Contents
About this guidance
1. To be a charity, an organisation has to meet two fundamental requirements:
- all its purposes must be of a charitable nature, within the various descriptions in the Charities Bill; and
- those purposes must be for the benefit of the public.
This guidance explains, in general terms, the second requirement, that, to be a charity, an organisation must benefit the public. It deals with public benefit in general terms. We shall publish further guidance later, after further consultation, about how public benefit may apply to different kinds of charity. (We have already published some guidance about the first requirement, in our Commentary on the charitable headings in the Charities Bill).
What is public benefit?
2. The Charities Bill does not define what is meant by “public benefit”; that remains governed by existing case law. But the Bill does remove the presumption that any particular kind of purpose is for the public benefit. Each case has to be considered on its own merits.
3. There are five main principles which show whether an organisation provides benefit to the public. These are:
| The Benefit: |
i. There must be an identifiable benefit, but this can take many different forms. |
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ii. Benefit is assessed in the light of modern conditions. |
| The Public: |
iii. The benefit must be to the public at large, or to a sufficient section of the public. |
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iv. Any private benefit must be incidental. |
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v. Those who are less well off must not be entirely excluded from benefit. |
Benefit
4. The following principles apply when deciding whether a purpose is beneficial in a way that the law regards as charitable.
There must be an identifiable benefit, but this can take many different forms
5. Every charity must be set up for the benefit of the public, but the law does not adopt the same practical measures to assess public benefit in every type of case. This means that the ways in which benefit can be demonstrated can differ for different charitable purposes.
6. “Benefit” in this context means the overall benefit to the public. It is not simply a question of showing that some benefit may result. The achievement of a particular purpose may provide a measure of benefit to the public but, in achieving that benefit, may also cause harm. If the harm outweighs the benefits, the overall result is that the purpose would not be charitable.
Tangible and intangible benefit
7. The benefit to the public should be capable of being identified and defined, whether the nature of that benefit is tangible or intangible. In some cases a purpose may be so clearly beneficial to the public that there would be no need for further proof of public benefit to be provided. In other cases, the element of benefit to the public may be more debatable and will need to be shown.
8. Tangible benefits are usually material or measurable. For example, if a charity relieves a person’s sickness or financial hardship, the person’s health or financial circumstances are measurably improved. In such cases, the benefit is normally obvious.
9. The general rule is to look for tangible benefits first. Where there are no tangible benefits, intangible benefits will suffice provided that the benefit is clear. Intangible benefits may be more difficult to measure, but are nonetheless identifiable. They can include, for example, many of the benefits of education, or the appreciation of a historic building or a beautiful landscape. When considering intangible benefits, the Charity Commission, court or tribunal will take into account the general consensus of fair-minded and unprejudiced opinion. But public opinion cannot by itself determine what is and is not charitable.
Direct and indirect benefit
10. A direct benefit is one which arises as a direct consequence of carrying out the particular charitable purpose. For example, there is a direct benefit to the people who receive medical care if they are sick; to the people whose conditions in life have been improved by taking part in recreational activities; or to the people whose skills have been developed by taking part in a training programme. Most charitable purposes will involve direct benefits.
11. However, indirect as well as direct benefits may be taken into account in assessing whether an organisation provides sufficient benefit to the public.
12. An indirect benefit is one where the benefit can be said to extend beyond the immediate beneficiaries, in many cases to the public generally. Examples include:-
- the indirect benefit to patients where a charity provides accommodation or recreational facilities for nurses in order to improve their efficiency and performance;
- the indirect benefit to the public where one charity provides services to other charities in order to improve their efficiency and effectiveness and make the best use of their resources to the advantage of their beneficiaries and donors; and
- providing a scanner in a hospital, which (as well as providing direct benefits to those who use it) indirectly benefits other patients in the hospital and the public at large by enabling the hospital to use its resources in other ways.
