Charity and Social EnterpriseUpdate

Spring 2016

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Cover and header images courtesy of Girls Not Brides (page 12).

In brief

In this edition of our charity and social enterprise update, Simon Steeden and Jessica Collings outline the obligations on charities wishing to engage with the EU referendum debate (page 3).

Fundraising will be more strictly regulated in future. Hannah Lyons summarises the latest developments (page 4).

Melanie Carter and Alistair Williams explain how the new transparency requirement for larger charities may be affected by the Modern Slavery Act 2015 (page 6).

If your charity has more space than it needs, you may be able to make it work for you. Karli Hiscock explains how (page 7).

Chetal Patel outlines the latest round of requirements for employers sponsoring migrants under the points-based system (page 8).

New regulations are now in force for licensing children involved in performances, say Erica Crump and Charlotte Blackbourn (page 9).

The perfect charity rebrand needs to consider the legal aspects as well as marketing potential of your new name. Mat Healey explains (page 10).

Our client focus in this issue is Girls Not Brides, the global partnership bringing together over 550 organisations campaigning against child marriage (page 12).

Companies will soon be required to keep a register of people with significant control. Sarah Payne and Tamsin Anderson explain (page 13).

Luke Fletcher and Lucinda Ellen discuss our publication Governance for Community Interest Companies: A practical framework (page 15).

The ever-increasing pressure on public sector budgets is driving the move towards new models of contracting and procurement of public services, says David Hunter (page 16).

Tesse Akpeki reports on her recent learning about effective governance from both the recent Onboard inquiry into board effectiveness and the BoardSource Leadership Forum (page 18).

Finally, our tax and VAT expert, Bill Lewis provides a useful update on VAT for new charity buildings (page 20), and Joanna Howard and Jessica Collings round up the latest news from the Charity Commission and Charity Tribunal (page 22).

Contents

EU referendum 3

Fundraising update 4

Modern Slavery Act 6

Space sharing 7

Immigration focus 8

Child performers 9

Charity rebranding 10

Client focus: Girls Not Brides 12

Company law update 13

Ten years of CICs 15

Public sector innovation 16

Governance 18

VAT update 20

Round-up 22

Charity and Social Enterprise Update | Spring 2016 3

Features

EU referendum

The UK’s referendum on its membership of the European Union looks likely to happen in the next year.

Simon Steeden and Jessica Collings explain the key legal considerations for charities and social enterprises.

In the build-up to the EU referendum, charities and social enterprises will be considering how the prospect of leaving the EU might affect them and whether they should take part in the referendum debate.

Charities will already be aware of Charity Commission guidance CC9, which summarises the restrictions applying to charities undertaking political activity. The Charity Commission has also produced more targeted guidance on how those principles apply to charities considering engaging with elections and referendum debates (Charities, Elections and Referendums). Charities should also be aware of the restrictions on spending by campaigners in the run-up to the EU referendum that are being introduced by the EU Referendum Act 2015 through amendments to Part 7 of the Political Parties, Elections and Referendums Act 2000 (PPERA).

Can charities and social enterprises get involved in the EU referendum campaign?

Charities must not be established for political purposes and must never engage in party political campaigning. However, charities are able to campaign as a means of advancing their charitable purposes, even if this includes political activity seeking to change law or policy, provided the charity protects its political independence. Charity Commission guidance recognises that ‘there may be some circumstances in which it is appropriate for a charity to set out the pros and cons of a yes or no vote for their beneficiaries’, but also suggests that only in ‘exceptional cases’ might ‘charities consider that the outcome of a referendum is likely to directly affect, positively or negatively, the delivery of their charitable objects’. The Commission suggests that charities should only consider campaigning in a referendum if the referendum does not have ‘a significant party political dimension’.

Many categories of charitable purposes might reasonably be affected by the outcome of the EU referendum, and, as such, a charity’s trustees might resolve, on the basis of a sound evidence base, that

engaging in the referendum debate in a politically independent manner is an appropriate means of furthering or protecting the charity’s purposes. BWB is already helping a number of charity clients navigate these issues and the relevant Commission guidance.

What other restrictions will apply to charities and social enterprises which choose to engage in the EU referendum campaign?

Under Part 7 of PPERA, any person or organisation which during the regulated period before the referendum spends more than £10,000 on ‘qualifying expenses’ (such as advertising or circulating unsolicited material) incurred ‘with a view to promoting or procuring a particular outcome’ must have registered with the Electoral Commission as a ‘permitted participant’. Once registered, the permitted participant will be required to comply with transparency requirements in relation to expenditure and donations and will also have access to a higher campaigning spending limit (of up to £700,000).

The referendum rules under PPERA are similar to those applying to general and devolved elections under the same Act, following the changes introduced by the controversial Lobbying Act. However, unlike those rules (where campaign spending will be regulated if it can be reasonably viewed as intended to influence voters), the test for regulated referendum expenditure is whether the material is actually intended to promote or procure a particular outcome in the referendum.

Additionally, charitable companies will need to be aware of Companies Act restrictions on incurring political expenditure (which includes spending on referendums) without prior approval from members, and community interest companies should take account of restrictions on political activity. Please get in touch for more detail in these areas, should this affect your organisation.

Simon SteedenPartner and Head of EnvironmentT: 020 7551 7782s.steeden@bwbllp.com

Simon advises a wide range of charities, social enterprises, mutual, social businesses and other civil society organisations on a range of charity and social enterprise law, social finance, campaigning and election law issues.

Jessica CollingsTrainee solicitorT: 020 7551 7649j.collings@bwbllp.com

Jessica is a first-year trainee in the Charity and Social Enterprise department. She volunteers for a number of charitable organisations alongside her training contract at BWB.

Find out moreFor more information contact a member of BWB’s legal 500 top ranked Election Law team, currently advising a variety of charities, businesses, trade unions, and campaigning groups on the referendum and 2016 elections.

4 Charity and Social Enterprise Update | Spring 2016

Features

Fundraising developments

Charity fundraising continues to hit the headlines.

Hannah LyonsSolicitorT: 020 7551 7845h.lyons@bwbllp.com

Hannah advises charities, social business and other not-for-profit organisations on a wide range of legal matters including charity formations, mergers and incorporations and constitutional and regulatory compliance.

Hannah Lyons examines the latest developments

Background

It is safe to say that it has been a tumultuous time for charity fundraising. Unprecedented levels of negative press attention and regulatory intervention have led to claims that charitable fundraising is currently ‘in crisis’.

As you may know, the starting point was in May 2015, when the Daily Mail ran an article attributing the death of Olive Cooke to the large volume of fundraising materials she had received from charities. This allegation has since been discredited, but the story prompted a number of other media exposés, including an undercover investigation into the (now defunct) telephone fundraising agency GoGen, and a further Daily Mail article focusing on the experience of Samuel Rae, which argued that his personal data was shared by charities hundreds of times, including with known ‘scam’ companies.

What are the main issues?

Cold callingOne of the main concerns highlighted has been the cold calling of individuals. Although it seems public opinion has very much turned against cold calling, it is worth remembering that cold calling by charities is in fact entirely legal, unless a person’s telephone number is registered with the Telephone Preference Service (TPS), or they have informed the charity that they do not wish to receive calls.

Telephone Preference Service (TPS)Organisations are able to call people registered on the TPS who have given their ‘consent’ to be called. Charities have therefore had a practice of calling people registered on the TPS who regularly engaged with the charity, treating this ‘warm support’ as ‘consent’. This practice has also been criticised. In response, the Institute of Fundraising (IoF) updated its Code of Fundraising Practice in August last year to make it clear that those on the TPS may only be contacted if they have notified the charity that they are happy to receive calls for the time being.

Consent The Samuel Rae case highlighted the currently grey area of how long consent to be contacted for fundraising purposes remains valid.

