Update on the ‘business rates’ review for the Charity Sector

  • Insight

20 June 2018

I commented on the implications of the Barclay Report for the charity sector when it was first published in August 2017. The Report was commissioned by the Scottish Government to carry out a major review of non-domestic rates in Scotland with a view to supporting business growth.

Some of its controversial proposals potentially affected independent schools, universities, sports clubs and ALEOs. How has the Scottish Government responded to the Report’s recommendations for the charities sector? These are summarised below:

Update on independent schools

Summary of the Report’s findings: The Report found it unfair and unequal that independent schools receive rates relief at 80% when compared to state schools, who do not qualify for rates relief. It recommended that rates relief be removed from independent schools.

Outcome: Finance Minister Derek MacKay announced in his December 2017 budget that the Report’s recommendations for independent schools would be accepted.  Only independent music schools and specialist schools dealing with particular support needs would be exempt from this and continue to receive rates relief.

This news understandably came as a major blow to the independent schools sector. Charitable status itself is not threatened, although it has been seen by some as an attack on charitable status. Other widespread concerns focus on the effect increased costs could potentially have on the public benefit that independent schools currently provide in terms bursaries or other forms of financial assistance, sponsored places, community use of school facilities outside of school hours and access programmes. John Edwards, Director of the Scottish Council of Independent Schools (SCIS) has highlighted that since the Charities and Trustee Investment Scotland Act 2005 (the“2005 Act”) came into play, £200 million has been given by independent schools in means tested fee assistance to Scottish pupils. The full impact of this remains to be seen once the primary legislation to bring about this change comes into play from 2020. In the meantime independent schools should start to budget for this change.

Update on universities

Summary of the Report’s findings: The Report recommended that the core functions of universities, namely education, research and development should continue to qualify for rates relief. It recommended however that the more commercial elements of a university, such as the commercial letting of student accommodation outside of term time or renting out venues for non-university related conferences and other functions should not qualify for rates relief. It also suggested that multi-use university owned properties carrying out both commercial and core university purposes should receive apportioned rates relief. This would create a more level playing field with the private sector.

Outcome: The Report’s recommendations will not implemented and will continue as before. The Implementation Plan in response to the Barclay Report, published in December 2017 states that the Scottish Government accepts that a range of charities carry out commercial activity and still qualify for rates relief. It also accepted the practical difficulties of trying to distinguish commercial from non-commercial use.

Update on Sports Club Relief

Summary of the Report’s findings: It suggested that there should be a review of the tax position of sporting facilities in Scotland. This was to ensure that rates relief was only provided to community based sports facilities, rather than to members clubs which can hold significant assets.  It recommended that private members clubs should not be entitled to receive rates relief and that a review is carried out into the reform of this relief, possibly by merging it with the Small Business Bonus Scheme.

Outcome: It was confirmed in the Implementation Plan that the Scottish Government do not intend to change the present system of rates relief.

Update on ALEOs ( Arms Length External Organisations)

Summary of the Report’s findings: The Report took the view that an ALEO was an artificial arrangement to allow Local Authorities to benefit from rates relief. It considered ALEOs to be a form of tax avoidance, allowing each Council to gain additional funding from the Scottish Government as well as their allocated funding.   As some Councils have more ALEOs than others, this meant that some Councils paid more in rates than others.  It took the view that private gym and leisure facilities that were paying rates relief were unable to compete with ALEOs. 

Outcome: The Scottish Government announced in November 2017 that it would not be following the Report’s recommendation for ALEOs.  Finance Secretary Derek MacKay said:

“We are committed to an active and healthy Scotland with a vibrant culture life and we will continue to support Local Authorities in providing affordable ways for their communities to take part in culture and leisure activities.

In my response to the Barclay review I made clear that this was a recommendation that I wished to engage on before coming to a conclusion.  In these discussions I have heard a strong and consistent message about the importance of this benefit to sports and leisure facilities and to keeping the cost of these services affordable especially in disadvantaged and vulnerable communities.  As a result, I can confirm that the rates relief will remain in place for qualifying facilities operated by Council ALEOs.

However, I am aware that some Councils are planning to increase the number of ALEOs and the number of facilities no longer paying rates.  It is my intention to mitigate against this by offsetting against any further charity relief benefit to Councils to deter future ALEO expansion”.

In practice, this means that where future ALEOs are set up, the Council’s funding from the Scottish Government will be reduced by the amount of rates relief claimed.  Whether this acts as a future deterrent remains to be seen.

Other topical regulatory matters


The recent news coverage of Oxfam and Save the Children, where serious concerns have come to light over the treatment of vulnerable beneficiaries and staff have made shocking reading.  It has brought the issue of safeguarding to the forefront of every charity and remains a key governance issue. The Office of the Scottish Charity Regulator (OSCR) and the Charity Commission were both quick to respond by issuing guidance to every charity under their remit emphasising the importance of putting in place or reviewing their existing safeguarding policies and procedures. They also encourage every charity to review their working culture to ensure that volunteers, staff and beneficiaries can work together in a safe environment free from harassment, sexual misconduct or bullying, and where any safeguarding or other concerns can be reported. 

OSCR’s interim guidance “Keeping Vulnerable Beneficiaries Safe” focuses on safeguarding vulnerable beneficiaries, namely children under the age of 18, and vulnerable adults who are over the age of 16, but who are not able to look after themselves, their property or their rights. 

Key points to draw from this guidance are as follows:

Trustees have a duty in terms of the 2005 Act to ensure that safeguarding and a safe working culture are a key aspect of good governance.  Failure to review and properly manage safeguarding risks can be treated as being a serious regulatory breach in the trustees’ duty of care and responsibility, and is misconduct in the administration of the charity. 

  • As trustees have ultimate responsibility for the charity, they will be held responsible if a safeguarding issue is identified.  This potentially affects both the charity concerned and the wider charity sector. 
  • All trustees should immediately review the safeguarding policies and procedures within their charity.  This may mean taking professional advice where needed to assist and ensure that the charity is properly covered.
  • The level of cover appropriate to each charity will vary depending upon the nature of the charity.  Charities working with young children, for example, will also need to comply with all other relevant legislation and disclosure requirements. 
  • Training should be provided to all staff so they are familiar with the safeguarding policies and procedures and know how to apply them.  This will also help to promote a safe working culture of openness within the charity. 
  • Update the charity’s risk register, know what possible risks it faces, particularly if it deals with young children or vulnerable adults. Recognise that the charity may be targeted by unsuitable individuals who want to come into contact with vulnerable beneficiaries, know how to identify them. 
  • Don’t be complacent, keep all policies and procedures under regular review, at least every 12 months and check that they are continually applied throughout the charity.

Notifiable events regime

If a safeguarding issue is identified by the trustees, then it should be reported to OSCR under OSCR’s notifiable events regime. This will involve making a detailed report to OSCR as soon as possible after the event, setting out the circumstances of the breach, what steps the trustees have taken and intend to take and how the trustees will ensure that the risk of the incident reoccurring is minimised.

Reporting a safeguarding concern will form part of the good governance of the charity, with the onus being on the trustees to identify when a report is required and to make it to OSCR.

Further details of what OSCR consider to be a notifiable event can be found in OSCR’s guidance on the “Notifiable Events Regime”.

For further information on this, please contact