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Law Making and the Scottish ParliamentThe Early Years$

Elaine E Sutherland and Kay E Goodall

Print publication date: 2011

Print ISBN-13: 9780748640195

Published to Edinburgh Scholarship Online: March 2012

DOI: 10.3366/edinburgh/9780748640195.001.0001

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Charity Law: An Issue of choice

Charity Law: An Issue of choice

(p.103) 6 Charity Law: An Issue of choice
Law Making and the Scottish Parliament

Stuart Cross

Edinburgh University Press

Abstract and Keywords

The passing of the Charities and Trustee Investment (Scotland) Act 2005 was a landmark occurrence in the development of charity law in Scotland. It introduced a dedicated charities regulator, created a new definition of ‘charity’ for Scottish charities, and introduced a new regulatory regime to allow for the effective monitoring of and potential intervention in the affairs of Scottish charities, built on the information contained in the new Scottish register of charities. This chapter considers the fundamental changes to charity law in Scotland that resulted from the passing of the 2005 Act and discusses how particular choices and approaches to the key provisions in the Act have resulted in a legislative outcome, which is both distinctively Scottish in approach but pragmatically cognisant of a broader United Kingdom social and legal context.

Keywords:   charities, charity law, Scottish charities, investment




    1. (1) Structural deficiencies and sectoral scandals

    2. (2) Cabinet Office Strategy Unit review of the third sector and English developments


    1. (1) Restraints on the Scottish Parliament

    2. (2) Interaction between the Scottish and English reforming legislation


    1. (1) Policy

    2. (2) Structure of the Act

    3. (3) OSCR

      1. (a) Substance and form

      2. (b) Functions and powers

    4. (4) The Scottish Charity Register

    5. (5) The charity test and public benefit

      1. (a) The nature of the charity test

      2. (b) Charitable purposes

      3. (c) Public benefit

    6. (6) Cross-border charities


A. Introduction

The passing of the Charities and Trustee Investment (Scotland) Act 20051 was a landmark occurrence in the development of charity law in Scotland. It introduced a dedicated charities regulator, created a new definition of “charity” for Scottish charities and introduced a new regulatory regime to (p.104) allow for the effective monitoring of and potential intervention in the affairs of Scottish charities, built on the information contained in the new Scottish register of charities. Although the public perception may have been that these changes to the landscape of charity law in Scotland only took place as a result of the need to develop a regime which could cope with issues such as those which had arisen from a number of high-profile scandals involving Scottish charities, that would be to ignore the detailed consideration of the potential shape of charity law and regulation which had been ongoing across the United Kingdom in the fifteen years preceding the 2005 Act. The 2005 Act is a product of the Scottish Parliament and it incorporates a range of provisions and mechanisms which reflect choices made during the passage of the legislation. Some of those choices were overtly political in nature yet result in distinct legal consequences. This chapter considers the fundamental changes to charity law in Scotland that resulted from the passing of the 2005 Act and discusses how particular choices and approaches to the key provisions in the Act have resulted in a legislative outcome which is both distinctively Scottish in approach but pragmatically cognisant of a broader United Kingdom social and legal context.

B. Regulation of charities in scotland pre-2005

Scotland has a long established common law of “charitable and public trusts”2 which, as the late Lord President Cooper commented, had nothing to do with “the statute of Elizabeth and the artificial structure which has been erected upon it”3 – namely, the concept of charity developed by the English courts which has its foundations in the preamble to the Charitable Uses Act 1601.4 Charitable trusts in Scotland are part of a specific class5 of the broader species of Scottish public trusts.6 Although it has been argued that the development of the Scots common law charitable and public trusts regime could have provided Scotland with a strong, indigenously rooted regime for the regulation of charities,7 that approach was not followed when the first statutory (p.105) regime for the regulation of Scottish charities was introduced by means of the Law Reform (Miscellaneous Provisions) (Scotland) Act 1990 (“the 1990 Act”). The main influence and drive for regulatory change in Scotland in respect of charities in the late 1980s came not from Scotland but from England. In Sir Philip Woodfield’s report, Efficiency Scrutiny of the Supervision of Charities,8 it was commented that it would be “imprudent” to leave matters as they were in Scotland.9 What followed, in the form of the 1990 Act, was a regime which was built around recognition of the fact that many Scottish organisations which were not-for-profit in nature were entitled to seek and obtain relief from United Kingdom taxes on the basis that these bodies’ purposes were “charitable” in the technical sense of the concept as developed from the 1601 Act.10 The 1990 Act was constructed around this linkage, and once a not-for-profit body had been able to satisfy the (then) Inland Revenue that it was entitled to relief from taxation on the basis of its purposes, having satisfied the 1601 Act derived threshold, then those bodies would be entitled to refer to themselves as “Scottish charities” and would be subject to regulation as such under the 1990 Act.11 The outcome of this approach was effectively to subrogate the role of legal form in respect of the regulation of charities. A “Scottish charity” might well have been a species of public trust for the purposes of classification of form in Scots law but for regulatory purposes as a charity the critical element was the purpose or purposes pursued by the body. This approach was not greatly surprising because the use of the Pemsel test for fiscal purposes was well established in Scotland12 and the extended application of the use of the fiscal definition of “charity” for regulatory purposes in effect created a common notion of “charity” in England and Scotland. One of the key effects of the 1990 Act was, therefore, to create a statutory species of Scottish charities which was defined and circumscribed by the same English derived rules as were applied by the Charity Commission in England and Wales. (p.106)