Vulnerable supportersThere have been concerns about charities exerting undue pressure to donate, for example in relation to the large number of calls and direct mailings received by Mrs Cooke and Mr Rae, and allegations that fundraisers have focused on vulnerable or elderly people as likely sources of donations.

Regulatory response

It is relevant to note that despite the negative press coverage, in practice, fundraising complaints remain relatively low. According to the most recent Fundraising Standards Board (FRSB) report about fundraising complaints, a total of 52,389 complaints were reported to 1,338 charities in 2014. This is in the context of 20 billion fundraising ‘contacts’ that were estimated to have been made by those charities during this period.

However, the past few months have seen significant developments in relation to the regulation of fundraising, and further change is expected.

The Etherington ReportThe Etherington Report, conducted at the instigation of the government and published in September 2015, made a number of recommendations to reform the current self-regulatory system of fundraising, including:

n greater responsibility for trustees,

n a new Fundraising Regulator, and

n the creation of a Fundraising Preference Service (FPS).

The new Fundraising Regulator will replace the FRSB as the body responsible for regulating the fundraising sector and will also take responsibility for setting the Code of Fundraising Practice, which currently sits with the IoF. It is proposed that the Fundraising Regulator will be self-funded by the sector, with all charities that spend more than £100,000 a year on fundraising expected to contribute.

Charity and Social Enterprise Update | Spring 2016 5

Features

The FPS, which will allow individuals to opt-out of all marketing communications from charities (much like the TPS for telephone fundraising), has probably been the most controversial of the proposals.

The government has accepted all of the report’s recommendations, and Lord Michael Grade, the newly appointed chair of the Fundraising Regulator, has said that both the regulator and FPS must be up and running by the end of 2016. George Kidd, Chief Commissioner of the Direct Marketing Association, has been named Chair of the FPS and is leading a working party to explore options on how it will be implemented.

Code of Fundraising PracticeThe IoF has also published a report entitled Putting Donors First, which responded to a number of recommendations made by the FRSB and set out the changes the IoF planned to make to the Code. These included a ban on the sale of personal data, a requirement to include a clear message on each fundraising communication on how individuals could easily ‘opt out’ of future contact, and limiting requests for donations to no more than three per call. As of January 2016, most of these changes have been made.

Information CommissionerThe Information Commissioner’s Office is due to produce new direct marketing guidance, which may provide greater clarity on the data protection issues involved.

Data protection reform in EuropeThe European Commission, Council, and Parliament have come to an agreement on a draft text for the new General Data Protection Regulation, which we expect to be brought into force in the UK in 2018. The new regulation will impact on fundraising, with the introduction of a slightly revised definition of consent to process personal data, a new statutory ‘right to be forgotten’, and significantly higher fines in the case of a breach.

Charity Commission guidanceThe Charity Commission is currently consulting on a revised draft of its fundraising guidance (CC20), which highlights the obligation for charity trustees to actively engage with their charities’ fundraising practices. The Commission has said the final revised guidance will be published sometime this spring.

Charities Bill The Charities (Protection and Social Investment) Bill that is currently awaiting Royal Assent includes fundraising measures, including requirements for agreements with professional fundraisers to state how they will protect vulnerable people and for charities with an annual income over £1m to include information about their fundraising practices in their annual returns. The Bill includes an amendment that will give the government powers to make regulations obliging charities to comply with requirements of the new regulator, and to give reserve powers to the Charity Commission to regulate fundraising.

The future

Although there is still much to finalise, it is clear that we are moving towards a much stricter regime for regulation of charity fundraising. Charity trustees and managers will need to ensure that they have strategic oversight of all fundraising activities carried out within their organisations and put appropriate measures in place to adapt to the fast-changing regulatory landscape.

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Features

Modern Slavery Act transparency requirements

Charities and social enterprises with a commercial turnover of £36m or more will be caught by the provisions of the Modern Slavery Act 2015, which requires them to produce a transparency statement each financial year.

Melanie CarterPartnerT: 020 7551 7610m.carter@bwbllp.com

Melanie is the head of our Public and Regulatory Law team and has worked for over 20 years as a public law specialist, in both the public sector (including the Home Office and Commission for Racial Equality) and in the private sector. Prior to being a lawyer, she worked for advice centres in the third sector.

Alistair WilliamsFirst-year traineeT: 020 7551 7743a.williams@bwbllp.com

Alistair is a trainee solicitor at BWB, where his first seat is with the Public and Regulatory Law team.

Melanie Carter and Alistair Williams explain what they need to do

The Home Secretary described the Modern Slavery Act 2015 as a ‘historic milestone’, and a means of addressing slavery and trafficking in the twenty-first century. The Act creates new offences and tougher sentences for those involved in slavery and trafficking, further law enforcement tools, and a new Independent Anti-Slavery Commissioner. But the Act also contains a provision on transparency that larger charities and social enterprises need to be aware of: the duty to produce a ‘slavery and human trafficking statement’ each financial year, under section 54 of the Act.

When is a statement required?

There are three criteria that determine whether an organisation must produce a slavery and human trafficking statement:

1. Section 54 only applies to ‘commercial organisations’. This term has a wide definition: a body corporate (wherever incorporated) that ‘carries on a business, or part of a business, in any part of the United Kingdom’. Section 54 clarifies that ‘business’ includes ‘a trade or profession’, so incorporated charities (and most other incorporated organisations) are likely to be caught by this criterion. The government’s guidance confirms that ‘it does not matter if [the organisation] pursues primarily charitable or educational aims or purely public functions’.

2. Only commercial organisations that supply goods and services will be caught by section 54.

3. Finally, and crucially, the requirement will only apply to commercial organisations with a turnover of £36m or more. Turnover means the amount derived from the provision of goods and services falling within the ordinary activities of the commercial organisation or subsidiary body (for example, a charity’s trading subsidiary), after the deduction of any trade discounts, VAT, and other taxes.

Many charities and social enterprises will not be required to produce a statement because they fall well below the £36m threshold. For others who come closer to that threshold, difficult questions will

arise, such as what constitutes relevant turnover (for example, in relation to grant funding). There may also be reputational issues to consider, particularly for organisations with large and international supply chains and/or subsidiaries.

The requirement to publish a statement applies for financial years ending on or after 31 March 2016. The government is encouraging statements to be published as soon as reasonably practicable, and within six months of financial year end.

What does a slavery and human trafficking statement involve?

The statement should set out the steps the organisation has taken that financial year to ensure that slavery and human trafficking is not taking place in any of its supply chains and in any part of its own business. Section 54 and the government’s guidance set out the information that may be included (for example, information on relevant policies, due diligence, risk management, and training). The statement must be approved by the relevant management body and signed by a director or equivalent (for example, approved by the board of trustees and signed by a trustee). The statement must be published on the organisation’s website, with a prominent link to it on the homepage. Failure to comply with section 54 could lead to proceedings by the Secretary of State requiring compliance; however, the real incentive for reluctant organisations to comply will be the reputational risk of failing to do so, particularly for charities.

Conclusion

There is no express exemption for charities and social enterprises: any organisations that meet the above criteria must comply. Large charities and social enterprises should consider whether they might be caught by the transparency requirements and what steps they should be taking in order to comply.

Find out moreThe government’s guidance on complying with the provisions of section 54 is available at www.gov.uk/government/publications/transparency-in-supply-chains-a-practical-guide

Charity and Social Enterprise Update | Spring 2016 7

Features

Karli Hiscock looks at what you need to consider

A charity or social enterprise with more space than it needs may consider sharing space with, or granting a lease to, another organisation.

Leasehold

If you have a leasehold interest in your premises, the first thing to consider is whether your lease prohibits you sharing the space.

Your landlord may be prepared to make a concession and grant you consent to share. There is no guarantee that consent will be given, and your landlord will not have to act reasonably in giving such consent.