Political purposes
13. Charities can legitimately undertake political activities and campaigning in pursuit of their charitable purposes, but a charity’s stated purpose cannot be political. This is because neither the courts nor the Charity Commission is in a position to judge whether a political purpose is or is not for the benefit of the public. A “political purpose” in this sense means any purpose directed at furthering the interests of any political party; or securing, or opposing, any change in the law or in the policy or decisions of central government or local authorities, whether in this country or abroad. “Political” has a particular meaning within charity law and is covered in more detail in our separate guidance CC9: Political Activities and Campaigning by Charities.
Benefit is assessed in the light of modern conditions
14. The courts develop charity law to take into account modern needs and circumstances. This means that perceptions of public benefit can change over time, and those changes are influenced (among other things) by social and economic conditions, by increasing knowledge and understanding and by changes in social values.
15. Purposes that may not have been regarded as beneficial years ago may, in the light of changing circumstances, be regarded as beneficial now, and vice versa.
16. For example, in recent years we have recognised the promotion of urban and rural regeneration, the promotion of community capacity building, the promotion of equality and diversity, conservation of the environment and the promotion of sustainable development as charitable purposes in the light of modern circumstances.
Public
17. The following principles apply when deciding whether an organisation with charitable purposes benefits the public or a sufficient section of it. An analysis of legal cases relating to what is meant by “the public” can be found at Annex A below.
The benefit must be to the public at large, or to a sufficient section of the public
18. This is not a simple matter of numbers. What is “sufficient” will vary from case to case depending upon the organisation’s purposes.
19. Beneficiaries may be defined by reference to qualifications of charitable need (such as sickness or financial hardship for example), by a particular geographical area, or other criteria, provided that the resulting number of beneficiaries is sufficiently large or open in nature and is consistent with the charitable purpose being pursued.
20. If the organisation’s benefits are available to anyone who, being suitably qualified, chooses to take advantage of them, it provides benefit to the public, even though in some cases the actual number of beneficiaries may be quite small. For example, an organisation may offer only a small number of places for the services it provides, such as a small number of available rooms in an almshouse or care home, but those places are open to a sufficient section of the public to apply for them.
21. Generally, it will not be a sufficient section of the public if those who make up the section of the public who could benefit are numerically negligible. However, in some cases, it might be possible to show that a benefit to a small section of the public benefits the public as a whole. For example, an organisation directed towards relieving the suffering caused by a very rare disease will provide benefit to the public even though few people need to avail themselves of its services.
22. Similarly, there may be some groups of people within society which, though numerically small, are suffering some common disadvantage. For example, there are many registered charities designed to cater for the educational, social and personal safety needs of vulnerable people in particular circumstances. What must be considered in each case is whether any limitations placed upon who benefits are justifiable and reasonable given the nature of the charitable purpose being pursued and whether those who can benefit constitute overall a sufficient section of the public.
23. Those who benefit from the charity should not be defined by a connecting link which either:
- involves a personal connection, such as family relationship or common employer (although this does not apply to charities for the prevention or relief of poverty where beneficiaries can be defined by reference to family or employer connections); or is
- irrational, i.e. the qualities used to define its beneficiaries should be related to the organisation’s purpose (e.g. in most cases beneficiaries cannot be determined by hair colour or support for a particular football team); the beneficiaries must be rationally identified.
Restrictions on public access
24. Where an organisation is set up to provide or maintain particular facilities for the benefit of the public, any restrictions on public access (such as limited opening hours or limitations on what areas people have physical access to) must be reasonable and appropriate in the circumstances. In such cases, the degree of public access (however that is provided) must be sufficient overall for the organisation to claim that it provides public benefit.
Membership
25. Some charities have a membership structure under which the members are also the charity’s beneficiaries. In this case, any restrictions placed on who may join as a member must be reasonable and justifiable in the circumstances if the public benefit of the organisation is not to be compromised.
26. However, where members are beneficiaries, access to membership may, in certain circumstances, be properly limited where this is linked to the charity’s purpose. For example:
- it may be limited to the inhabitants of a particular geographical area;
- where, in order to deliver benefit to the public, it is reasonable to expect the members to have reached a certain standard of skill or knowledge or possess particular qualifications (such as a performing orchestra or choir);
- where a particular membership structure is appropriate for the better delivery of benefits (provided that all those who might benefit can join and there are objective criteria for deciding membership);
- where practical reasons (such as limited space) dictate a limit upon membership numbers. (In such cases it is reasonable to have a waiting list for membership provided the next available membership is offered on a first come first served basis.)