C. The reform of Charity law in Scotland

(1) Structural deficiencies and sectoral scandals

The 1990 Act was the subject of criticism and calls for its reform were made almost from the time it came into force. The regulatory structure introduced by the 1990 Act was broadly based on the regime for small charities in England and Wales in terms of the Charities Act 1960, and it introduced formal accounting requirements13 for Scottish charities and provided powers of official inquiry and intervention14 which were structurally similar to but far less comprehensive than those conferred on charity commissioners in England and Wales. Notable absences from the 1990 regime were any form of dedicated charity regulator such as existed in England and Wales in the form of the Charity Commission15 or a properly constituted public register of charities.16 A series of reviews were undertaken into these and other perceived inadequacies in the 1990 regime, with the three main reports being the Kemp Report,17 the report by Dundee Law School’s Charity Law Research Unit,18 and the McFadden Report.19 Of these, the McFadden Report was the most significant and most directly influential on the reform agenda that ensued. The most striking recommendation from the McFadden Report was for the creation of a new regulator for Scottish charities. Other key recommendations which echoed proposals made in the Kemp Report and the Dundee University Report were for the creation of a new and publicly available register of charities, a revised definition of “charity” which would incorporate a stronger emphasis on public benefit as a central requirement and the introduction of a new and dedicated legal form for charities. More than two years passed before the (then) Scottish Executive made a clear commitment (p.107) to the introduction of legislation for the reform of charity law in Scotland and it seems clear that the direct impetus for the commitment to reform was the level of public concern raised over the effectiveness of the existing supervisory and monitoring regimes triggered by the high-profile failures of two large Scottish charities, Moonbeams and Breast Cancer Research (Scotland).20 In 2003 both charities were the subject of petitions to the Court of Session at the instance of the Scottish Charities Office under the intervention procedures contained in the 1990 Act.21

(2) Cabinet Office Strategy Unit review of the third sector and English developments

Reform discussions in respect of charity law did not take place in isolation in Scotland and the debate as to possible reform in England and Wales in respect of a variety of matters relating to charity law22 was intended to refine the existing system for English and Welsh charities by amendment of the 1993 Act.23 This process of debate generated a series of reports, the most significant of which were the Deakin Report,24 the report of the Charity Law Reform Advisory Group,25 and Public Action: Private Benefit.26 With some modifications,27 the recommendations in Public Action: Private Benefit were directly reflected in the Bill which subsequently became the Charities Act 2006 and developed the English and Welsh charity law regime by amending the 1993 Act. Although Public Action: Private Benefit carefully avoided offering any recommendations in respect of charity law in Scotland,28 the coincidence in the timing of the passage of the separate pieces of legislation in Scotland and England and Wales gave rise to an opportunity for convenient and almost parallel scrutiny of the development and refinement of legislative treatment of similar concepts and issues by the Scottish and Westminster Parliaments. (p.108)

D. The passage of the 2005 Act

(1) Restraints on the Scottish Parliament

The Scottish Parliament has competence to legislate in respect of the “creation, operation, regulation and dissolution of charities”29 and in respect of the fiscal treatment of charities by virtue of local taxation30 but has no competence to legislate in respect of United Kingdom taxes, as that is a reserved matter. This restraint on the legislative competence of the Scottish Parliament was of particular significance in respect of charities as the existing regulatory regime for Scottish charities, as established by the 1990 Act, relied on the English definition of “charity” which was also the definition relied upon by the Inland Revenue in assessing the provision of tax relief to charities. This was an effective constraint on choice for the Scottish Parliament in respect of its approach to reforming legislation. It could, if it wished, retain, modify or replace the 1990 approach to the definition of “charitable” and “Scottish charity” for the purposes of creation, operation, regulation and dissolution of charities but it could not change the definition of “charity” which would be applied in deciding whether a Scottish charity was entitled to receive relief from United Kingdom taxes. This restraint aside, it is clear that, prima facie, the legislative competence and freedom of choice afforded to Scottish Ministers in relation to the promulgation of legislation in respect of the regulation of Scottish charities was, and is, broadly unfettered.

