The Charity Law Update 2013 Maclay Murray & Spens LLP The Gathering February 2013

Some legal and governance issues some key governance issues successful commercial activities- legal issues some current employment law issues –voluntary workers –equality recent improvements in charity law –new reorganisation provisions –SCIOs key tax issues grant giving foundations

OSCR, Protecting Charitable Status However, our review programme shows that while we have primarily focused on whether charities meet the charity test, these detailed assessments of charities may also highlight other issues of regulatory concern, such as governance or concerns about long term financial sustainability. It is important, in maintaining public confidence in charities and achieving a flourishing charity sector, that we address all these issues in designing our programme of future reviews.

Lets get physics-cal Quarks –whats really inside the apparently fundamental The Heisenberg uncertainty principle –look and you shall see? Schrödingers cat –thinking about the inside of the box while thinking outside of the box Higgs Boson –energy well spent?

Quarks an elementary particle the innards of atomic nuclei found within a proton or neutron a quark was discovered by looking beyond what we thought was fundamental –redefining what we thought was the core of the matter

Reorganisation provisions an OSCR based route to altering a charity where no power to do so in constitution legislation needs a spruce excellent, even transformational, in practice rules extended –the Charities Restricted Fund (Scotland) Regulations 2012 restricted funds where donors view unascertainable –desirable to introduce a provision (other than a provision setting out a new purpose) to a charity's constitution encourages positive reorganisation applications

Reorganisation provisions C + O + S = R Conditions Outcome Scheme Reorganisation

Reorganisation looking beyond what appeared fundamental searching for the core searching for a true meaning discovering something new the need for a Large Hadron Collider

Large Hadron Collider… charity law style 40+ charities and a plethora of purposes LHC Reorganisation provisions Single charity Sub-fund

The Heisenberg uncertainty principle the idea that when seeking to observe a thing, the act of observation itself impacts on the thing is that good or bad? the process of review, monitoring and observation is crucial (e.g. One Plus) wood and trees- missing the big picture

Schrödingers cat involves hypothetical situation of cat in sealed box with vial of cyanide gas capped by radioactive atom, which would release poison once decayed in theoretical quantum physics, the atom could be in both states - decayed and non-decayed only by looking in box would you know cats fate if you did not look, you would have to consider cat both dead and alive

Schrödingers cat again, this is about observation however, in some ways about the impact of not looking the effect we can have by not observing –legal, financial, HR, strategy, macro-issues Schrödingers ostrich?

Schrödingers cat what could be the box? –constitution –contract –funding arrangements what could be the cat? –overall purposes –constitutional power trustee/member dynamic- matter/anti-matter result –a project –a team member

Schrödingers cat the effect of not looking in the box –uncertainty all is ok… or it is not! dont close (and lock) a box should you put the cat in the box in the first place?

Commercial ventures why do it? is this an investment? is it a sound investment? –use of charitable funds, risk and investment rules –the role of social investment and return parent charity controls –whos in charge and how? tail wagging dog? –authority and accountability / risk and strategic direction trading company board composition can a trading subsidiary also be a charity? –yes, but unusual charitable trusts and unincorporated associations –risky, (anti-Bartlett), trustee, office-bearer and member personal liability

Commercial ventures- why do it? Higgs Boson –sounded right in theory –significant experimentation/ due diligence –high level of analysis (sigmas) –lots of energy (literally) expended –what is the result/benefit? was it a good idea to place the cat in the box?

A commercial structure CHARITY -community development -employment -citizenship -arts and culture TRADING COMPANY (NON-CHARITABLE) Public Sector Partnership eg SE, Europe, Council, Scottish Government Gift Aid private investment and impact on structure? tax, legal and ethics? governance engagement consultation social outcomes purposes public benefit loan, investment etc? e.g. shop, service, renewables

Board composition role of the Trustee directors –our man –oversight –communication channel regular written and face-to-face communication roles/ skills set of executive directors –operational skills –other necessary/ desirable skills –remuneration alignment of interests incentivisation –continuity –appropriate (ethical hardwire) commercial direction What can be invested in? What is a return? –understand the overall picture- the charitys purposes the place for non-trustee non-execs?

