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The Christadelphian | April 2014

In the magazine this month:

  • Editorial What value?
  • Letters to the Editor
  • Sunday morning Rahab the harlot | David Simpson
  • Studies in Matthew’s Gospel 04 – “Behold, a king shall reign in righteousness” | John Benson
  • Timelines of return | Roy Clements
  • Archaeology in focus 04 – Esarhaddon | James Andrews
  • 100 years ago
  • Bible Companion | John Hingley
  • The purpose of the Ecclesia 03 – The Ecclesia as the temple of God … continued | Peter Anderton & Paul Tovell
  • Enhancing our worship Suggestions for April | John Botten
  • Book Review A sign for our days (The Sign of his Coming) | Roger Long
  • Registering as a charity Considerations for ecclesias | David Gouldingay & Kevin Rawlings
  • Faith Alive! Samson – Blinded so he could see | Paul Movassaghi
  • Signs of the times Blood Moons | Andrew P. White
  • Israel and their Land New dangers?
  • Epilogue Speaking | David M. Miles
  • The brotherhood near and far

A sample article from this edition:

Registering as a charity

Considerations for ecclesias

The Charities Act 2006 (“CA06”) introduced a legal requirement that all English and Welsh charities with an annual income of £5,000 or more should register with the Charity Commission (“CC”). Some ecclesias may have long regarded themselves as unregistered charities, able to enjoy the benefits of income tax recovery on Gift Aid without CC registration; if so, this view now needs to be revisited.

THIS article reviews current charity law and practice with a view to removing confusion and providing ecclesias with clear information to assess their present legal position and further action that may now be necessary. Separate legislation and regulation applies in Scotland and other countries and is not considered here.

What is a charity?

A charity is an organisation that has “purposes or aims all of which are exclusively charitable”. The Charities Act 2011 (“CA11”, which consolidates previous charities legislation) defines a charitable purpose as one that falls within thirteen explicit descriptions or purposes and is for the public benefit. “The advancement of religion” is one such purpose.

The Charities Act 2006

Before the advent of CA06 there was a legal presumption that “the advancement of religion” was for the public benefit. The term “public benefit” is long-standing in charity law but has no statutory definition. Accordingly its meaning is interpreted through case law.

Prior to CA06, ecclesias could apply to HM Revenue and Customs (formerly HM Inland Revenue) for recognition as a charity without the need for registration with CC. This conferred certain tax benefits, including the ability to reclaim income tax on what we now know as Gift Aid.

Some ecclesias also applied to become registered charities. Little or no enquiry into “public benefit” was then required both because such benefit was legally “presumed” and because case law and CC guidelines on public benefit were not then well developed.

When CA06 joined the statute book, it was largely unobserved by ecclesias. CC became Regulator for charities, elevated from its former position as Registrar. Thus it became responsible for developing guidance on the duties and obligations of charities. With the presumption of public benefit removed, CC went on to develop an evidence-based approach to “public benefit”.

CA06 also set the annual income [1] threshold for CC registration at £5,000, where it looks set to remain for the foreseeable future.

Some ecclesias did not need to register under CA06, having previously gained “excepted” status from CC. Exception is no longer available and existing exceptions will be phased out over time.

A charity with annual income below £5,000 cannot register with CC but may still receive the tax advantages of charitable status. Both excepted and unregistered charities remain subject to charities law and to oversight by CC.

The combination of CA06, a registration threshold of £5,000, an expanded role for CC and recent case law, have all contributed to an environment where ecclesias now need to re-examine whether or not they should register with CC. If income tax on Gift Aid is to continue being claimed, registration will now be essential for non-excepted ecclesias having annual income of £5,000 or more.

What does registration with CC require and imply?

Registration with CC brings the following initial obligations:

