Public Benefit Requirement Update
What Independent Schools Really Need To Know
The Charities Commission has recently issued guidance on the public benefit test for all charities. Changes regarding public benefit requirements are expected to take effect from the 1st of April 2008. Thereafter charities will have to demonstrate specifically that the aims of the charity are for the public benefit. This article refers to those elements that particularly affect independent schools with charitable status. Independent schools with charitable status will be aware that the Charities Commission is shortly to issue education sub-sector public benefit draft guidance for consultation which will be the definitive guidance on the public benefit test for education charities. This will be featured in a forthcoming article. For now, Yvonne Spencer and Rose Carey lawyers from Fisher Jones Greenwood LLP unravel the mysteries of the long-awaited charities public benefit test.
Contained within the guidance are two key principles of public benefit and each has a set of important factors must be met as follows -
Principle 1: There must be an identifiable benefit or benefits
Principle 1 (a)
It must be clear what the benefits are.
Principle 1 (b)
The benefits must be related to the aims.
Principle 1 (c)
The benefits must be balanced against any detriment or harm.
Comment: What this means in practice is that schools should review an existing policy or begin drafting a scholarships and bursaries policy that is clearly linked to the school’s charitable purposes as outlined in the Memorandum and Articles of Association. So for example, if the Memorandum states the Object of the charity is to provide ‘education to children under 18 and to advance a particular religion’, the school won’t score any particular public benefit test brownie points for allowing the local adult judo club to use the school’s excellent sports hall facilities free of charge. The provision of such a benefit is not linked in any way to the charity’s aims. Some trustees may feel the scope of their charity’s Object is so limited that this is placing them under considerable strain when trying to demonstrate public benefit. If so, schools are strongly advised to seek legal advice on amending the Memorandum and Articles and express approval from the Charities Commission will be required before a Special Resolution can be passed amending the Memorandum of Association. There are a number of very important issues for schools trustees to consider before embarking down this route. We therefore plan to feature this issue in a future edition of Independent Education Today.
Principle 2: The benefits must be to the public, or a section of the public
Principle 2 (a)
The beneficiaries must be appropriate for the aims.
Principle 2 (b)
Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted:
- By geographical or other restrictions ; or
- By ability to pay any fees charged.
Principle 2 (c)
People in poverty must not be excluded from the opportunity to benefit.
Principle 2 (d)
Any private benefits must be incidental.
Comment The most challenging principle for independent schools is likely to be principle 2 (b) in respect of fees. Although independent schools will have to show that they meet the requirements of all the principles. This means in practice demonstrating that access to the school and everything it has to offer is not exclusive to children of wealthy parents. When revising or drafting the scholarships and bursaries policy, schools need to think about how they can effectively provide opportunities to children from families facing poverty. In the first instance thought should be given as to how the school will define ‘poverty’? Is this by reference to the head of the household claiming benefits? Income below a certain level? The child’s circumstances, for example a child from a lone parent background? A child of a disabled parent or a child in local authority care? Dame Suzi Leather, in a press interview last autumn commented that a school such as Eton should not have difficulty satisfying the public benefit test on account of the school’s long tradition of making facilities available to children from disadvantaged areas.
The First Public Benefit Test Case in Scotland
The first public benefit test case in Scotland under new charities law, involved an independent school - the High School of Dundee. The case was successfully determined in the school’s favour. The High School of Dundee charged fees for day pupils from £5,841 to £8,304. The Office of the Scottish Charities Regulator (OSCR) recognised the steps already taken by the school to increase access to children from financially disadvantaged families:
- The school’s system of bursaries – up to 100% if financially eligible. 13% of pupils across the school received some financial support
- The school’s clear published policies on fees and bursaries
- The fees charged to parents reflected the cost of the education provided
- The OSCR recognised the local and national benefit the school provided
- The local community could access the school’
What do the principles mean in practice?
Principle 1 (a)
It should be possible to identify and describe the benefits provided to the public but this does not necessarily mean that they have to be quantified or measured.
Principle 1 (b)
This means that benefits arising from a charity’s work which are not related to its aims will not be taken into account. Therefore the independent school’s aims must be clear and the benefits derived from those aims should be apparent and linked to the aims.
Principle 1 (c)
This could include something damaging to the environment, or mental and physical health, or encourages hatred towards others. This provision is aimed at situations where for instance there is a benefit because the aims are properly charitable, but the way in which those aims are pursued means there is some detriment (e.g. to the environment)
Principle 2 (a)
In order to show a public benefit the whole of the public do not necessarily have to benefit from the charitable aims. Sometimes a charity’s aims can benefit a particular section of the public. Who benefits and how depends on the charity’s aims. The class of people who can benefit must be sufficiently large or open and the actual number of people who can benefit at any one time can be quite small as long as anyone who could qualify for the benefit is eligible. Care must be given to ensure that those who cannot afford the schools fees are not excluded from benefiting from the independent schools aims. Bursaries and working more closely with state schools would assist in meeting the public benefit requirement. However, it must be borne in mind that the opportunity to benefit should not be unreasonably restricted given the independent schools aims and resources.
Principle 2 (b)
Where benefit is to a section of the public, the opportunity to benefit must not be unreasonably restricted by geographical, or other restrictions, or by ability to pay and any fees charged.
The main difficulty for independent schools, would be the ability to pay fees charged for independent schools. A way to deal with this would be to offer a sufficient number of bursaries to a sufficiently wide section of the public not restricted by geographical area to ensure that a sufficient section of the public would be deemed to benefit from the independent school’s aims.
Principle 2 (c)
This principle follows on from principle 2 (b) and the ability to pay fees charged. This effectively means that people in poverty who cannot afford to pay the fees should not be excluded from the opportunity to benefit. Again a system of bursaries could be used to deal with this principle. Another way of dealing with the section of the public unable to pay school fees instead of offering more bursaries, or concessions from school fees, would be to work with local state schools, although care should be given when allowing state schools to use the facilities and amenities of an independent school, such as sports grounds in case this leads in the future to independent rights being established over time and through long use over that land. What is important is that those unable to pay are not excluded from the opportunity of benefiting from the independent school’s aims.
Principle 2 (d)
Any private benefit must be incidental. Any benefit whether or not received by the beneficiary should be incidental therefore a bi product of carrying out the charity’s aims. If this is not the case then this would suggest that the purpose of the charity is not for public benefit but for private benefit.
Reporting by charities on the public benefit
Charity trustees will have a duty to report in their Trustees Annual Report on their charity’s public benefit. The amount of detail that the trustees will need to go into will depend on whether the charity is above the audit threshold which will be set at a gross income exceeding £500,000, or where gross income exceeds £100,000 and the aggregate value of its assets exceed 2.8 million. It was usual for charities to explain their activities in the Trustees Annual Report previously, but now this information has to be given in the context of the charity’s aims in terms of the public benefit and to show how the aims have been carried out for the public benefit. In addition the trustees will have to confirm that they have had regard to the public benefit guidance provided by the Charity Commission.
Most independent schools will be considered large charities and will have to give a very detailed full explanation in the Trustees Annual Report of all of the significant activities undertaken in order to carry out the charitable aims which have been for the public benefit and as well as the strategies used to give effect of those aims.
For further specialist legal advice on all issues affecting the management of your school, contact Yvonne Spencer, partner Fisher Jones Greenwood LLP on 01206 835230 or yspencer@fjg.co.uk