If you are negotiating terms for a new lease of your premises, you may want to try to negotiate a clause allowing you to share occupation. If agreed by the landlord, the clause will set out the terms on which sharing occupation is permitted and the conditions that you will need to satisfy.

The terms of your lease will also govern whether or not you will be permitted to grant an underlease. You are likely to need your landlord’s consent and will need to comply with the restrictions in your lease relating to underletting.

Freehold

If you own the freehold of your premises, the position is simpler, but in any event do not be tempted to enter into informal sharing or letting arrangements without properly documenting the terms.

Terms of the arrangement

Terms to consider include:

n The duration of the arrangements,

n A plan showing the area that will be used by the sharing party,

n Will hours of use be restricted,

n Who will be responsible for which outgoings,

n How will a licence fee be calculated,

n Will the tenancy be protected by the Landlord and Tenant Act 1954.

The Landlord and Tenant Act 1954 (LTA 1954)

The provisions of the LTA 1954 must be carefully considered. If certain provisions of the LTA 1954 apply, the tenant will have a statutory right to renew its tenancy at the end of the term. Consequently, landlords usually require tenancies to exclude these rights of renewal – to do this, a specified statutory procedure must be complied with before the tenancy is entered into. You should seek professional advice at an early stage.

Charities Act 2011 (CA 2011)

You will need to comply with the disposal provisions set out in the CA 2011. An order of the Charity Commission may be required or, most commonly, a qualified surveyor’s report will need to be prepared and considered before entering into the transaction.

The provisions of the CA 2011 must be considered in each and every transaction, and trustees should seek professional advice at an early stage.

Consents

In addition to requiring the consent of your landlord, the consent of any mortgagee with a charge secured on the property is likely to be required.

Planning law

If the use of the premises by the third party will differ from the current use, planning permission is likely to be needed.

There may also be restrictions on the number of occupiers in a building.

Insurance

The terms of your insurance policies should be carefully reviewed to check for restrictions and exclusions to ensure that any third party occupiers will not invalidate your policy.

Karli HiscockSenior AssociateT: 020 7551 7601k.hiscock@bwbllp.com

Karli is experienced in all aspects of commercial property transactions. Her work includes acquisitions and disposals for a range of clients, including charities, as well as dealing with all aspects of landlord and tenant and property management work.

A problem shared?

If you have more space than you need, can you make the space work harder and smarter for you?

Find out moreIt is always advisable to get professional advice before entering into a lease or space-sharing arrangement. Please contact your usual BWB contact or a member of our Real Estate team, who can advise you on any aspect of the transaction. www.bwbllp.com/services/real-estate/

8 Charity and Social Enterprise Update | Spring 2016

Features

Chetal PatelAssociateT: 020 7551 7741c.patel@bwbllp.com

Chetal is a member of our Immigration team. She advises a wide range of clients on sponsorship matters, particularly under the Tier 2 and Tier 4 provisions.

Immigration focus – new burdens on sponsors

Sponsoring employers need to look closely at changes to the sponsor guidance.

Chetal Patel summarises the new requirements

The government’s unwavering pledge to reduce net migration to tens of thousands is resulting in an ever-increasing burden on employers who are listed as sponsors on the UK Visas and Immigration (‘UKVI’) website to act as immigration compliance officers on behalf of the government.

In November 2015, UKVI updated policy guidance for sponsors on Tier 2 and 5 of the points-based system, which brought in a number of changes that may impact charities and social enterprises that are listed as sponsors. It is imperative that sponsors are aware of the recent changes to the sponsor guidance. The main changes are:

n A new recommendation that, as a minimum, the authorising officer checks the Certificates of Sponsorship (CoS) assigned to migrants on a monthly basis. While this is only a recommendation, our advice would be that sponsors should implement this recommendation to ensure UKVI has no reasons for concern regarding the activities of sponsor management system users. It is advisable to keep a record of these checks.

n The criterion for prioritising restricted CoS has changed, with amended numbers of points available/required and an increased number of salary bandings available. It is important that sponsors review the updated criterion to ensure that applications meet the necessary points requirements.

n A new general requirement under Tier 2 (General), where no Resident Labour Market Test (RLMT) was undertaken, to keep references as evidence of the migrant’s previous experience if the migrant is appointed on the basis of their experience. Our advice would be that this evidence should be retained even if a RLMT was undertaken.

n Confirmation that if an exemption to the current Tier 2 skill level applies, sponsors must add a sponsor note to confirm this when assigning a CoS and explain why the migrant is eligible for the exemption. In these cases, it is important that sponsors keep detailed records as to why the migrant is eligible for the exemption.

n Confirmation that, if UKVI refuses an entry clearance or leave to remain application because it does not consider the role to be a genuine vacancy, it may suspend the sponsor’s licence while it investigates the issue. A refusal of an application can now have wider implications for sponsors, which may impact on the recruitment of migrants, and therefore sponsors should ensure they can show the vacancy is genuine.

n Appendix D, which lists the documents that sponsors must keep for a sponsored migrant, has been amended to include:

– A copy of the migrant’s DBS check (where required),

– A detailed and specific job description outlining the duties and responsibilities of the post, including skills, qualifications and experience required for the post,

– Copies of the migrant’s qualifications to confirm appropriate skill level and experience to do the job,

– Where a vacancy is advertised on Jobcentre Plus or Jobcentre online, sponsors must keep a screenshot of the advertisement from the relevant website containing the specified details, taken on the day that the vacancy is first advertised.

Sponsors are increasingly being expected to hold more information and evidence on file (in anticipation of a UKVI audit), and if it is not held, this could have ramifications on sponsor licences.

It is necessary for sponsors to continually review the sponsor guidance to ensure compliance, to monitor any updates, and seek advice if there is uncertainty as to their duties or responsibilities. Failure to do so will mean they risk having their sponsor licences downgraded, suspended, or revoked.

Find out moreFor more information about the issues raised in this article, or any other immigration queries, please contact Chetal Patel in our Immigration team.

Charity and Social Enterprise Update | Spring 2016 9

Features

Erica Crump and Charlotte Blackbourn explain

New regulations came into force in 2015, The Children (Performances and Activities) (England) Regulations 2014, that provide more clarity on licensing rules to safeguard children taking part in performances, paid sport, and paid modelling. The rules and new framework affect many organisations, including performing arts and education charities, youth groups, music and performing arts schools, and community groups.

When is a licence needed?

The general position is that licences must be granted for any child of compulsory school age (generally, up to the end of the school year when they reach the age of sixteen) before they take part in certain performances, paid sport, or modelling in Great Britain. Different rules apply for overseas performances and activities. Performances are caught by the rules where a charge of any kind is made (for admission or otherwise), where there is sale of alcohol anywhere on the premises, or where the performance is broadcast live or recorded with a view to later broadcast.

Recent guidance from the Department for Education emphasises that these rules apply to child performers regardless of whether they are paid, and to amateur groups and productions, however small.

Exemptions

There are some exemptions to the general rule, although none of the exemptions apply where the child receives payment for the performance.

Children who are not performing on more than four days in a six-month period do not need a licence, provided they are not absent from school to perform and they comply with other conditions specified in the regulations. Organisations should note that this rule applies to any performance by the child in the six-month period and not just the performance it is organising.

Schools are also exempt from obtaining licences for performances, provided the school is a main place of

education for children (regardless of whether it is the child performer’s school).

Organisations can also apply for a ‘BOPA’ (Body of Persons Authority), which is a blanket licence for an organisation for a specific performance, meaning individual licences for each child are not needed. To obtain the BOPA the organisation will need to show that it has robust safeguarding procedures in place to protect the children involved. The BOPA does not permit children to be absent from school.