  • Recruiting trustees. These will normally be the Arranging Brothers but, as charitable trustees, their legal responsibilities are significantly increased. Whilst the trustees retain accountability to the body of ecclesial members, it is important to note that the members may not overrule the trustees so as to breach either charity law or the charity’s governing document. The trustees bear ultimate responsibility for directing the affairs of the ecclesia together with personal and collective liability for any losses or debts the charity sustains. These liabilities (for unincorporated ecclesial associations) have traditionally sat with the entire membership. Previously disqualified directors or trustees, undischarged bankrupts and so forth may not become trustees.
  • Deciding legal structure. A charity can be unincorporated, as most ecclesias are at present, or may choose to incorporate under the Companies Act 2006, or by using a less onerous structure called a Charitable Incorporated Organisation (“CIO”), introduced by charity law for use only by charities. The key benefit of incorporation is limiting the liability of the trustees (or members, in the case of a non-charitable ecclesia) to a specified, nominal amount. Another benefit of incorporation is that it allows the ecclesia to enter into contracts and to own premises in its own right. However, incorporation adds other significant duties and responsibilities not considered here. Taking legal advice on structure is recommended if considering either form of incorporation.
  • Adopting a governing document. This will include the kind of rules that most ecclesias are familiar with from their constitution. However, two specific additional items, not usually found in an ecclesial constitution, must be included. These are:
    1. An over-arching statement of purposes, all of which should be unambiguously “charitable” and “for the public benefit”. The significance of these fundamental phrases will be returned to later.
    2. A statement of what will happen to residual funds in the event of a winding up. This must accord with the objects of the charity and will normally require the transfer of any residual funds to a charity with the same or similar objects (e.g., another ecclesia or another relevant Community organisation). Residual funds may never revert to the members.
  • Proving that the ecclesia has at least £5,000 of annual income. A copy of the latest accounts must also be appended to the application. Note that where an ecclesia chooses to incorporate as a CIO it must register with CC even if its annual income is below £5,000.
  • Explaining the charity’s goals and actions. This requires a statement of what the charity does to meet its charitable aims, who is being helped, how the charity provides that help, and where it operates. Confirmation must be given that CC’s guidance on public benefit has been read and that the charity understands it may only be established for the public benefit. The charity must then explain how it will meet the public benefit requirement. If the charity works with vulnerable adults or children, this must also be stated together with the safeguards in place.

Registration with CC includes the following ongoing obligations:

  • The trustees must ensure that the charity acts only in accordance with charity law and its governing document.
  • An annual report on the activities of the charity, with prescribed content, must be prepared and filed with CC.
  • Annual accounts must be prepared having regard to charity law and prescribed recommendations for charity accounting. Charities that are incorporated under Companies Act legislation must also meet additional accounting and reporting obligations. Only charities with annual income of £25,000 or more are required to lodge these with CC.
  • Where annual income exceeds £25,000, an Independent Examination of the accounts must be undertaken by an appropriate person. There is no need for an external audit unless the governing document requires it.

Registration with the Charity Commission involves significant initial work. Formal responsibilities thereafter will require systematic attention. Some will consider these requirements to be a nuisance and detriment, but they are necessary.

What are the benefits and detriments of registration?

The main benefits are:

  • The ability to apply for or continue claiming significant tax benefits from the government, principally in the form of income tax recovery on Gift Aid.
  • Exemption from capital gains tax in the event that an ecclesial hall is sold, either on relocation or at the end of an ecclesia’s existence.
  • Reputation. To some members of the public a registered charity has greater legitimacy than a non-charitable association.

The main detriments are:

  • The ecclesia will become subject to the ongoing regulation of CC and may not thereafter undertake any act outside its governing document.
  • Formal reporting and accounting requirements must be taken on, as alluded to above.
  • Ceasing to be a charity at some future point would require residual assets, including any unsold ecclesial hall, to be applied for the ecclesia’s existing charitable objects or otherwise donated to another charity having the same or similar objects.

When must an ecclesia register with the CC?

Under CA11, any ecclesia, which is a charity, whose purposes are “exclusively charitable and for the public benefit” must register with CC once its annual income exceeds £5,000, unless it has ‘excepted’ status. Hence, understanding whether or not an ecclesia is a charity is fundamental. The above highlighted definitions need to be investigated and understood. We comment below on these definitions, but further detailed reading is strongly recommended.

“Exclusively charitable and for the public benefit”, in the context of “the advancement of religion” probably includes:

  • Providing access to the public for participation (at least to some extent) in worship. Access should not be restricted, although the bread and wine in the memorial service would not need to be offered to visitors. A notice board announcing meetings and welcoming all provides evidence of this, but the welcome should also operate in practice.
  • Preaching to the public. This means engagement with the public to raise awareness and understanding of Christadelphian religious beliefs and practices, including moral and ethical matters. In addition to regular meetings for public preaching, evidence might include personal witnessing, leaflet billing, canvassing, literature tables in public places, periodic campaigns and a Sunday School open to the public.
  • Engaging, at least to an extent, with the wider community. This might include collections for good causes (including disaster relief, locally or internationally), hymn-singing at care homes, coffee mornings, mother and toddler groups, and youth groups open to the public.

