Autumn 2016 Charity Newsletter

Welcome to our Autumn Charity Newsletter.

With the summer holidays now in the rear-view mirror for most, in this quarter’s newsletter we focus on three important charity matters – two where charities are benefitting from greater clarity, and one where they (together with the rest of the country) are certainly not!

Penny Wright from our Inheritance Protection Team answers some common questions as to the new PSC reporting requirements affecting charities, whilst Sam Pinder from our Dispute Resolution Team reviews the Charity Commission’s new guidance in the area of charities and the minefield of litigation. Finally, with the initial flood of reaction to the UK’s pending withdrawal from the EU calming down for the moment, Jo Hemsley from our Dispute Resolution Team tries to look ahead to what Brexit may actually mean for charities in the future.

As always, if you have any particular legal issues you would like our Charity Team to consider and report on in a future article, or if you would like to discuss any of this quarter’s articles or anything else which we may be able to help with, please do not hesitate to contact us.

Alastair Goggins

Partner and Team Leader – Dispute Resolution Team

To PSC or Not to PSC…

By Penny Wright, Senior Associate, Inheritance Protection Team

From 6 April 2016, the requirement for UK companies and LLP’s to consider and if appropriate maintain a new statutory register was introduced as a result of changes to the Small Business, Enterprise and Employment Act 2015. In this article I consider a few of the questions and queries we have received from charities as to the new requirements and how they may be affected by them.

  1. I am a trustee of a charity. I’ve heard that there is a new legal requirement for organisations to have a PSC Register. What is it?
  2. A PSC register is a list of “people with significant control”. With effect from April 2016, all companies are required to have a PSC register. This applies to charitable companies and CICs. It also applies to trading companies (which are often used by charities for activities such as fundraising).

The PSC register contains personal details including a person’s name, address, date of birth, nationality, and information about the control they have over the company.

  1. What is a person with “significant control”?

In the context of a charity, anyone who meets one or more of the following criteria must be includes on the PSC register:

For example, if your charity has three members, who each have 33% of the voting rights, they all must be named on the PSC register.

Note that employees are not persons with significant control.

  1. My charity is a CIO (Charitable Incorporated Organisation). Do we need a PSC register?
  2. No, the rules do not apply to CIOs, trusts or unincorporated associations – only to companies. However, sometimes non-company charities have significant influence over another charity, in which case the trustees of the non-company charity might need to go on the other charity’s PSC register.
  3. What must we do with our PSC register?

Keep it with your company books and provide it to Companies House with your annual confirmation Statement (Annual Return).

  1. What happens if we don’t have a PSC register?
  2. Failure to comply is a criminal offence. You could be liable to pay a fine and there are further penalties for failure to keep an accurate register and failure by the PSC to provide information.

The above is just a small snapshot of the queries we have received from charity clients following the introduction of the new requirements. Obviously every organisation is unique and will be affected by (and will need to react to) the rules in different ways. However, given the serious sanctions which can be imposed for non-compliance, it is crucial that charities and their trustees obtain legal advice to ensure they are fully compliant.

Charities and Litigation – A Charity Commission Guide

By Sam Pinder, Paralegal, Dispute Resolution Team

On 3 August 2016, the Charity Commission (‘the Commission’) provided much welcome guidance for the trustees of charities on bringing or defending legal proceedings (‘the Guidance’).The Guidance seeks to run alongside the core principles expounded by the Commission in their ‘It’s your decision: charity trustees and decision making (CC27)’ paper.

Therefore, it is clear that of fundamental importance that in respect of any litigious proceedings, trustees ensure that they, in accordance with their general duties, act in the best interests of the charity. Of course, this duty involves protecting the charity’s interests.

The Guidance does state however that litigation can present significant risk to a charity’s beneficiaries, assets and reputation. In reality, these risks of litigation are applicable to all legal entities, not exclusively to charities. These are just some of the many matters which have to be weighted up by any party when either contemplating the issue of legal proceedings, or the extent to which any such proceedings should be defended.

Section 2 of the Guidance seeks to provide trustees with a general overview of the types of civil action that may arise in the context of charities, as well as guidance as to the various key issues that those trustees must consider.

In particular, in making their decision, the trustees should:

The Guidance is of general practical use, not least because of a checklist attached to the Guidance that trustees can work through step-by-step. Clearly the risks involved in pursuing and/or defending litigation are recognised by the Guidance, which places great emphasis on parties exhausting alternative means to resolving a dispute in the first instance. Again, such emphasis is not charity-exclusive – alternative dispute resolution options should be explored in any litigious proceedings given the court’s powers to penalise parties who unreasonably refuse to do so, even if they are successful in the litigation.

For further information, the Guidance can be accessed here

Brexit and the Charitable Sector

By Jo Hemsley, Trainee Legal Executive, Dispute Resolution Team

Whilst Parliament has been busy since the EU Referendum, almost all organisations and industries have been left with their own concerns as to how Brexit will affect them. The charity sector is not immune to this uncertainty.

Although it is early days, charities and their trustees should start considering planning, or at least considering the effects of Brexit and leaving the EU, so as to not be caught out later on.

Possible Negative Effects

So what are the possible setbacks charities could face as a result of Brexit?

Charities rely on the generosity of the public. Recent statistics show that the average household’s disposable income has reduced by 0.6% in recent years.  This is due largely to wage growth stagnation following the introduction of the National Living Wage and automatic enrolment to company pension schemes.  If the public has less disposable income, it follows that charitable donations will fall.

However, to compound this issue, as the public considers the effects of Brexit charities may see public donations drop further still as discretionary spending reduces.

The UK’s pending exit from the EU means that those charities who had previously received substantial EU funding will no longer benefit from this source of income. Whilst the UK Government may of course choose to introduce replacement funding arrangements, this of course cannot be guaranteed and at least preliminary financial contingency planning may be appropriate.

Following any financial downturn arising from Brexit, charities may feel its effects from loss of returns on any investments on the stock market. There is the possibility of any future Budget cutting tax-relief and other significant funding commitments thereby reducing further streams of income for charities.

A financial downturn may also have the knock-on effect of increased public demand for some charitable services, placing additional strain on individual charities resources.

So are there any Positive Effects of Brexit?!

Once an exit from the EU is negotiated, the UK will be able to decide which services are eligible for reduced rates or exemptions, in particular VAT, which may result in positive tax implications for charities.

Previous EU legislation may no longer apply which could benefit charities by way of time and resources saved.

Considerations

In these very early days, it is difficult to say exactly how Brexit will affect charities. However, trustees must start considering and planning for the future in order for their charity to continue to meet its objectives as set out in the rules of the charity’s governing document.

If a trustee has any concerns following the Brexit decision, they should seek independent legal advice and speak to the Charity Commission, which offers support.