Procedure

Local authorities are responsible for considering the applications for licences; applications should usually be submitted to the local authority where the child is resident at least 21 days before the performance. The organisation responsible for organising the performance or activity should submit the application, and it must be signed by a parent and an individual from the organisation who is accountable for the arrangements. The regulations list the information that should be attached to the application.

The regulations set out additional ‘general requirements’ that must be met by local authorities when considering licence applications. These requirements include: ensuring a child’s education does not suffer; supervision by a chaperone when taking part in rehearsals, performances and paid sport/modelling; and ensuring the place of performance, time commitments, travel arrangements, and accommodation are all appropriate. The local authority will often attach conditions or requirements to the licence (for example, requiring the child to undergo medical checks), and if it is not satisfied the child is properly protected, it can refuse applications, provided reasons are given to the applicant.

Find out moreFor more information see the Department for Education’s guidance Child performance and activities: licensing legislation accessible at www.gov.uk and The Children (Performances and Activities) (England) Regulations 2014 accessible at www.legislation.gov.uk

Erica CrumpSenior AssociateT: 020 7551 7782e.crump@bwbllp.com

Erica provides commercial, contracts, and governance advice to charities, social enterprises, creative businesses, and commercial organisations, with a particular focus on the arts and creative sectors.

Charlotte BlackbournParalegalT: 020 7551 7749c.blackbourn@bwbllp.com

Charlotte supports the Charity and Social Enterprise team in general company and charity law work, with a particular focus on political campaigning and electoral law.

Child performance licences

Charities and social enterprises may need licences where children are taking part in performances, paid sport, or modelling.

Features

10 Charity and Social Enterprise Update | Spring 2016

Mat HealeySenior Trade Mark AttorneyT: 020 7551 7637m.healey@bwbllp.com

Mat has been with BWB since 2009, after working for one of the world’s top trade mark consultancies. He has over eleven years’ experience of assisting clients with registration and protection of their intellectual property rights.

The perfect charity rebrand

Choosing a new name or brand is a big deal for any charity.

Mat Healey talks through the legal issues involved

When a charity chooses a new brand it is – of course – important that the new branding works from a communications perspective. However, you also need to make sure the approach you take does not leave you legally exposed. This is what you need to consider.

1 Make sure your name is distinctive

Any marketing or branding consultant will tell you that whatever name you choose should make you stand out from the crowd. But there’s a balance to be struck – you’ll also want something that ‘does what it says on the tin’, so that people can see your name and immediately tell what you do.

It’s important that the second consideration doesn’t overshadow the first. This isn’t just a marketing point – names that describe what an organisation does are difficult to impossible to protect under trade mark law. This makes good sense when you think about it – how can one company or charity simply assume ownership of an expression like ‘Conserve the Rainforests’ or ‘Protect the Rhinos’?

The best names are those that convey a message about you, but are not directly descriptive. Great examples are Breakthrough Breast Cancer, Cruelty Free International and ActionAid. These all tell the public something important about the charity in question, but also bear enough distinctive character – lack of direct descriptiveness – to be capable of being protected via trade mark registration.

2 Carry out preliminary searches on a shortlist

Once you’ve got a name or names you’re happy with, it’s crucial that you check that you’re not risking stepping on another’s toes. If someone else has trade mark rights (either registered or unregistered but acquired through significant use) in the same or a confusingly similar name, they can stop you using your preferred name and possibly even pursue you for compensation.

Sadly, it’s a crowded marketplace out there, and there’s a good chance that any name you’re interested in is blocked from use. As such, putting all your eggs in one basket is not a good strategy. Whether you’re bouncing ideas round between yourselves or have commissioned a branding agency to come up with a name, it’s likely you’ll find yourselves with a shortlist of maybe half a dozen options.

One approach that we think works well is to start by running basic preliminary searches against all the shortlisted names, with a view to identifying obvious problems. Your trade mark lawyers should be able to do this easily and cheaply. In our experience this process is liable to knock out maybe half of the proposed names, leaving you with a more concise list to work with.

3 More in-depth searching

This is the point at which you carry out more in-depth searches in respect of the preferred name or names you are left with. This search should include:

(i) A full similarity search of UK and EU level registered trade marks (considering both those that are potentially confusingly similar to, as well as the same as, yours),

(ii) Searches in respect of unregistered trade marks acquired through use (consisting of internet search engine searches and a search of potentially relevant domain names),

(iii) Searches of the records of Companies House and the Charity Commission,

(iv) If the name is going to be used overseas, at least basic searches of the relevant national registers.

Again, a specialist trade mark lawyer can help with this.

‘Sadly, it’s a crowded marketplace out there, and there’s a good chance that any name you’re interested in is blocked from use. As such, putting all your eggs in one basket is not a good strategy’

Charity and Social Enterprise Update | Spring 2016 11

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4 Trade mark registration

Once you have established that your preferred name is free to use, you should apply to register it as a trade mark, which will have the effect of provisionally protecting the name against imposters (subject to registration ultimately being granted). The registration process usually takes around four or five months. However, many people will not wait until a name is trade marked before starting to use the new name: provided you have a clear search report and a pending trade mark application on file, you’re basically good to go.

5 Overseas

Once you’ve filed your first application for any given trade mark, you’ve six months to extend your protection to any other territories of interest. Any trade mark applications filed in other countries during this period will be treated as if they were filed on the date of the first application. This is known as claiming ‘priority’.

Trade mark protection is, in principle, acquired on a country-by-country basis, but there are shortcuts that allow you to apply to register in multiple countries via a single filing. One is the EU-wide Community Trade Mark. The other is the International Registration system, which allows you to file in 180 or so member states via a simple filing at the International Bureau of WIPO in Switzerland.

Find out moreIf you need any help with the legal aspects of branding, the best thing to do is to contact a specialist trade mark attorney. BWB’s in-house attorneys are the only ones in the UK specialising in protecting the names and brands of charities and non-profits.www.bwbllp.com/services/trade-marks/

Every year 15 million girls are married as children, denied their rights to health, education and opportunity, and robbed of their childhood. Girls Not Brides: The Global Partnership to End Child Marriage has more than 550 civil society organisations from over 75 countries committed to ending child marriage and enabling girls to fulfil their potential.

Girls Not Brides was initiated in 2011 by The Elders – an independent group of global leaders who work together for peace and human rights – to address two major gaps: the lack of strong international visibility and leadership on the issue of child marriage, and the urgent need for greater coordination and collective action among those working at the grassroots, national, and international levels. Stronger together, Girls Not Brides members bring child marriage to global attention, build an understanding of what it will take to end child marriage, and call for the laws, policies, and programmes that will make a difference in the life of millions of girls.

When Girls Not Brides was launched, child marriage was still considered a taboo topic, but international momentum has been increasing steadily over the past four years. Today child marriage is the topic of UN resolutions and government summits attended by prime ministers; the Girl Summit, hosted by the UK government and UNICEF in July 2014, resulted in over 100 pledges from high-prevalence governments and donor countries alike.

Following significant advocacy by Girls Not Brides, child marriage was included in a number of major reports contributing to the post-2015 development agenda, which replaced the Millennium Development Goals and will serve to drive development focus and funding over the next fifteen years. The Sustainable Development Goals, adopted in September 2015, include a target on ending child, early, and forced marriage.

While progress has been remarkable, it is critical that the international movement to end child marriage continues to broaden and deepen, moving from awareness-raising and global pronouncements to substantive change in girls’ lives. Achieving this will require that continued international, regional, and national policy commitments and new funding are translated into comprehensive, effective, and large-scale responses on the ground. The complex mix of cultural and economic factors means there is not a single, simple solution to the issue. But through partnership, long-term programming, and a willingness to learn from our successes and failures, Girls Not Brides believes we can end child marriage in a generation.