Any private benefit must be incidental
27. Any benefit to an individual or organisation must either:
- directly further the charity’s purposes (e.g. a grant to relieve financial hardship); or
- be incidental to the pursuit of the charity’s purposes (e.g. paying reasonable salaries to its staff or limited profit to businesses as a result of urban regeneration projects).
28. In general, a private benefit is legitimately incidental if:
- it arises as a necessary, but secondary, consequence of a decision by the trustees; and
- that decision is directed only at furthering the organisation’s charitable purposes (as opposed to a separate purpose of in effect providing private benefit); and
- the amount of benefit is reasonable in the circumstances.
29. If it is necessary and desirable to confer special benefits on the members of an organisation in order to carry out its charitable purposes, generally the private benefit to the members can be regarded as incidental. However, an association which is supported by its members for the purpose of providing benefits for themselves cannot usually be a charity. It is a question of degree; does the organisation exist primarily for the advantage of its members or has the membership structure been adopted solely as an effective way of delivering charitable benefits or for administrative convenience?
30. Further guidance on private benefit can be found in Annex B below.
Those who are less well off must not be entirely excluded from benefit
31. Generally speaking, charities may charge their users for access to their services and facilities and indeed many do. These include, for example:
- Educational organisations (such as schools and universities);
- Private hospitals;
- Care homes;
- Recreational charities (such as sports centres, recreation grounds or village halls) that charge for hire of facilities;
- Artistic, preservation and conservation charities (such as theatres, museums and stately homes) which charge entry to view performances, exhibits, land or properties;
- Charities that charge for membership (whether annual, seasonal or daily); and
- Charities that charge for publications.
32. A charity may charge fees which more than cover the cost of the services or facilities it provides. This is acceptable provided that the charges are reasonably and necessarily applied in furtherance of the charity’s purposes, for example in maintaining or developing the service being provided.
33. However, where the charges are so high that they effectively exclude the less well off, this can affect public benefit.
34. In considering the extent to which charging by a charity might affect its ability to demonstrate benefit to the public, the following broad principles(1) apply:
- Both direct and indirect benefits to the public, or a sufficient section of the public, may be taken into account in deciding whether an organisation is set up and operates for the benefit of the public;
- The fact that the charitable facilities or services will be charged for, and will be provided mainly to people who can afford to pay the charges, does not necessarily mean that the organisation is not set up for and does not operate for the benefit of the public;
- However, an organisation which wholly excluded less well off people from any benefits, direct or indirect, would not be set up and operate for the benefit of the public and therefore would not be a charity.
35. Applying this approach in cases where high fees are charged for services or facilities provided, the following issues will be considered:-
1. Does the level at which fees are set have the effect of preventing or deterring the less well off from accessing the services or facilities?
2. If this is the case, is it possible to show that the less well off are not wholly excluded from any possible benefits, direct or indirect?
36. The following general factors may be relevant:-
- Whether and how the less well off may otherwise access those services. This is likely to vary from charity to charity and for different charitable purposes but may include considering:
- The provision of concessions, subsidised or free places (for example, in the case of schools by offering scholarships, bursaries or assisted places, or in the case of theatres by offering concessionary tickets);
- The existence of accessible insurance or other benefit schemes (for example, medical insurance schemes);
- The provision of wider access to charitable facilities or services. For example some charities may provide additional facilities or services for the less well off people who would otherwise be excluded. Some charities may lend equipment or staff out to other charities or groups which provide the same facilities or services to the less well off. For example, a charitable independent school allowing a state maintained school to use its educational facilities.
- What is the nature and extent of the benefit provided? This may include considering how far the type of service or facility provided is one for which there is a public need, and how far the service or facility provided in the particular case contributes towards meeting that need. For example, a hospital not run by the NHS may provide specialised scanning equipment which is not available in the local NHS hospital, or an elderly person in a home might be provided with care for longer than he or she would have received it from the public service provider.
