schedule 3 of the Charities Act 2011. Some HEIs are listed by name, others are included as higher education corporations (HEC) (or as a successor company to a HEC).

111 English HEIs are currently exempt charities.

Under paragraph 28 of Schedule 3 of the 2011 Act, an institution administered by or on behalf of an exempt charity is also an exempt charity. There is no comprehensive list or register of such charities. However, as principal regulator, HEFCE has sought and received assurance from exempt-charity HEIs that they have current records of their paragraph 28 charities. Since 2010-11 information about an HEI's paragraph 28 exempt charities (if any) is reported in its audited financial statements.

The effect of being an exempt charity

In terms of their general operations as charities, there is no material difference between exempt and registered charities. Exempt charities must have charitable purposes and apply them for the public benefit. They must comply with the general law of charity. They have trustees (in the higher education sector the trustees are usually the members of the governing body) who are responsible for the control and management of the administration of their charities. They benefit from the same tax advantages as registered charities, and have the same obligations to comply with tax law.

Under the 2011 Act, exempt charities are monitored as charities by a principal regulator. They are also subject to the investigation and enforcement powers of the Charity Commission, although the Commission may only exercise those powers following consultation with the principal regulator.

Since 1 June 2010 HEFCE has been the principal regulator of HEIs that are exempt charities.

Constitutional form and charitable status

The constitution of an institution does not determine its charitable status, or vice versa. Most HEIs are either chartered corporations or higher education corporations, but there are several other forms of constitution in the sector, including a number of companies limited by guarantee whose affairs are subject to both company and charity law.

Registered charities may now adopt the constitution of a Charitable Incorporated Organisation (CIO). This eliminates dual registration with, and monitoring by, the Charity Commission and Companies House. Since CIOs are automatically included on the Register of Charities, exempt charities cannot adopt it as a form of constitution. It may however be of interest if exempt-charity HEIs are involved in setting up charities outside the HEI’s own control and therefore not capable of being exempt.

Public benefit - principles, guidance and reporting

Any purpose must be for the public benefit if it is to count as a charitable purpose. This is sometimes referred to as 'the public benefit test'. The Charity Commission is required to publish guidance on public benefit. It may revise the guidance at any time. It must consult publicly before publishing or revising guidance.

The Commission's general guidance on public benefit sets out the general principles of public benefit that apply to all charities. They are:

Principle 1: There must be an identifiable benefit or benefits

• It must be clear what the benefits are.
• The benefits must be related to the aims.
• Benefits must be balanced against any detriment or harm.

Principle 2: Benefit must be to the public, or section of the public

• 2a. The beneficiaries must be appropriate to the aims.
• 2b. Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted:
  • by geographical or other restrictions.
• 2d. Any private benefits must be incidental.

Parts of principle 2b and all of principle 2c have been withdrawn following a decision by the Upper Tier Tribunal. The Charity Commission will consult about revised principles and guidance.

Guidance on public benefit and education

The supplementary guidance on public benefit and education covers general principles 1, 2a, b and d, but limits its coverage of 2b to non-financial restrictions. It also indicates that the Commission will, in due course, publish separate guidance relating to charitable professional bodies that provide ongoing professional education, and think tanks.

The guidance is clear that 'charity law gives a wide meaning' to education and that the meaning will evolve with changing social values. Universities and colleges are expressly acknowledged as types of charities capable of advancing education. Education can include exam-setting, standards work, and research and other support for education (in the HE sector education support charities would include the Higher Education Academy, the Leadership Foundation, students' unions, bursary and/or scholarship funds). The unstructured provision of information that people may chance to find is unlikely, of itself, to count as education.

Although the law no longer presumes that the advancement of education is for the public benefit, the guidance states that 'education is widely recognised as beneficial' because it develops skills useful to both society and the person.

Annex A to the guidance lists examples of ways in which charities might advance education for the public benefit. If education is carried out in a harmful manner (for example, using a bullying approach) it cannot be charitable. The guidance presumes that teaching a harmful subject (for example, money-laundering) is not charitable, but might be charitable in some contexts (for example, in criminal law courses).