By 2013, Girls Not Brides had reached a stage of growth and refinement of its aims and activities that prompted The Elders to decide that it should transfer out and be established as an independent charity. BWB assisted with the establishment of the new charity and its registration with the Charity Commission. BWB successfully persuaded the commission of the charitable nature of the organisation’s important work and, since then, has supported the charity with legal advice ranging from governance to immigration matters.

For more information, please visit www.girlsnotbrides.org

Girls Not Brides

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‘Through partnership, long-term programming, and a willingness to learn from our successes and failures, Girls Not Brides believes we can end child marriage in a generation.’

Plan India project – Child Rights Information Centre, Delhi, India.

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Company law update

Changes to how the ultimate control of companies is publicly reported are on their way, with a new requirement to disclose ‘people with significant control’.

Tamsin AndersonSolicitorT: 020 7551 7702 t.anderson@bwbllp.com

Tamsin has experience in establishing new charities and social enterprises, charity incorporations, restructuring, and mergers. She also advises charities and social enterprises on company, charity, and commercial law, and trustees on regulatory and governance matters.

Sarah PayneAssociateT: 020 7551 7653s.payne@bwbllp.com

Sarah advises a wide range of charities, not- for-profit organisations and businesses with social purposes on legal and commercial issues, including governance, group structure, fundraising, and campaigning.

Tamsin Anderson and Sarah Payne explain how not-for-profit companies will be affected

Charities established as companies and other not-for-profit companies will need to comply with new rules on ‘people with significant control’, or PSCs, which will come into force on 6 April 2016.

What are the changes?

The Small Business, Enterprise and Employment Act 2015 introduces a requirement for all companies to keep a new register, called a register of people with significant control or ‘PSC register’. If one or more individuals, and certain legal entities, have ‘significant control’ of a company, the company will need to include the details in the PSC register.

Significant control means:

(a) Owning or controlling more than 25% of the voting rights in the company,

(b) Having control over the appointment or removal of the majority of the company’s board of directors (in the case of a charitable company the directors are the charity trustees), or

(c) Otherwise having significant influence over the company; in December 2015 the government issued draft guidance on what ‘significant influence’ means.

Control or ownership can be direct or indirect and also joint. Individuals (including trustees of unincorporated organisations and members of unincorporated firms) can be PSCs and certain legal entities such as companies, local authorities and government departments can all be ‘relevant legal entities’ (RLEs), the corporate equivalent of a PSC.

The PSC register will be open for public inspection in the same way as the company’s membership register, with anyone able to inspect the register provided they have a proper purpose. Rules, requiring details of the information on the PSC register to be filed at least annually with Companies House, are due to come into force in June 2016: once filed this information will be publicly available on a company search.

How will this affect charities and social enterprises?

There are a number of structures commonly used by charitable and other not-for-profit companies that are likely to trigger the requirements to include details of PSCs or RLEs in the PSC register.

1. Sole member companies A sole member of a company holds 100% of voting

rights in the company, which means that the first of the criteria for significant control outlined above is met. A sole member will also often have the right to appoint the company’s directors, so would be a PSC on this ground too.

Sole member charitable companies come in a number of shapes and sizes and can include corporate foundations, UK charities established by overseas charities, and charitable companies established by a single major donor.

A charity may also have subsidiary charities (where the parent charity is the sole member of the subsidiary charity) – indeed we work with a number of charities that are structured in this way. If the subsidiary charity is a company, the parent charity will be a PSC if – as is likely – it has more than 25% of the voting rights in the subsidiary, or if it controls the appointment of the majority of the board.

2. Extensive powers to appoint/remove directors Charities and social enterprises can be structured

in a way that gives another charity, person, or stakeholder the right to appoint members of the board. If this right extends to the appointment or removal of the majority of the company’s board members, then the person with rights to appoint or remove would qualify as a PSC or RLE.

3. Small number of charity trustees A common structure for a charitable company is

for its trustees and company law members to be the same people – this is known as a ‘foundation’ model. If there are three trustees (and therefore three company law members), then each of the company law members will qualify as a PSC because they will each have more than 25% of the voting rights in the charitable company.

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Community interest companies are often established on a similar basis. Again, if there are less than four directors/company law members, they will be PSCs.

4. Trading subsidiary Charities often fund and own all the shares in

a subsidiary trading company. There is often a significant overlap between the trustees of the charity and the directors of the trading subsidiary, with the right to appoint directors resting with the parent charity.

It will almost always be the case that the charity is a PSC or RLE in respect of its wholly-owned subsidiary trading company.

5. Joint venture There are many ways in which a charity can

collaborate with a third party. In some cases, a joint venture may mean that the PSC regime applies. For example, if a charity and a third party create a subsidiary company to carry out a joint project, the ownership and/or control structure may mean that the charity and the third party are PSCs or RLEs in respect of the subsidiary company.

Why is this important?

The new rules mean extra bureaucracy, particularly for those companies with PSCs or RLEs. There may also be cases where the PSC regime gives rise to more significant concerns about confidentiality. This may cause some charities to consider changes to their structure and may influence new charities’ choice of legal form in the future. There is no equivalent to the PSC register for charitable incorporated organisations (CIOs), for example.

There will be criminal sanctions for companies that fail to comply with the PSC rules.

What should charities be doing now?

All companies will be under a duty to investigate whether they may have PSCs or RLEs. This will not always be straightforward: some charitable companies and social enterprises may need specialist advice to establish whether their structure means that they are caught by the PSC rules.

If after investigating a company decides that it has no PSCs or RLEs, it can include a simple statement to this effect in the PSC register. If there are PSCs or RLEs, more details must be included, such as their name, service address, residential address, nationality, date of birth and, for RLEs, certain corporate information together with a statement about the nature of their control.

Where can I get further advice?

The Department for Business, Innovation and Skills has issued draft guidance explaining the new rules, which is available at www.icsa.org.uk/about-us/policy/psc-register-guidance-consultation. Final guidance should be available before the new rules come into force.

BWB can assist with identifying whether your company is likely to have PSCs or RLEs, depending on your particular circumstances, and explain what you need to do to comply. Please get in touch with your usual BWB contact for more information.

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Governance for CICs

Community interest companies have been part of the legal landscape for more than ten years.

Luke FletcherPartnerT: 020 7551 7750l.fletcher@bwbllp.com

Luke advises charities, social enterprises, and other businesses on a wide range of transactions and arrangements. He is head of our Social Finance team, specialising in the developing areas of social finance, social investment, and social business.

Lucinda EllenParalegalT: 020 7551 7608l.ellen@bwbllp.com

Lucinda supports the Charity and Social Enterprise team with all aspects of their work. In particular, Lucinda has experience in assisting with the formation of new charities, completing company incorporations, and providing general company law advice.

Luke Fletcher and Lucinda Ellen consider the importance of good governance for CICs

2015 marked the tenth anniversary of the Community Interest Company (CIC). The story of the CIC in this time has been a story of unprecedented growth and innovation. Today, the CIC is no longer simply an original idea about a new type of corporate form but the vehicle of choice for countless social entrepreneurs.

To celebrate this milestone, BWB collaborated with a number of sector experts to produce Governance for Community Interest Companies: A practical framework. The framework offers a voluntary set of principles which is aimed at providing CIC directors with guidance on effective governance. It is designed to help them acknowledge and interpret their community focus in a way that promotes and contributes to the good reputation of the CIC brand.

Why good governance is important

Good governance is essential for the success of any organisation, and the directors of a CIC play a vital role in bringing their skills, commitment, and experience to CICs. Unlike other legal forms, the CIC does not exist for its members or shareholders – it exists to benefit a defined community of people. Limited companies are generally required to put the interests of their members first, which in practice is often understood to mean maximising profits. CICs are different. The primary duty of CIC directors is to serve the CIC’s community purpose. However, as with any other commercial company, a CIC must comply with company law and it needs to remain solvent. The directors of a CIC must balance achieving the community purpose with staying solvent.