- The nature and extent of any indirect public benefit. This may take various forms. For example, a care home not run by the state working alongside state run homes may be able to meet local needs for the provision of care which the state run homes alone would be unable to do.
How and when will we assess public benefit?
37. When an organisation applies for registration as a charity, it will need to explain how its purposes provide a public benefit. In some cases, it will also need to provide supporting evidence.
38. We shall also institute a programme of public benefit checks on existing charities. General guidance on how public benefit checks will be carried out can be found in our separate guidance Public Benefit – the Charity Commission’s approach.
Annex A - Analysis of legal cases relating to what is meant by public and a sufficient section of the public
A1. Every charity must provide a benefit which is available to either the public as a whole, or a sufficient section of the public(2). The court has looked at what a sufficient section of the public is on a number of occasions. Three key areas are worth looking at in greater detail 1) connecting links and ties, 2) the exception for charities with purposes for the relief of poverty and 3) the effect of charging.
Connecting Links and Ties
A2. The law.
The court considered whether a sufficient section of the public was present in several cases, including Re Compton(3), Oppenheim v Tobacco Securities Trust Co Ltd(4) and Dingle v Turner(5).
A3. For a long time the question of whether any particular group was either public in character or no more than a collection of private individuals was considered to be one of degree. It was determined after a general survey of the circumstances and other considerations regarded as relevant.
A4. Then the court, in the case of Re Compton(6), considered and formulated a more precise test focusing on the connecting link (or the common quality) which unites the people intended to benefit. The trust, to provide scholarships to educate the relatives of three named people, was held not to be charitable.
A5. The test asks whether that connecting link is essentially impersonal or essentially personal. If the connecting link is impersonal, the class or group may be a section of the public. But, if the connecting link is a personal one, the trust will be private and not charitable(7). Family ties or a common employer have been held to be essentially personal connections.
A6. Lord Simonds expressed these legal principles in the House of Lords’ decision in Oppenheim v Tobacco Securities Trust Co Ltd(8), a trust to educate the children of employees and former employees of a tobacco company. He concluded that the words ‘section’ of the public’ have no special sanctity. They indicate that:-
(i) the possible beneficiaries must not be numerically negligible; and
(ii) the quality which distinguishes those beneficiaries from other members of the public must be a quality which does not depend on their relationship to a particular individual.
It is for this reason that a trust for the education of members of a family or families cannot be regarded as charitable. A group of persons may be numerous, but, if the connection between them is their personal relationship to a given individual or individuals, they are neither the public nor a section of the public for charitable purposes.
A7. Further, despite the education for a particular family not being charitable (Re Compton), trusts which give preference for the education of founder’s kin have been held as charitable (See Spencer v All Souls College(9) and Re Christ’s Hospital(10)).
A8. In addition, it is possible for preference to be given to relations or other groups of people if the beneficiaries are not confined to that group. See Re Koettgen’s Will Trusts(11), Caffoor v Commissioner of Income Tax(12) IRC v Educational Grants Association(13) and Re Martin(14).
Criticism of the Law
A9. The Compton test has been the subject of some criticism(15) not least in more recent opinions expressed in the House of Lords in Dingle v Turner(16).
A10. Critics of the Compton test point out that categorising people is rarely as easy as a division between "personal" and "impersonal". Many inconsistencies can result from an arbitrary or artificial application of the test. Anomalies arise and give rise to confusion and doubt. But the test does have its merits. Both the Nathan(17) and Goodman(18) Reports thought that the rule should be retained because otherwise a precedent would be set ultimately over-enlarging the scope of charity, undermining it and increasing doubts and uncertainties(19) and because trusts such as those set up by employers for employees are not altruistic(20). The practical benefit of the test is charitable status and its benefits can be denied to organisations which are, for example, no more than private family trusts or a means whereby fringe benefits (e.g. school fee payments for children of employees) are conferred by employers (or landlords).
The Commission’s approach and application of the law
A11. It therefore seems that, whilst the Commission must apply the law as set out in the Oppenheim decision unless and until it is over-ruled, it should be both cautious and flexible in the application of the test.
