Sean Egan reflects on the implications of impending changes to charity law.
Readers may not be interested in the academic nuances of charity law but the report by Downing Street?s Strategy Unit in September could well be the start of the most significant changes to charity law for generations. The report is refreshingly well written and clear and takes a radical view. My hope is that space can be found in the busy forthcoming sessions of this parliament as they should be welcomed by most arts charities.
Updating the law
From my experience of advising arts organisation, the rigours of charity law pose difficulties for chief executives and administrators as they not generally trained lawyers. Any move towards simplifying charity law and alleviating that burden must be welcomed particularly for small organisations. That being said the simplifications focus mostly on the way organisations are formed rather than reducing the subsequent paperwork.
Almost every charity in the arts has as its main object the advancement of education. This is satisfactory under current charity law but the organisation itself will not necessarily see itself primarily in terms of its educational benefit to society. The proposed new charitable object of the advancement of culture, arts and heritage should remove this tension and could always be combined with the object of the advancement of education. This proposal should therefore help new organisations register more easily and avoid the current occasional argument with the Charity Commission as to whether they will be presenting ?entertainment? or ?education? which is raised particularly in the context of music.
Legal structures
In some arts organisations the unpaid trustees may be the persons responsible for decisions but the artistic director and/or administrator may be the individuals who feel most ownership of the organisation (see Square Pegs and Round Holes ? Arts Professional issue 30, July 15, 2002). The report suggests the creation of a new legal structure of ?community interest companies?, which although similar in structure to companies limited by guarantee, would be non profit distributing. The advantage is that they would be suitable vehicles for commercial investors. This type of company would not be of interest to organisations which need to access specific funding dependent on their being charities, or the benefits of gift aid and rate relief and other charity-dependent tax breaks. But organisations where those sorts of benefits are not significant and which are in receipt of government or local authority funding may well find this alternative structure helpful and it could promote a mixed economy of funding - from government sources and commercial sources. The report also suggests a new exclusively charitable entity called a ?charitable incorporated organisation?. What is not clear is whether all charities which are companies limited by guarantee will be obliged to transfer into this sort of entity.
Trading
Arts organisation charities may undertake substantial trading activity such as in-house catering operations, bookshops and certain types of co-production and ventures with commercial organisations. Currently the charity itself cannot do this but channels this activity through a subsidiary trading company and gift aids most or all profits to the charity. The report proposes that this will be relaxed so that charities can engage in trading without setting up trading subsidiaries. This has obvious cost benefits and should reduce the confusion that can arise from having a second board and constitution. However, it is potentially a poisoned chalice. Whilst it is attractive to think about simplifying an organisation in this way, it means that all the risks currently hived off into the subsidiary are brought within the charity. This may be fine for well-managed catering operations or book shops but the trustees must ensure that any risks taken are properly evaluated and minimised. A subsidiary to isolate these risks will continue to be a valuable option.
Additional reporting requirements
One of the aims of the report is to move towards a ?league table? culture, to enable information produced by charities to be meaningfully compared with other charities. The specific proposal is that for charities with a turnover of more than £1m, an additional annual report in a fixed format will be supplied to the Charity Commission and this will be made public. I feel there is significant value in the current availability of information on fundraising where for instance the costs of fundraising are shown (under the current Charity Commission Statement of Recommended Practice), but I would query why extending this means of comparison is relevant to organisations which do not actively engage in fundraising. A venue does not have to be of national significance before it will have a £1m turnover and supplying this additional information will inevitably lead to additional costs.
Mergers
Although there are few arts organisation mergers, there seems to be a desire to make them easier to achieve. To that end, the report recommends changes to the law to enable mergers to take place (see Essential Law ? ArtsProfessional issue 34, September 23, 2002).
The Charity Commission dies
No not really but just a change of name to the Charity Regulation Authority; and there are a number of proposals to try to modernise its operation to make it more transparent.
Like any change, the devil will be in the detail but there does seem a real desire to bring charity law at least into the twentieth century. These proposals could deliver real benefits and I would urge you to lend your support. It will be a shame if this sort of reform died by postponement because support for it was insufficiently vocal.
Sean Egan is Head of the Arts & Media Department in Bates, Wells & Braithwaite
t: 020 7551 7796; e: s.egan@bateswells.co.uk