As CICs are established to achieve a community purpose, people will often expect them to meet higher standards than they expect of commercial companies, so it is important that CICs are seen to act as responsible corporate citizens. The good name of each CIC will ultimately depend on the quality of its governance, which will always come down in the end to putting benefit to the community above all other interests.

The principles of good governance

The framework identifies four good governance principles which should be used by directors to establish a governance strategy, in light of the considerations above. They are:

n Establishing effective board procedures,

n Strong leadership,

n Organisational strategy, and

n Accountability and transparency.

Find out moreA full version of the guidance can be accessed via the BWB website at www.bwbllp.com/file/governance-for-community-interest-companies-pdf.

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Public service reform: different ‘making a difference’Slowly, but inexorably, the public sector is becoming more receptive to new delivery models.

David Hunter welcomes the change in climate

George Osborne revealed himself as something of a conjuror last November. He seemingly magicked £27bn out of thin air and performed the classic trick of distracting his audience’s attention while still implementing cuts to various budgets, affecting many areas of central and local government. Although the temptation at the time of the comprehensive spending review was to breathe a sigh of relief that it wasn’t worse and to relax, the need for the public sector to find new ways of achieving more with less resources has become ever more pressing.

Those of our clients that provide public services have seen many false dawns, but it does feel that, slowly but inexorably, the public sector is becoming more receptive to new delivery models.

Unsurprisingly, given the breadth of the public sector, these can take many forms but partnership and collaboration is a theme common to a sizeable proportion of them.

Collaboration with service users

One interesting area of collaboration is with service users. Co-production has been talked about for several years now, but we are witnessing an increasing acknowledgement of the social capital that exists within individuals and communities and a willingness on the part of some commissioners, such as London Borough of Sutton, to look for partners who can utilise the assets that exist within the population they serve.

This is not about a one-off contract that tries a different approach for a few years, half expecting to revert to the old way of doing things. It is potentially about embedding different attitudes and approaches that may trigger lasting changes, designed to have an impact reaching far beyond the immediate subject matter of the contract. Engaged with in new ways, those individuals and communities participating in these projects may adopt fresh outlooks that shift them from passive recipients of services to active participants in achieving specific targeted outcomes.

Clearly, this requires changes in approach from many in the commissioning cycle and for this to be sustained.

Pre-procurement engagement

Another change is breaking down the barriers between procurement and contract management and seeing commissioning as something which covers both. In particular, ‘soft market testing’ and ‘pre-procurement engagement’ were seen in the past as being either unlawful (which they are not) or needing only to consist of communicating to the market the process the commissioner intends to follow. Increasingly, one element of best commissioning practice is seen to involve using contract management as a way actively to review the service users’ needs and challenges, and the resources available to meet them. It involves engaging with the service provider around what measures may be appropriate in future in order to assess whether those challenges and needs are being met. Ultimately, it is about planning what outcomes may be usefully commissioned to deliver the greatest social impact next time around.

This does not mean the incumbent provider should be unfairly favoured. The commissioner can also engage with other providers as it is formulating its requirements and it can run a fair process. It may also, if it chooses, build further co-design into the procurement process through the use of innovation partnerships. This is a new procurement mechanism introduced by the Public Contract Regulations 2015.

David HunterConsultantT: 020 7551 7702d.hunter@bwbllp.com

David’s focus is on the social economy, spanning how the state can improve commissioning of services for the public good, how investors can achieve social as well as financial returns from their investments, and how civil society organisations can prosper while delivering public benefit.

‘Co-production has been talked about for several years now, but we are witnessing an increasing acknowledgement of the social capital that exists within individuals and communities and a willingness on the part of some commissioners… to look for partners who can utilise the assets that exist within the population they serve’

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It involves a commissioner potentially working alongside one or more providers, exploring the options that may be available before settling on the solution it wishes to procure. There has been a lot of talk, but little take-up, as yet, of innovation partnerships, but here too the challenging environment that commissioners find themselves in suggests these will become more prevalent this year.

Collaboration between commissioners

What I have described above assumes an acceleration of the shift to outcomes-based commissioning – and it being the product of a genuine understanding of and appetite for what outcomes-based commissioning can deliver, rather than a sense (as happened in the early days of payment by results contracting) that it was happening largely because commissioners felt it was expected of them. As genuine outcomes-based commissioning grows, so too should collaboration between commissioners. This is in part because social outcomes do not remain neatly within the constructed boundaries of responsibility of public sector bodies and partly because, increasingly, this is recognised within public sector financing, with pots of funding ring-fenced for cross-cutting social outcomes. This collaboration is happening across disciplines (such as the Youth Engagement Fund using DWP and Cabinet Office and local authority funding).

It is also beginning to happen within sectors, most notably the NHS. Here the Vanguard Programme is exploring collaborations between different layers of the NHS, pooling budgets so that artificial structural barriers do not inhibit innovation. It is early days, but there is great scope potentially for charities and social enterprises to develop new partnerships around health and wellbeing. This may be with parts of the public (or private) sectors. It may be working with new social enterprises recently spun out of the NHS or local authorities. It may even involve creating new vehicles, perhaps with elements of stakeholder engagement and mutuality built in. And if new models can be demonstrated to work in health, there may be scope to replicate them, either elsewhere in the massive national health market, or in other areas – notably the health and social care crossover.

Social primes

Another form of collaboration for the social enterprise sector may emerge from Big Society Capital’s interest in developing ‘social primes’. This recognises that in large procurements the sector has continued to suffer from structural disadvantages when competing against the large national private contractors. Working to develop social primes, who can bid on comparable terms (particularly around financial covenant) and with equivalent resource, could open up social supply chains operating very differently to the sector’s experiences to date.

Social impact bonds

And still, in the background, there are social impact bonds (SIBs). They have been slow to take off, for sure, but there are a large number now in development utilising Commissioning Better Outcomes funding. A high proportion of these are in the health and public health arenas and, with a further £80m of funding for SIBs being one more of the rabbits Mr Osborne pulled from his hat, more are in the pipeline, providing yet further impetus to outcomes-based commissioning and social investment in impact-based public service delivery.

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Tesse Akpeki reflects on new insights from the recent Onboard inquiry and a leadership forum

Recent findings from the Onboard inquiry into trustee board effectiveness, Governing With Intent, and my visit to BoardSource’s Leadership Forum in New Orleans in late 2015 have shown me that there are shifts in the way people and boards are thinking about governance and governance frameworks.

One thing is immediately clear. What was considered excellent in governance terms ten years ago is now seen to be standard practice – or expected, at least.

The good news is that to demonstrate strong leadership every organisation must leverage the board as an asset. This is not an easy challenge. The board has to be composed of members who continuously think outside the box and can build trust within and outside the organisation. They are leaders who think about the ‘ecosystem’ in which they operate, are less organisation-focused and more issue-focused. They take a collaborative approach to solve what they consider ‘wicked problems’. Wicked problems are problems that are so complex and intertwined that there are not easy solutions.

Take the following example. A recent study found that women who were victims of domestic violence would not leave their homes, because they were afraid that their pets would suffer. A partnership was formed between an animal shelter and a women’s refuge. Taking a broader view in solving the problem meant that the lives of more women were saved. The women who knew their pets were safe left dangerous situations in which they would have previously stayed.

There are six emerging governance trends.