A12. The question whether or not the potential beneficiaries can fairly be said together to constitute a section of the public is a question to be answered on the facts of each case. A conclusion should be reached after a general survey of all the circumstances. There are limited circumstances in which a large group is not a sufficient section of the public [i.e. where beneficiaries are determined only by reference to a personal relationship, family connections or contract with an individual(s) or company(ies), or where the qualities used to define the group are irrational and unrelated to the organisation’s purpose]. Beyond that there are no criteria of general application. Some groups are such that people will naturally describe them as sections of the public rather than as private groups. Other classes are more naturally describable as private groups than as sections of the public. Numbers should not be over-emphasised.
A13. It would appear that a class whose distinguishing feature is an impersonal quality may be a sufficient section of the public even though its constituent members also happen to share some personal characteristic (e.g. being tenants or related to tenants of a single landlord)(21). This means that:
- on this view(22) there may be a sufficient section of the public in a case where (even though all potential beneficiaries might actually be connected by kin or contract):
- on a general survey of the circumstances and considerations regarded as relevant(23) it is clear that a public class is intended; and
- that class can be (and, as a rule, is in fact) described otherwise than by reference to kin or contractual relationship(24);
- if it is difficult to describe a class using objective and impersonal terms, that would indicate that the body concerned is established for private rather than public benefit; and
- in those cases where the conclusion is that private benefits are intended for a group of individuals who are not together fairly describable as a section of the public or a section of the public, the Compton rule applies to deny the benefits of charitable status.
A14.The Commission considers that the approach outlined in paragraphs A11-A13 addresses undoubted anomalies such as those outline by Lord Simonds in the following extract from his speech in the Oppenheim case:
“…. Admittedly those who follow a profession or calling – clergymen, lawyers, colliers, tobacco-workers and so on – are a section of the public, and how strange then it would be if, as in the case of railwaymen, those who follow a particular calling are all employed by one employer. Would a trust for the education of railwaymen be charitable, but a trust for the education of men employed on the railways by the Transport Board not be charitable? And what of service of the Crown, whether in the civil service or the armed forces? Is there a difference between soldiers and soldiers of the King?”
A15. This also provides the basis of a justification for the different treatment in charity law of bodies serving the same section of people where on the one hand the group is described by reference to common employment and on the other the same section of people is described by reference to some more public quality (such as profession or place of residence). It may be that different treatment (and indeed, the Compton decision upon which it is based) would be amenable to challenge under the Human Rights Act 1998 if it leads to an outcome which is not justifiable relationally in the public interest in terms of charity law. For this reason too, the Commission considers the above approach should be adopted.
Exceptions for the Relief of Poverty
A16. In the case of charities for the relief of poverty, the pool from which the intended beneficiaries may be chosen may be more narrowly drawn than for other charitable purposes.
A17. The case of Re Scarisbrick(25) is the principal authority establishing that charities for the relief of poverty, are excepted from the general principle that there must not be a personal family connection or tie within the definition for the pool from which the beneficiaries may be drawn.
A18. The court concluded that the exception was established by a series of long standing authorities which must accept as valid, not withstanding the general principle that applied to the other heads of charity that a personal connection or tie would affect public benefit.
A19. This was confirmed in Dingle v Turner(26), concerning a gift to pay pensions to poor employees of a family company, where Lord Cross reviewed and confirmed the poor relations cases as well as cases on poor employees. The “poor relations” and “poor employees” exceptions are well established and have been confirmed and applied by the court and by the Commission.
Where Charging has the Effect of Narrowing the Group of Intended Beneficiaries
A20. It is well established that the fact that a charity charges for its services does not prevent it from being regarded as charitable - Scottish Burial Reform and Cremation Society Limited v Glasgow Corporation(27) Incorporated Council of Law Reporting for England and Wales(28) and Joseph Rowntree Memorial Trust Housing Association Ltd v Att-Gen(29).
A21. The authority for the impact on public benefit of charging for services relies principally on the case of Re Resch(30), a Privy Council case concerning a gift to a private (or independent) hospital which charged fees. The hospital had an association with a public general hospital. Although the private hospital did not have a constitution or rules of its own, the court concluded that its purposes were essentially for a certain type of medical and nursing care and treatment for which there was a need and which the public general hospital, which was located next to it, did not give.