A little on self-directed support Social Care (Self-directed Support) (Scotland) Act 2012 –contract issues –incapacity law –employment law –data protection

Current Employment Law Issues Volunteers Equality Act reminders

Volunteers Beware the worker! Personal service Mutuality of obligation No customer relationship Rights: holidays & holiday pay rest breaks wages: unlawful deduction accompanied at disciplinaries & grievances discrimination NMW

Volunteers: Workers? Yes: Expenses actually wages: Migrant Advisory Service v Chaudri Yes: Volunteer agreement was binding contract: Murray v Newham CAB No: Expectation are not obligations: an if contract South East Sheffield CAB v Grayson No: standards dont of themselves create mutuality Melhuish v Redbridge CAB

Volunteers: Voluntary Workers? Conditions: work for charities, voluntary organisations, associated fund-raising bodies or statutory bodies no payment other than expenses actually incurred or reasonably estimated as likely to have been incurred in the performance of their duties no benefit in kind other than reasonable subsistence or accommodation Result = no entitlement to NMW

Volunteers: Mitigating Risks Avoid payments that look like wages Reduce /minimise perks Reduce obligations on volunteers

Equality Act 2010 Do you: employ people or have volunteers? provide services (goods, facilities)? carry out public functions? Are you an association with > 25 members?

Protected Characteristics Age Disability Gender reassignment Marriage & civil partnership Pregnancy & maternity Race Religion or belief Sex Sexual orientation

Types of discrimination Direct Indirect Discrimination arising from disability By association Perception Victimisation Harassment

Whats different for charities? You can restrict the people who benefit Is the restriction specified in your constitution? If no, speak to Alan! If yes, is it either: –to prevent/compensate for a disadvantage? or –a proportionate means of achieving a legitimate aim? Fundraising: can restrict to one gender

Whats different for charities? but.....: must not discriminate on the basis of skin colour if perform a public function public sector equality duty may apply

Other exceptions There are a number of other exceptions which are not charity specific relating to: religious or belief organisations associations schools further & higher education positive action

Equality Act 2010: St Margarets Children and Family Care Society Catholic Care (Diocese of Leeds)

Architecture Osc(a)r Niemeyer Brazilian modernist architect I am not attracted to straight angles or to the straight line, hard and inflexible, created by man. I am attracted to free-flowing… curves. The curves that I find in the mountains of my country, in the sinuousness of its rivers, in the waves of the ocean… curves make up the entire Universe, the curved Universe of Einstein

Scottish Charitable Incorporated Organisations SCIO –The Regulations The Scottish Charitable Incorporated Organisations Regulations 2011 –regulate creation and life Separate Dissolution Regulations –When? UA/ trusts conversion and new charities –1 April 2011 Company/ I&PS conversion –1 January 2012 –What? Limited liability corporate charity vehicle

Scottish Charitable Incorporated Organisations Key characteristics (mandatory in regulations) –SCIO to meet the Scottish charity test –SCIOs constitution to set out important governance mechanisms such as: the SCIOs powers the SCIOs "structure" (which is a slightly nebulous requirement) the composition of "the board" rules for meetings of the board and members the process for appointment and removal of charity trustees and members conflict of interest provisions the maintenance of a register of charity trustees the maintenance of a register of members

Scottish Charitable Incorporated Organisations Who will (or from MMS experience has) use(d) it? –a large number of unincorporated associations –new grant giving foundations which would have previously been set up as a trust might prefer the limited liability environment of the SCIO- and avoids quirks of trust law –organisations that do not want a "two tier" members/ trustees governance structure (simplicity/ reduce scope for contention) –existing companies who do not need or wish to be companies –existing companies and trusts seeking to simplify administration –Limited liability as an attractive feature for quality trustees –organisations that are attracted to a SCIO providing more of a "blank canvass" for structure and governance arrangements than traditional vehicles –trusts that have passed or approaching 21 st anniversary

Scottish Charitable Incorporated Organisations any down sides? –unknown quantity / familiarity –technical issues member duties/ winding up/ charitable status is existential –getting the constitution wrong drafting more important than ever little underlying law to fill any gaps –for existing charities:- unlikely to offer clear advantages for existing charitable companies –still worth considering for one off streamlining, administrative simplification or part of wider governance improvements the process of transfer of assets and liabilities on conversion can be difficult –lenders/funders/creditors etc education process understanding the risk profile of the SCIO overseas parties being comfortable with a SCIO

the Brasilia issue great concept the need to maintain the original is it fit for purpose: –over time? –circumstances change? reflective of current aims and activities?

grant giving foundations Issues affecting grant giving charities –increased numbers of applications –scrutiny of applications –monitoring and evaluation –2005 Act investment duties became real take advice as appropriate and consider it consider suitability of investment consider diversification

tax update HMRC –U-Turn on changes to charity income tax relief –remember basics- e.g. Deeds of Variation –new Inheritance Tax relief- if 10% of estate passes to charity 36% IHT not 40% interaction between Wills and Death Benefits/Policy Trusts –reduction in additional rate tax to 45% encourage pre-6 April 2013 donations

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Get in touch Alan Eccles Partner, Head of Charities Alison Weatherhead Associate, Employment

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