(2) Interaction between the Scottish and English reforming legislation

The timing of the early stages of the respective parliamentary processes for the Scottish and English legislation was remarkably close. The original Charities Bill for England and Wales was issued as a consultation draft in May 2004 and then introduced into the House of Lords in December 2004. The Scottish Bill (which ultimately led to the 2005 Act) was introduced as a consultation paper in June 2004 and introduced into the Scottish Parliament in November 2004. This closeness in terms of process was lost when the English Bill was temporarily dropped at the time of the general election in May 2005.31 By that stage, however, it was clear that the Scottish Executive had at the very least been mindful of the way issues were being addressed in the draft legislation for England and Wales. In evidence given to the (p.109) Communities Committee at Stage 1, the then head of the Scottish Bill team commented that “the bill sets out a Scottish definition of a charity that is based on the principle of public benefit and is compatible with the definition that the United Kingdom Government is proposing” and that “The charitable purposes have been changed to bring them more into line with those proposed by the Home Office for the rest of the UK”.32 Those remarks were neither questioned nor debated at the Committee Stage of the Scottish legislation and the general acceptance of an approach which either explicitly drew upon or sought to accommodate provisions in the parallel English legislation is an interesting example of an apparently pragmatic approach to the development of Scottish legislation in an area where there were no constitutional requirements for Scottish Ministers to adopt such a compatible position.33

E. The current law

(1) Policy

The Policy Memorandum34 which accompanied the publication of the Charities and Trustee Investment (Scotland) Bill35 clearly set out a number of key policy objectives for the legislation.36 The central objective was to deliver a “robust, proportionate and transparent regulatory framework that satisfies public interest in the effective regulation of charities in Scotland and meets the needs of the Scottish charity sector”.37 The approach to be taken to achieve this end would involve repealing “existing provision for the recognition, supervision and reorganisation of Charities” and creating “one single, modern framework for charity regulation in Scotland”.38 Ministerial interpretation of and comment upon these policy objectives made it even clearer that the new legislation was squarely aimed at protecting the charity brand and that the new Act should protect against “the corrupt use and abuse of the word ‘charity’ and against the abuse of people who give their time and resources to support good works”.39 Given that the proposed Scottish (p.110) egislation would have no direct impact on the principal benefit associated with charitable status – relief from income tax – it was inevitable that the real focus in the new Act would be on the extent to which the new regulatory structure could achieve these policy objectives and not on how control of the benefits of a concessionary tax regime might influence the use of the charity brand.

(2) Structure of the Act

The 2005 Act is split into four parts. Part 1 introduces the new regime for the regulation and supervision of Scottish charities, doing so in a way which implements a substantial proportion of what was recommended in the McFadden Report, and addresses the principal objectives for the legislation as set out in the Policy Memorandum.40 The model adopted for the new Scottish regime is much closer to the pre-existing regime in England and Wales, with appropriate modifications to reflect the recommendations set out in McFadden and other specifically Scottish requirements. The key elements of the new regime addressed in Pt I are the creation of a new Scottish charities regulator named OSCR;41 the creation of a new register of charities in Scotland;42 controls on charity names;43 restrictions on references to charitable status;44 powers of inquiry and intervention for OSCR;45 powers of intervention for the Court of Session;46 new arrangements in relation to the reorganisation of charities;47 a new accounting regime which is broadly similar but not identical to the relevant English regime;48 a new legal form for charities, to be known as the “Scottish Charitable Incorporated Organisation”;49 detailed provisions in respect of the duties, remuneration and disqualification of trustees;50 and the creation of a new Charity Appeals Panel51 to hear appeals from decisions by OSCR52 before (p.111) any final hearing before the Court of Session.53 Parts 2, 3 and 4 of the 2005 Act deal respectively with fundraising for benevolent bodies, investment powers for trustees and a range of general and supplementary matters. Part 1 of the 2005 Act undoubtedly deals with the key structural issues and components of the new regulatory regime for Scottish charities established by the 2005 Act but it is arguable that the matters addressed in Pts 2–4 of the Act would have had to be addressed at some stage and that while the Act could arguably have delivered on the key objectives set out in the Policy Memorandum had it only included those issues addressed by Pt I of the Act, the inclusion of Pts 2–4 results in a more rounded and complete approach to the overhaul of Scottish charity law.