A22. The court confirmed(31) the principle that charges could be raised by a charity for the services it provides, even if the charges produce a profit. It also gives some indication as to how public benefit may be assessed in any particular case.
A23. Lord Wilberforce(32), having said that in assessing public benefit indirect as well as direct benefit enters into the account, went on to say -
“In the present case, the element of public benefit is strongly present. It is not disputed that a need exists to provide accommodation and medical treatment in conditions of greater privacy and relaxation than would be possible in a general hospital and as a supplement to the facilities of a general hospital. This is what the private hospital does and it does so at, approximately, cost price. The service is needed by all, not only by the well-to-do. So far as its nature permits it is open to all: the charges are not low, but the evidence shows that it cannot be said that the poor are excluded: such exclusion as there is, is of some of the poor - namely, those who have (a) not contributed sufficiently to a medical benefit scheme or (b) need to stay longer in the hospital than their benefit will cover or (c) cannot get a reduction of or exemption from the charges. The general benefit to the community of such facilities results from the relief to the beds and medical staff of the general hospital, the availability of a particular type of nursing and treatment which supplements that provided by the general hospital and the benefit to the standard of medical care in the general hospital which arises from the juxtaposition of the two institutions.”
A24. The principles which appear to emerge from this case are:-
- Both direct and indirect benefits to the public, or a sufficient section of the public, may be taken into account in deciding whether an organisation is set up and operates for the benefit of the public;
- The fact that the charitable facilities or services will be charged for, and will be provided mainly to people who can afford to pay the charges, does not necessarily mean that the organisation is not set up for and does not operate for the benefit of the public; and
- However, an organisation which wholly excluded less well off people from any benefits, direct or indirect, would not be set up and operate for the benefit of the public and therefore would not be a charity.
Annex B – To what extent can individuals benefit privately from a charity?
B1. An individual can benefit privately from a charity only where that benefit arises directly through, and/or is legitimately incidental to, the pursuit of the charity’s objects.
B2. It is not always easy to tell what is “legitimately incidental” to the pursuit of the charity’s objects. This is a matter which has to be considered in the individual circumstances of each case. However, the following factors may be relevant.
The benefit should come about either in the direct delivery of some reasonable and appropriate benefit to a properly chosen beneficiary or in, or as a result of, an action by charity trustees directed to some main charitable aim. Objectively viewed, it should not be an independent benefit.
B3. For example, a synagogue, church, temple or mosque is charitable because it holds public religious services and gives religious instruction and pastoral help. Frequently, activity overflows from the place of worship itself to a hall and this often involves personal benefits for members of the congregation in the form of social activities. These social activities in themselves are rarely directed predominantly to the social well-being of the members. Normally they will be merely ancillary to the strictly religious activities. Issues to consider here might include:
- what is the nature and effect of the benefit?
- what is the real end towards which assets are allocated?
- is the private benefit a main (or predominant) purpose?
- is the promotion of private interests an incidental consequence of carrying out a main charitable object?
The action of the charity trustees giving rise to the benefit (and the course of action of which it is a part) should be one which furthers the charitable object. The purpose should not be to promote some collateral object.
B4. For example, the promotion of industry and commerce generally for the public benefit is charitable. However, if an organisation has additional or independent aims to develop and provide support services and advice to particular local businesses, then that predominantly promotes the private interests of individuals engaged in enterprises rather than furthering a purpose for the public benefit. Any benefit to the wider community would be too remote. Issues to consider here might include:
- does the private benefit comprise simply a way of serving the public objects?
- is any ultimate achievement of a charitable purpose too remote a consequence of the immediate private benefits?
The benefit should be a necessary or integral part of a course of action which is determined by the trustees to be an effective and efficient way of furthering the charity’s purposes, or it should result from such a course of action.
