Scottish Charitable Status – use it or lose it!

The Office of the Scottish Charity Regulator (OSCR) has around 24,000 charities on its books and has undertaken a recent project to review the Scottish charity register to ensure those registered continue to meet the necessary requirements to maintain Scottish charitable status. An estimated 3000 charities are thought to be failing to meet key requirements and a total of 31 charities have so far been removed from the register. OSCR cites reasons such as failing to submit annual reports, lack of activity related to a charitable purpose and lack of public benefit for the most recent cull.

Here are some points worth considering to ensure your charity doesn’t unwittingly risk its charitable status.

Charity test

To be given charitable status, an organisation must submit an application to OSCR which shows how it meets the ‘charity test’. Put simply, this means that the organisation: (1) has only charitable purposes, in its governing document and (2) provides public benefit.

The statutory list of charitable purposes is wide and covers everything from health and culture to the environment and animal welfare, while also allowing for other activities not specifically listed as long as they can be reasonably related to a charitable purpose.

Purpose and public benefit

Once an application is approved and charitable status is granted, it is important to maintain both elements of the test for the duration of the charity.

The purpose of your charity will be set out in your governing documents (such as a deed of trust, Scottish Charitable Incorporated Organisation (SCIO) constitution or articles of association) and you must seek permission from OSCR to change the charity’s purposes. All activities that you carry out, must be in furtherance of your purposes.

Similarly, public benefit must be derived from your chosen purpose(s) and must outweigh any potential disbenefit or private benefit that would arise from your charity’s activities. This is something OSCR will monitor e.g. by way of the information which the charity submits as part of its annual return to OSCR. For example, if a charity ceases to carry out any activities, it will no longer provide public benefit and will not be allowed to stay on the register.

An exception is available for ‘inactive’ charities where this is justified. This would cover charities such as those who provide benefit after a specific event, for example a natural disaster response charity operating in Scotland where there have been no disasters for a period of time.

An example of the elements of the charity test coming under scrutiny can be seen from the Wick Academy Development Fund investigation. The charity raised funds for its purpose of benefitting the people of Wick through the sale of lottery tickets within the local community. The accumulated funds sat within the charity for a significant period without any distributions being made. OSCR investigated this as the failure to make use of these funds was at odds with the charity’s requirement to provide public benefit. OSCR found that it had no confidence in the trustees running of the charity and applied to court for an external judicial factor to be appointed to wind up the charity.

Reporting

To maintain public confidence in charities activities must be monitored. Every year the trustees must submit annual accounts along with an external scrutiny report and an online annual return. They must also provide an annual report on the charity’s activities. While this is a legal requirement, it is also a good way to showcase the activities you have been doing that further your charity’s purposes and provide public benefit.

The type of accounts and external report required will depend on the size of the charity and the terms of the governing documents.

Take note of the date your accounts are due, as a late or missed submission can damage the reputation of the charity and spark an investigation from OSCR. You have nine months from your financial year-end to submit your reports.

To maintain charitable status for your organisation you should:

• Get to know the structure of your charity and your governing documents so you know what rules apply to you;
• Ensure annual reporting requirements are fulfilled on time;
• Review your charity’s activities throughout the year to ensure they are in line with the purposes specified in your governing document. If you want to change your purpose, request permission from OSCR before changing your activity (OSCR must be given at least 42 days’ notice of the proposed changes);
• Ensure that your charity is actively carrying out activities in furtherance of its purposes, and not simply accruing funds without making use of these.

For further information on how we can assist your organisation with charitable status, please get in touch with Gillian Harkness-McKinlay or your usual Anderson Strathern contact.

You may also be interested in the following articles:

• Thinking about updating your charity’s legal structure? 
• The effect of financial sanctions on charity trustees
• Wick Academy Development Fund – implications for charity trustees

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