Charities must act within their charitable aims, and the public benefits must derive from those aims; any private benefit must be incidental. It is necessary to know the intended beneficiaries of the charity’s aims. In the case of the aim of advancing education, the beneficiaries are those eligible to receive the education. The beneficiaries of research are the public, and the courts have emphasised that research is only charitable if its results are made available to the public (that is, if they are published and in the public domain).

Many beneficiaries receive private benefit as a necessary but incidental way of a charity furthering the aim of advancing education or as a consequence of doing so (a student gains knowledge from attendance at lectures). Education provided for the employees of a particular employer is not considered to be for the public benefit; there are many court rulings to the effect that the aim of such a restriction is a private one to benefit the employer. The guidance also reflects cases in which the beneficiary group was restricted, and did not constitute a sufficient section of the public for the education to be for the public benefit.

Guidance on public benefit and fee-charging

Note: In December 2011, the Charity Commission withdrew its supplementary guidance on public benefit and fee-charging charities. It will consult on new guidance during 2012.

The guidance was withdrawn following a decision by the Upper Tier Tribunal that, in parts, the Commission had misinterpreted case law. However we believe the summary below remains valid for the HE sector.

The supplementary guidance on public benefit and fee-charging covers the original public benefit general principles 2b and c.

Fee-charging is likely to be a public benefit issue if:

• the charges are made for services or facilities that form a significant part of the charity’s aims
• the fees charged are high.

In both cases fees may restrict access so that a wide enough section of the public cannot benefit. The higher the fees charged (including all unavoidable charges or costs to beneficiaries), the more people will not be able to afford them, and the more the charity may need to do to provide them with the opportunity to benefit.

As charities seek to ensure opportunities for the public to benefit, some approaches will have more impact than others.

• Affordability of total fees and unavoidable costs needs to be considered.
• Payment or subsidy of fees by a third-party (for example, hardship support for students) may be a relevant factor, but the risk of withdrawal of such subsidy will need to be considered.
• Discounts, cross-subsidy, or payment-spreading are acceptable strategies for a charity to adopt, but the lowest fee must still be widely affordable. Loans may be less effective than grants.
• Bursaries based on financial need will be more effective than scholarships (or hybrid arrangements) linked to skill or ability.

The total package of measures to provide opportunities to benefit will be considered – in the context of the charity’s particular circumstances – and that package must be sufficient to enable opportunity for people otherwise unable to afford the fees. For complex charities – which have multiple aims, provide a range of services and facilities, and have a variety of fee-charging and support arrangements – the Charity Commission will assess public benefit on a case-by-case or sub-sectoral basis. This will be the case for most HEIs.

Reporting on public benefit

HEFCE's Financial Memorandum with institutions made reporting on public benefit a mandatory requirement for exempt charity HEIs, starting with their 2009-10 accounting year.

The 17 English HEIs that are registered charities and registered charities associated with HEIs (such as development trusts) were required to include public benefit in their trustees' annual report with effect from accounting year 2008-09. 

Further information

Legislation

The full text of the Charities Acts and some related statutory instruments can be found at:

• Charities Act 2011
• The Charities Act 2006 (Charitable Companies Audit and Group Accounts Provisions) Order 2008
• The Charities (Accounts and Reports) Regulations 2008
• The Charities (Exception from Registration) Regulations 2010
• The Charities Act 2006 (Changes in Exempt Charities) Order 2010
• Explanatory memorandum (Adobe PDF 139K)
• The Charities Act 2006 (Principal Regulators of Exempt Charities) Regulations 2010
• Explanatory memorandum (Adobe PDF 147K)
• The Charities Act 2006 (Commencement No.7, Transitional and Transitory Provisions and Savings) Order 2010

Public benefit

• Public benefit 
  The section of the Charity Commission’s web-site that draws together its research, analysis of the law, formal guidance, and assessments. It also gives some examples of public benefit reporting.
• Charities and Public Benefit
  This is the Charity Commission's general guidance on public benefit, which explains these general principles in more detail. It also sets out the Charity Commission's role and approach to assessing public benefit, and what it will do should it consider that any charity is not delivering its charitable purpose for the public benefit.
• Guidance on public benefit and education
• The Commission has also published an analysis of the law underpinning this sector-specific guidance.
• Public benefit assessment reports
• Charity Commission examples of public-benefit reporting
• HEFCE's guidance to HEIs on public benefit reporting

Page last updated 17 February 2012