B5. For example, a charity can be set up to publish law reports and can run a business printing and selling those publications for end users in the community. Plainly that will also benefit professional lawyers. However the publication of reliable reports of decisions of the courts is charitable for the benefit of the public. It is an inevitable and indeed necessary step in the achievement of that benefit that the lawyers will be supplied with some of the tools of their trade. In this example, the benefit to the public could not otherwise be achieved. Issues to consider here might include:
- is there a sufficiently close connection between authorised benefits and the achievement of the charitable purposes?
- is the private benefit a necessary step in the achievement of a charitable purpose?
It should be desirable for the benefit to be conferred. The line of action or strategy, of which it is a necessary part or consequence, should be justifiable in terms of the duty of charity trustees to act solely in the interests of their charity.
B6. For example, many charities are membership organisations. Sometimes members will be entitled to special benefits including reduced admission charges. Charity trustees will have to determine the question of desirability of giving the benefits. If they are only given to encourage members and to carry out the main charitable purpose, then they may be legitimate. Issues to consider here might include:
- is the private benefit conducive to the achievement of the charitable purpose?
- is the provision made with a view to giving encouragement to and carrying out the main charitable purpose?
The amount of benefit should be reasonable, given its purpose.
B7. For example, providing a person who is unemployed with transport costs to enable them to travel to job interviews would be reasonable. Buying them a luxury car for the same purpose would not be reasonable. Issues to consider here might include:
- are the trustees acting in accordance with general trust principles in a way which is reasonable and prudent?
- are they being guided solely by the interests of the charity and thus its charitable purposes?
- viewed objectively, is the organisation established for a public purpose (with private benefits being an incidental by-product of its pursuit and with a view only to promoting the charitable objects)?
Benefits received as a beneficiary
B8. Every benefit for individuals in the course of actually promoting the charitable purpose is in some sense a private or personal benefit. This is obviously legitimate in the direct pursuit of objects (e.g. where assistance is given directed to relieving need in areas of social or economic deprivation or facilities provided for the relief of disability) provided that it is for the benefit of the public(33).
B9. Charitable status will be affected if the benefit either goes beyond the reasonable meeting of a charitable need or is of a type which does not directly relate to such a need(34) Individual benefits should be both appropriate and reasonably proportional to the need. The means used and the amount involved must be limited and determined by the charitable purpose.
Benefits received for providing goods and services in the course of running the charity
B10. In general there is little difficulty about payments (or other benefits) to individuals received for providing goods and services to the charity. The expenditure of funds in a way that secures the effective and efficient operation of a charity in the achievement of its purposes (provided it goes no further than that) is obviously necessary. A charity can employ and pay agents and staff and have other administrative expenses relating to the acquisition, management and disposal of assets. This will include wages of employees, reasonable expenses of volunteers and contractual payments and will not in any way affect the charitable status of the body concerned.
B11. There are however, special considerations with regard to remuneration, payments or benefits to charity trustees(35).
Benefits to individuals or businesses as a result of the management of a charity
B12. Greatest difficulty arises when a group of charity trustees are engaged in doing charitable things as a result of which people, who are not beneficiaries, happen to reap some benefits.
B13. The fact that every charity’s main objects must be exclusively charitable does not mean that the sole effect of the activities of the body must be to promote charitable purposes. It does mean that any benefits to individuals of a non-charitable character which result from its activities must be of a subsidiary or incidental character(36).
B14. If there is a mixture of aims, some charitable and some not, or if the main aim or structure(37) of an organisation is such as to provide some non-charitable benefit, occasioning only consequential or indirect public benefit, then the organisation is not a charity(38).
B15. The problem is to identify what is the predominant object and what is subsidiary or incidental. Benefits usually arise on or as a result of decisions made by those controlling an organisation’s administration or assets. Charity trustees must exercise their discretions in a manner consistent with their general primary duty to act solely in the best interests of the charity’s purposes. If there is scope or provision for taking decisions which authorise benefits furthering private purposes in a way not incidental to a main charitable aim, this would point to a main or predominant private object and so the institution would not be set up for exclusively charitable purposes. To answer the question whether the primary object is itself charitable, it is legitimate to look at the effect of the provisions in the governing document(39).
B16. The court has applied various formulations to determine the question of what is acceptable incidental benefit. The phrases ancillary and subsidiary and incidental are often used in this context.
