Charitable
Status – “to have or not to have” that
is the question!
Many
voluntary groups and organisations have heard about “charitable
status” and feel that it may be something they should
apply for. What exactly is it? Are they eligible? What
are the benefits/or indeed drawbacks? In
reaching a decision on whether or not to pursue charitable
status, it is important that you should be aware of the
disadvantages associated with charitable status,
as well as the advantages - so that you can make
an informed decision on whether
or not to take that step. We will try to answer some of
these questions here but for a fuller explanation visit
OSCR.
The
first thing you need to know is that Charity laws have changed
considerably in the last 18 months following the implementation
of the Charities and Trustee Investment (Scotland) Act 2005.
What
is a charity in Scotland?
Under
this Act, the Office of the Scottish Charity Regulator
(OSCR) is the new body in Scotland to
whom applications for charitable status must be made. It
grants charitable status, regulates charities and keeps
a public register of charities, the Scottish Charity
Register. To be a charity registered in Scotland you
must be entered on the Scottish Charity Register.
Entry on this Register tells the public, the tax authorities,
funding organisations and people who benefit from it or
might be thinking about supporting that you have fulfilled
conditions set by OSCR i.e. that you have passed
the charity test (see below), that your charity is overseen
by OSCR and that the charity’s Trustees must
act in certain ways and provide information to OSCR.
How
to become a charity in Scotland
If you want your organisation to be entered on to the Register
and become a charity, you will need to apply to OSCR.
Their website outlines the documents that need to be returned
in order for them to decide if you can become a charity.
They will then examine the information you have provided
against the Charity Test which states that your organization
must:
If
OSCR thinks that the organisation satisfies the
charity test it will grant charitable status. If not, it
won’t!
Advantages
of Charitable Status
-
Relief from tax on surpluses and on any interest earned
on sums held on deposit
-
The ability to tap funding sources (e.g. charitable foundations)
which can only give financial support to charitable bodies
(NB Many funders DO NOT require groups to be registered
charities before they give funding).
-
Ability to claim tax relief under the Gift Aid Scheme
for gifts of money to charities.
- Rates
relief in relation to premises occupied by the charity
- Special
VAT concessions which are applicable only to charitable
bodies.
Will the charity be exempt from Value Added Tax (VAT)?
There is no blanket exemption from VAT for charities, but
in many respects, charities are no different from any other
business that is registered for VAT. Some difficulties may
arise in deciding whether a charity is in business for VAT
purposes. Some charitable organisations may be able to make
certain purchases exempt from VAT depending on the nature
of the charity, the type of purchase being made, and the
ability to meet certain conditions.
If
you need advice or information on VAT matters relating to
charities, you should contact HMRC Charities helpline on
0845 02 02 03
BUT please note!
-
The new 2005 Act means that if you are a registered charity
there are obligations that must be fulfilled for OSCR
(e.g. A group will have to submit an annual return and
accounts. Charities with an income over £25,000
will also have to submit a more detailed ‘monitoring
return).
-
There are a number of things you can’t do without
OSCR’s permission and over which OSCR has powers
of direction.
-
The 2005 Act imposes special duties on charity trustees.
They must act in the interests of the charity, make sure
it does what it was set up to do, act with care and diligence
and make sure they and their charity comply with the Act.
Breach of duty is considered ‘misconduct’
on the basis of which OSCR (and ultimately the Court)
may take a number of actions.
So you will have to balance whether the obligations imposed
on your organisation and its trustees through charitable status
are outweighed by the advantages you may gain.
Useful links:
Office of the Scottish Regulator, visit
here
Scottish Council for Voluntary Organisations,
visit here
Her Majesty’s Revenue and Customs (HMRC),
visit here
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