1 Learning from failure

Failure is increasingly being used as a learning platform. Innovative, entrepreneurial, and creative organisations know that failing, as well as achieving success, is a possibility. Rather than glossing over this reality, leaders of organisations (both staff and the board) are convening failure forums where, in a

confidential space, they are able to bring together their learning and explore how lessons learnt can inform their approach to other situations. The message is clear: ‘do not squander a good crisis’. And it does not have to be a crisis. At the BoardSource Leadership Forum, the Alliance for Nonprofit Management shared some worrying survey results: 49% of board chairs do not formally prepare for the role. These chairs would like mentoring, training, peer networking, and on-demand resources. Luckily for us in the UK, we have the Association of Chairs (www.associationofchairs.org.uk), which provides chairs with invaluable resources.

2 Balancing external and internal perspectives

Effective boards are able to look inside at their internal operations and balance this by looking outside at the broader issues in the external environment. Governing With Intent indicates that only half of charity board members and chief executives think that trustee boards concentrate on strategic issues and the external environment. While paying attention to the internal matters of their organisations is essential, it can lead to trustees neglecting to look outward as well.

3 Scheduling deep-dive explorations

Boards are increasingly focusing on one or two strategic themes not only at board away days but at board meetings. They sometimes use an approach called ‘deep-dive’ discussion. Deep dive is a technique that immerses a group or team into a situation for problem solving or idea creation – to improve performance of teams across the organisation. The approach focuses on process, organisation, culture, and leadership. At a practical level, it may mean breaking into small groups, considering the issues at hand before coming back together to make a decision. Board members testify that the deep-dive explorations enable them to engage with meaningful and impactful areas of the organisation’s work, as well as encouraging quieter board members to find their voice. Some boards have brought in a facilitator to help them to get used to the approach.

4 Ring-fencing risk

Boards are managing risk by putting on innovative lenses (see Rowan Gibson’s The Four Lenses of Innovation). This approach involves taking risk in a

Tesse AkpekiOnboard ConsultantT: 020 7551 7702t.akpeki@bwbllp.com

Tesse is a consultant, trainer, and Centre for Effective Dispute Resolution, accredited mediator. She was formerly head of governance and trustee services at the National Council for Voluntary Organisations and has worked extensively with third sector organisations nationally and internationally.

Rethinking and reframing governance – lessons we are learning Voluntary, community, and social enterprise organisations are thinking about governance in a different way.

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thoughtful way. In some cases organisations take on new projects and ring-fence the amount of investment by way of time, resources, or money that is allocated to incorporate new and fresh ideas. This not only contains risk, but it helps the board to identify its risk appetite, clarify its risk tolerance, and build its confidence in taking informed risk. One fifth of chief executives in the Onboard governance survey believe that trustee boards are risk averse. Given the growth in social investment and the need to diversify income, this is an area that needs further exploration. 5 Using governance reviews differently

Modern governance reviews now include elements such as organisational sustainability assessments and assessment of how trustee boards are using social media and other digital technologies to communicate within the organisation, outside the organisation, and with their stakeholders (including the wider public). Boards are formulating policies and guidance to guard against security and reputational risks. Sustainability audits typically look at the business model/strategy, leadership (and how the board is demonstrating accountability), resources (such as current and future income streams, reputation, and the competence and capacity of the staff) and the culture (for example, can the organisation be described as trusting, resilient, forward-focused, result-orientated, and

action-based?). Boards also need to assess how effectively they are bringing on board the next generation of trustees and committee members.

6 Measuring the correlation between effective boards and organisational success

A question is often asked about whether effective governance leads to organisational success. There has not been evidence to really answer this question. For the first time data published by BoardSource and TCC Group shows that there is a correlation between effective organisations and effective boards. Strategic planning and board relationships, along with internal and outside engagement, are the most powerful board capacities. Strategic planning includes a clear vision and purpose, agreement on priorities, full engagement from the board, and regular progress assessments. The relationship between the board and the chief executive requires a foundation of mutual respect, trust, transparency, and accountability.

Find out moreFor more information visit www.on-board.org and www.boardsource.org

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Bill LewisConsultantT: 020 7551 7689b.lewis@bwbllp.com

Bill advises on all aspects of taxation affecting charities, including reviewing the VAT structure of charities, advice on VAT and property construction and property leases, advice concerning PAYE taxes and investigations, gift aid audits and corporation tax, as well as general VAT and income tax issues affecting businesses, charities, and individuals.

VAT on new charity buildingsHMRC is hardening its attitude to the zero-rating of new charity buildings.

Bill Lewis looks at what to watch out for

I have come across a number of cases where HM Revenue & Customs (HMRC) is refusing the VAT zero rate on the construction of new charity buildings. These all involve small charities who have already had the building constructed and who do not have the funds to pay the VAT HMRC wishes to charge.

Charities can have a new building constructed at the VAT zero rate, provided it is used for a ‘relevant charitable purpose’. This means it must be used ‘otherwise than in the course or furtherance of a business’ or as a ‘village hall or similarly in providing social or recreational facilities for a local community’ (Group 5, Schedule 8 of the VAT Act 1994).

Premises used ‘otherwise than in the course or furtherance of a business’

HMRC holds the view that an organisation is in business if it charges fees; whether the organisation exists to make a profit or not does not matter because VAT is not a tax that is concerned with profits; VAT only considers whether goods/services are provided in return for payment. So, a charity that is funded by grants and donations is regarded as ‘non-business’ by HMRC, while a charity that charges fees is regarded as a ‘business’. Likewise, a charity that receives a combination of donations and fees is generally regarded as a ‘business’.

HMRC has lost a number of tribunal cases on this point. Two involved children’s nurseries – Yarburgh and St Paul’s. In both instances the charities had constructed new premises, and HMRC sought to deny the VAT zero rate on construction. Following those cases, HMRC accepted that when a children’s nursery charges fees that are only sufficient to cover costs and the real purpose behind the nursery is not to run a business but to provide a valuable community facility then the charity is not carrying on a business.

HMRC seems to think that this principle only applies to nurseries, but why they should think so is not clear. In a series of cases, the tribunal has indeed disagreed with HMRC and applied the same principle to other

types of charity. These cases include Quarriers, Ardenglen Developments, and, my personal favourite, Jeanfield Swifts Football Club. They had a new club-house constructed and HMRC sought to deny VAT zero-rating on the basis they were in business because the children were charged £3 match fees and because the club house was hired out – at £5 per session or £7.50 if the kitchen was needed. The tribunal found that the match fees only covered the cost of the FA officials who ran the matches that took place outside of the club-house; and saw the prices charged for the hire of the club-house as being very small and hardly constituting a business activity and that the way the hall was used was more like a ‘village hall’.

HMRC chose not to challenge these decisions.

What is clear from all these cases is that one has to look at the purpose behind the activity undertaken by an organisation in order to determine if it is operating a business. Indeed, this is discussed in the HMRC VAT manual when it considers whether a charity is in business or not: ‘This has in many instances been seen as the most important and arguably the most problematic indicator … is the real nature of the activity the making of taxable supplies for consideration or is it something else?’ (see www.hmrc.gov.uk/manuals/vatedumanual/vatedu36900.htm

However, despite these decisions, HMRC has recently shown a hardening of its attitude. Longridge on The Thames is a charity established to provide water sports facilities aimed primarily at young people of all abilities. They constructed a new training centre and sought the VAT zero rate on the building on the basis they were not using it in the course or furtherance of a business. HMRC took the view that because they charged small fees they were a business.

Longridge won in the lower tribunal. HMRC appealed and the charity won in the upper tribunal. HMRC has appealed again to the Court of Appeal, where the case is still to be heard.

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In summary HMRC has lost the case thus far because:

n The charity was set up to provide the water sports as cheaply as possible and not to operate as a business: its aim was charitable water sports, not making money.

n While it has some paid staff it relies heavily on unpaid volunteers and could not operate without them. It would instead have to charge much higher fees.

n The charity made great use of grants and donations, which paid for the construction of the building.