B17. There is a distinction to be made between a private benefit which is a substantial part of the object on the one hand and one which is given or promoted only with a view to carrying out a main charitable purpose on the other. This involves a question of degree and a question of fact. These, of their nature, must be answered in the particular circumstances of each case. What the benefit is and its amount will be the determining factors: is there so much personal benefit as to be incapable of being disregarded(40)?
End notes
1. indicated by the court in Re Resch’s Will Trusts (1969) 1 AC 514
2. Verge v Somerville [1924] AC 497
3. [1945] Ch 123
4. [1951] AC 297
5. [1972] AC 601
6. [1945] Ch 123
7. The nature of the link between members of the class should be distinguished from the defining quality of the individual members of the class, which may obviously be personal (e.g. in cases of similar incapacity, say, or of some shared learning difficulty) – see PS Atiyah Public Benefit in Charities (1958) 21 MLR 138
8. [1951] AC 297, 306
9. (1762) Wilm 163
10. (1889) 15 App Cas 172
11. [1954] Ch 252
12. [1961] AC 584;
13. [1967] Ch 123;
14. The Times, 17 November 1977
15. as it was the dissenting judgement of Lord MacDermitt in Oppenheim. See also PS Atiyah Public Benefit in Charities (1958) 21 MLR 138
16. [1972] AC 601
17. Report of the Committee on the Law and Practice relating to Charitable Trusts, 1952 Cmd 8710
18. Charity Law and Voluntary Organisations, NCSS 1976
19. Nathan paragraph 136
20. Goodman paragraphs 28 and 38
21. Re Tree [1945] Ch 325
22. Subject to the other criteria of charitable status being met
23. (in particular a consideration of the objects as they relate to the facts of each case)
24. See Springhill Housing Action Committee v Commissioner of Valuation [1983] NI 184
25. [1951] Ch 622
26. [1972] AC 601
27. [1968] AC 138
28. [1972] Ch 73
29. [1983] Ch 159
30. Re Resch’s Will Trusts [Le Cras v the Perpetual Trustee Company Limited and Others] [1969] 1 AC 514
31. See Scottish Burial Reform and Cremation Society Limited v Glasgow City Corporation [1968] AC 138. See also Incorporated Council of Law Reporting for England and Wales [1972] Ch 73, CA and Joseph Rowntree Memorial Trust Housing Association Ltd v Attorney General [1983] 1 Ch 159
32. at page 544
33. See London Hospital v IRC [1976] 1 WLR 613, 620 E per Brightman J
34. Joseph Rowntree Memorial Trust Housing Association v AG [1983] Ch 159, 171 per Peter Gibson J
35. See the Commission guidance CC11 – Payment of Charity Trustees
36. IRC v City of Glasgow Police Athletic Association [1953] 1 All ER 747
37. It should also be noted that evidence of such a collateral or independent purpose can in some circumstances, in accordance with the rules of construction, be gleaned from activities undertaken under provisions which appear to relate to administrative matters only (and not just the objects clause) AG v Ross [1985] 3 All ER 334. And so a substantial non-charitable activity, having no connection with the apparently charitable purposes of the body in question, gives rise to an assumption that the activity is not simply a means of fund-raising but is an object in its own right. The most graphic example would be an apparent charity running a public house. "Tennant Plays v IRC carried on a substantial non-charitable purpose, for instance … if it took power permanently to run a public-house in order to produce funds for its charitable purpose." Per Cohen LJ. See Maurice C Cullity op cit. Intended activities can be evidence that the benefits to be provided do not further a charitable purpose because acting in the manner intended does not promote a public benefit: Southwood v AG (CA, 28 June 2000).
38. Midland Counties Institution of Engineers v IRC (1928) 14 TC 285; General Nursing Council for England and Wales v St Marylebone Borough Council [1959] AC 540; NZ Society of Accountants v CIR [1986] 1 NZLR 147
39. Keren Kayemeth le Jisroel Ltd v IRC [1932] AC 650
40. The Midland Counties Institute of Engineers v IRC (1928) 14 TC 285, 293 per
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