In all cases remember that CC may wish to see some evidence of these claims, and that the ecclesia will effectively be tied to the headline principles behind these activities going forward.

An ecclesia having any purpose that is not “exclusively charitable” cannot register as a charity. It is not possible for charities to have purposes that are “mostly” charitable.

Likewise all of its purposes must be “for the public benefit”. If the ecclesia holds any purpose which is not “for the public benefit”, it cannot be a charity. For the benefit to count as “public” it must benefit a sufficient section of the public and not give rise to personal benefit to its membership, other than incidentally. Whilst an organisation may be largely inward looking, that fact does not, of itself, mean there is no “public benefit”, but such “public benefit” must nonetheless exist.

Recently CC issued its latest guidance note (PB1) on “Public benefit: the public benefit requirement”. Unfortunately, CC guidance previously extant on “advancement of religion for the public benefit” was withdrawn at the same time. An update is expected in the light of PB1 and the outcome of a case settled on January 3, 2014 between CC and the Preston Down Trust, an exclusive section of the Plymouth Brethren (“PDT”).

Occasionally some detriment or harm to the public may arise incidentally from a charitable purpose. The PDT case gives a number of instructive illustrations of how these may arise. Any ecclesia proposing to register would be wise to review its own disciplinary procedures in the light of the PDT case. Where any detriment or harm arises from a charitable purpose, it must not outweigh the benefit of the purpose itself.

Currently it should be relatively straightforward for an ecclesia to demonstrate that it is exclusively charitable and for the public benefit. Whilst the expectations of society may change in future, and case law will evolve, the decision of CC to grant charitable status to PDT provides reasonable assurance that charitable status for ecclesias should remain available for the foreseeable future.

An ecclesia with an annual income over £5,000, not “excepted”, may decide that its “purposes” already meet or should (with minor modifications to its constitution) be able to meet the latest preconditions for being a charity. If that ecclesia is already registered with HMRC and claiming tax relief there is pre-existing evidence that this ecclesia already considered itself to be a charitable organisation. There may thus be little option but for the ecclesia to seek registration with CC without delay.

Another ecclesia may be in a different position, having never sought tax relief and never documented or considered itself as charitable. In this case, assuming that the annual income registration threshold had been reached, a suitable governing document would need to be produced before the ecclesia could apply to become a registered charity. That ecclesia would wish to consider carefully whether or not, in all of the relevant circumstances, it ought to become a charity.

Whatever ecclesial decision is finally reached about registration, it should be made on the basis of facts and evidence, not preferences. The ecclesia as a whole has a significant interest in the outcome; hence this decision should not be delegated to just one person.

Ecclesias would be wise to document their decisions, placing on file evidence of their deliberations.

An ecclesia which has previously recovered tax and now, on the basis of available evidence, decides it is not a charity, or has its registration refused by CC, should immediately cease to recover income tax on Gift Aid contributions and de-register from doing so with HMRC. This process may, of itself, lead to questions as to the exact date from which recovery of income tax should have ceased.

Further recommended reading

  1. The Charities Act 2011, available from the Charity Commission website.
  2. The Charity Commission website: www.charity​commission.gov.uk/
  3. Charity Commission for England and Wales, Preston Down Trust, Application for Registration of the Preston Down Trust, Detailed Decision of the Commission, 3 January 2014 gives insight into how CC examines the key questions of “exclusively charitable” and “for the public benefit”. PDT applied for registration and was refused. An appeal followed during which PDT agreed to certain changes in practice resulting in its registration. A review of this document (especially the first 25 pages) is strongly recommended for ecclesias contemplating registration.
  4. Charitable Status in England & Wales, A Guide for Ecclesias. Available from the Office shortly (see below).

This article reflects the legal position facing ecclesias in England and Wales. A longer document will be published later this year on the Office website providing more information. These articles do not address certain topics that ecclesias need to consider, such as the compatibility of being both a trustee (with obligations to the Charity Commission) and an Arranging Brother (with obligations to the Lord Jesus and the ecclesia). – Editor

David Gouldingay & Kevin Rawlings

[1] “Annual income” is likely to include almost every amount which the ecclesia collects. Donations received by the ecclesia in its own right, plus investment income such as bank interest, are all included, as is income tax presently recovered on Gift Aid contributions.

Specific collections taken for passing on to Community charities should be regarded as annual income of the ecclesia whenever there has been any element of ecclesial discretion exercised as to the identity and frequency of causes solicited for by the ecclesia.

 

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