Premises used as a ‘village hall or similarly in providing social or recreational facilities for a local community’

Two other recent tribunal cases illustrate how HMRC has been taking a similarly firm line over whether a charity is using a building as a village hall or similarly. These involved Witney Bowls Club (which HMRC won) and Caithness Rugby Club (which HMRC lost). Essentially, HMRC believes that in order for an

organisation to be running a village hall the property must be used by a number of organisations, with no one organisation having priority, and that the property must be managed by an independent committee and not by one charity user of the building. However, the Court of Appeal has previously rejected the argument that a ‘village hall’ must be ‘owned, organised and administered by a local community’ (Jubilee Hall Recreation Centre Ltd) rather than a single charity user.

HMRC’s approach

I have been dealing with several cases recently where HMRC is taking a similarly stiff line. For example a children’s football club is regarded as a business because the children pay £2 a week to play football; another sports club building is not regarded as a village hall because it is run by the club management and mostly used to store club equipment, even though it is used by a wide range of organisations free of charge and that was a requirement of the grant funding it received to have the building purchased.

A common theme in several of the cases I am dealing with is that club officials sought telephone reassurance from HMRC that their works could be done at the VAT zero rate and relied on that. It is always wise to have such clearances given in writing with full disclosure of the facts to HMRC to prevent it from being able to backtrack. Another common theme is that external funders of construction work agreed to a VAT zero-rated price and the charities do not have the money to fund a retrospective VAT charge.

The VAT issues here can be complicated so I would recommend that charities looking to benefit from the VAT zero rate on construction work always seek professional advice before they seek funding for the work.

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Criminal prosecutions

In recent months we have seen two examples of Charity Commission involvement in the criminal prosecution of trustees.

Help AfricaHelp Africa was established to prevent or relieve poverty and to provide assistance to people anywhere in the world who are the victims of war or natural disaster. It was intended to mainly help beneficiaries in Africa.

The Charity Commission was informed by HMRC in June 2015 that a former trustee and a current trustee (the treasurer) had been charged in connection with offences under the Fraud Act 2006. The trustees were unable to provide evidence to support the gift aid applications that had been submitted to claim almost £40,000 in gift aid. More importantly for the commission, HMRC could not find evidence that Help Africa had spent funds to relieve poverty or otherwise help beneficiaries in Africa. The commission concluded that it appeared that Help Africa had been established and operated for non-charitable private benefit, and it moved swiftly to remove it from the Register of Charities in August 2015.

The treasurer of Help Africa has since pleaded guilty to fraud and was given an eight-month suspended sentence and 200 hours of unpaid community work.

Rainbow Rooms UKRainbow Rooms UK, a charity that supported lesbian, gay, and bisexual people, was forced to close in 2013 due to the financial and reputational damage that resulted from a false rape allegation made against its then CEO, who was also a trustee.

The former CEO and trustee of Rainbow Rooms UK has now pleaded guilty to a number of offences, including one charge of supplying false or misleading information to the Charity Commission. The former CEO lied about having completed a CRB check when Rainbow Rooms UK was set up in 2010. He was sentenced to 28 months, four of which relate specifically to the charge of supplying false information to the commission.

Regulatory case report

St Bees SchoolSt Bees School was an independent day and boarding school that closed on 31 August 2015. The governors took the decision to close the school due to dwindling numbers of pupils. This was announced on 13 March 2015. Reports were made to the Charity Commission about the management of the school and the decision-making process. The governors reported the closure of the school as a serious incident to the commission on 29 April 2015.

The commission opened an operational compliance report. Although it was found that the governors took a decision that was within the reasonable range of options open to them and there was no evidence of mismanagement or misconduct, the commission did consider that they could have reacted to matters more quickly or differently (for example by expanding on the risks in the accounts, in line with best practice for large charities) and with some foresight of the impact that such a decision would have.

The commission took the opportunity to stress that even though some decisions may be unpopular with stakeholders, if decisions are consistent with the trustees’ powers and duties, then the commission is not permitted to intervene.

Governance costs

With many financial year ends taking place at the end of March, it is important to ensure that costs are correctly allocated in accounts. The commission reported in November 2015 that many charities may be incorrectly overstating governance costs in their accounts. The commission found that a common mistake was to equate governance costs with general management and administration costs.

Charities should ensure they can distinguish between support costs and governance costs, and should be aware of the SORP requirements for reporting expenditure.

What’s new at the Charity Commission and Charity Tribunal

In this round-up Joanna Howard and Jessica Collings summarise some developments at the Charity Commission and a recent notable case from the Charity Tribunal.

Joanna HowardT: 020 7551 7662j.howard@bwbllp.com

Jo is a second-year trainee, currently working in the Charity department.

Jessica CollingsT: 020 7551 7649j.collings@bwbllp.com

Jessica is a first-year trainee, currently working in the Charity department.

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Public benefit guidance

The commission has updated its public benefit guidance on charging for services. The updated guidance, as a matter of good practice, now encourages trustees of charitable schools to comment in their annual report on their specific approaches to public benefit in sports, drama, music, and other arts.

This update was introduced in response to concerns raised in parliament that too few sports and arts facilities owned by charitable independent schools are accessible to students in state education. The commission has also updated its example trustee annual report for a charitable school to reflect this change.

Reporting of terrorist financing offences

The commission has issued a regulatory alert reminding charities of the requirement under the Terrorism Act 2000 (TACT) to report certain terrorist financing offences. The commission states it has issued the alert based on its finding that ‘understanding is low amongst a number of charities – both large and small – in respect of the reporting requirement under section 19 of TACT’.

Section 19 of TACT creates a reporting obligation for a person who, during the course of their employment ‘believes’ or ‘suspects’ another person has committed an offence under sections 15–18 of TACT (which are terrorist financing offences). Such persons must report the suspicion as soon as is reasonably practicable to a ‘constable’.

Employment, for the purposes of an offence under section 19 of TACT, includes unpaid employment and/or volunteering and therefore applies to trustees, staff, and volunteers.

The commission has flagged that it expects trustees to ensure that any suspicions or beliefs reported to a ‘constable’ under section 19 of TACT are also reported to it under the commission’s Serious Incident Reporting framework.

Charity Tribunal: Annuity Helpline

The First Tier Tribunal (Charity) has made an interesting determination about calculating whether an appeal to the tribunal had been filed in time.

Stephen Hunt, the founder of Annuity Helpline, appealed to the tribunal against the commission’s decision to refuse to register Annuity Helpline in July 2015. The decision was communicated to Mr Hunt, the main correspondent on behalf of Annuity Helpline, by email dated 31 July 2015.

The deadline for appealing to the Tribunal is 42 days after the commission’s decision was (a) sent to the appellant or (b) (if the appellant was not the subject of the decision) published. In this case Mr Hunt filed his appeal more than 42 days after he was notified by the commission of its decision to refuse to register Annuity Helpline, but less than 42 days after the commission published the decision on 4 August 2015. The commission argued that Mr Hunt had therefore not filed the appeal in time.

Schedule 6 to the Charities Act 2011 identifies those persons who may appeal against the commission’s refusal to register an organisation as a charity. Those persons include the organisation itself (if it is a body corporate) and the persons who are or claim to be charity trustees for that organisation.

The tribunal considered that there was nothing in the commission’s decision that related to Mr Hunt personally: it related to Annuity Helpline. The tribunal determined that the appeal was made by Mr Hunt as a person who is or claims to be a charity trustee of Annuity Helpline. The appeal was therefore made in time because it was made less than 42 days after the commission published the decision on its website.

The commission has been given leave to appeal this decision to the upper tribunal.

Find out moreVisit the Charity Commission website at www.gov.uk/government/organisations/charity-commission and Tribunal website at www.charity.tribunals.gov.uk

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© Copyright Bates Wells & Braithwaite London LLP March 2016

The information in this update is necessarily of a general nature. Specific advice should be sought for specific situations.

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