(3) OSCR

(a) Substance and form

The first recommendation contained in the McFadden Report was that “a new body should be established in Scotland with powers to determine eligibility for status as a Scottish Charity”.54 This recommendation was followed and OSCR55 was established as the Scottish Charity Regulator. The creation of OSCR is a direct reference to the Charity Commission in England and Wales and OSCR is modelled on that body, albeit with lesser powers.56 There was no discussion in the McFadden Report as to the legal form the new body should adopt. The approach taken in the 2005 Act is to establish the office, which is named as OSCR,57 and then establish a body corporate known as the Scottish Charity Regulator which will be the holder of the office.58 OSCR operates as a non-ministerial officeholder of the Scottish government, making it a non-ministerial department. This model is relatively uncommon in Scotland and such departments59 are usually headed by individuals who are senior civil servants. OSCR was the first non-departmental body in Scotland to be established as a body corporate and, as such, it has a relatively conventional (p.112) corporate structure, with a non-executive board, a chairman,60 a deputy chairman61 and not less than four members.62 The nature of the legal form to be adopted by OSCR generated little discussion during the progress of the Scottish Bill but there was considerable discussion as to the level of independence the new body would enjoy, particularly in dealings with the Scottish Ministers, and the structure adopted is an attempt to provide an appropriate degree of distance and separation between OSCR and the Scottish government. During the parliamentary progress of the Scottish Bill the Charity Law Association expressed concerns about the status of OSCR and was of the view that it should be “further from the Scottish Executive”. Admittedly, those concerns were focused on the then proposed mechanism which would have obliged OSCR to comply with ministerial directions on the form and content of OSCR’s annual report and accounts and the Charity Law Association’s own suggestion that OSCR should be under a duty to advise63 Scottish Ministers.64 There was clearly recognition within OSCR that the sector within which it would be operating in Scotland would be sensitive as to the degree of separation between the regulator and Scottish Ministers and the chief executive of OSCR, in giving evidence to the Communities Committee, commented that “it was critical to get the balance right between our having sufficient authority and our having sufficient operational independence. I am content that the model which has been developed secures that”.65

(b) Functions and powers

In terms of functional competence, the similarities between OSCR and the Charity Commission are notable. OSCR determines whether bodies are charitable66 and, in so doing, applies the new statutory charity test;67 OSCR maintains a public register of charities68 which is in many respects similar to the English register;69 OSCR regulates those names which may and may (p.113) not be used by charities:70 OSCR operates a regime for the submission of annual accounts and returns;71 OSCR has a wide range of new powers in relation to the reorganisation of charities,72 an inquiry and intervention role;73 and it has a function very similar to that of the Registrar of Companies to be exercised in respect of the proposed new Scottish Charitable Incorporated Organisation.74 Each of these functions as allocated to OSCR has a direct parallel in functions exercised in England and Wales by the Charity Commission. In one area, however, there is a notable difference in the nature and extent of the powers attributed to OSCR. The powers of inquiry and intervention given to OSCR in the 2005 Act are more extensive than those which were available under the 1990 Act and they represent a significant extension of the powers which may be exercised by the regulator without having to make reference to the Court of Session. In that respect the regime is closer to the regime operated by the Charity Commission in England and Wales than the previous regime under the 1990 Act. The powers of intervention which are given to OSCR75 are, however, significantly less extensive than those enjoyed by the Charity Commission. The most obvious example is the short-term duration of OSCR’s powers of intervention76 when compared with the Charity Commission’s power to intervene in a potentially permanent manner.77 OSCR’s jurisdiction over bodies which may be subject to inquiry and supervision is, however, wider than the Charity Commission’s jurisdiction. OSCR’s powers78 cover not only charities entered in the Scottish Charity Register but also bodies which are not charities but hold themselves out as though they were,79 whereas the Charity Commission has only a supervisory jurisdiction over those bodies which are charities under English law. The rather different approach adopted in Scotland in respect of supervisory powers and jurisdiction is one of the clearer examples in the 2005 Act where an approach taken in the English regime has not been slavishly copied but modified to reflect a clear Scottish policy objective. In this instance the mix of powers and jurisdictional competence given to OSCR is clearly directed towards allowing OSCR to focus on the prevention of any misleading use of (p.114) the charity brand or label and allowing those who are entitled to enjoy the goodwill and benefits of charitable status to do so in an untarnished manner.

(4) The Scottish Charity Register

Before the 2005 Act there was no statutory requirement for any body associated with the regulation of charities in Scotland to maintain any form of central register containing information about charities which could be publicly accessed. The 1990 Act80 gave the Commissioners of Inland Revenue power to release basic contact details to the public in respect of bodies with charitable status in Scotland81 but the resulting index of Scottish charities maintained by HMRC was the subject of criticism82 and the McFadden Report recommended that a Scottish charity register should be established.83

In policy terms, the creation of the Scottish Charity Register is a central element of the aim behind the 2005 Act to ensure that the charity label or brand is protected and that there is as much protection as possible against the abuse of the word “charity”. Entry to the register is given only to bodies whose purposes satisfy the charity test.84 Bodies appearing on the register are subject to the protective measures in the 2005 Act dealing with names85 and bodies appearing in the register are subject to OSCR’s compliance regime in respect of the use of the word “charity”.86

There are considerable similarities between the Scottish Charity Register and the Register of Charities in England and Wales maintained by the Charity Commissioners, but there are also notable differences. Registration under the 2005 Act is not compulsory and it is, therefore, a matter of choice as to whether a body should register as a charity in Scotland. This opens up the possibility that, for example, a body may obtain relief from income and other taxes by being recognised by HMRC as having charitable purposes87 but choose not to be a Scottish charity by virtue of non-registration in terms of the 2005 Act. In practice there are two strong reasons why many bodies (p.115) will choose to opt for registration. First, only a body which is registered as a Scottish charity will be allowed to represent itself as a charity in Scotland88 and, secondly, mandatory rates relief89 will be available only to a body appearing in the Scottish Charities Register. By contrast, registration is prima facie compulsory in England and Wales for all English and Welsh charities.90

Another difference between the two registers relates to what might be referred to as “non-domiciled” charities. Under the English regime there is no requirement for a body established outwith England and Wales to register in the Charity Commission’s register. The Scottish regime requires any body91 to register in the Scottish charity register if it intends in any circumstances to refer to itself as a charity in Scotland,92 which has the direct result that such bodies will be subject to the compliance regime contained in the 2005 Act.

The final difference relates to the fiscal consequences associated with entries in the respective registers. An entry in the Scottish charity register will only be conclusive as to a body’s entitlement to mandatory rates relief93 and a Scottish charity will also have to satisfy HMRC as to whether the body qualifies for tax relief at a UK level in terms of the definitions of “charity” and “charitable purposes” in English law as applied by HMRC.94 Conversely, an entry in the Charity Commission’s register will be conclusive as to a body’s entitlement to UK level tax relief as the definitions applied by the Charity Commission and HMRC are one and the same. Central to this difference in approach is, therefore, the application of differing charity tests.

(5) The charity test and public benefit

(a) The nature of the charity test

In assessing the range of possible definitions of “charity” which could be used to determine charitable status for Scottish charities (i.e. the charity test) the Policy Memorandum discussed whether a viable option would have been to rely on a definition set by Westminster.95 Such an approach would have been (p.116) a straightforward continuation of the approach taken in the 1990 Act and it was noted that “This might be considered particularly helpful in some circles as charity status is currently based on Inland Revenue decisions, based on a UK definition”.96 This approach had not been favoured in the McFadden Report97 and it was not the approach taken in the Bill and ultimately in the 2005 Act. The Policy Memorandum makes it clear that this was an essentially political decision and remarks that “the regulation of charities is specifically devolved to the Scottish Parliament under the Scotland Act and many people would consider it wholly inappropriate for the Parliament to abdicate this responsibility”.98 This inherently political approach was tempered by a pragmatic compromise which suggested that the proposed new Scottish definition would “for good reasons” (which were not clearly elucidated in the Policy Memorandum) be “very similar and compatible with that currently being proposed for England and Wales”.99 Given this approach, what is the nature of the definition of “charity” used in the 2005 Act to establish charitable status?

There are three central elements to the charity test as it appears in the 2005 Act. A body will meet the test only if, first, “its purposes consist only of one or more of the charitable purposes”100 set out in the 2005 Act.101 Secondly, a body must “provide…public benefit in Scotland or elsewhere”.102 Finally, in determining whether the charity test has been met there is no presumption that any particular purpose is to be for the public benefit.103 Each element of the charity test has substantial similarities to the English definition of “charity” but there are noteworthy differences which merit consideration.

(b) Charitable purposes

The list of charitable purposes set out in the 2005 Act has the same origins as the list which appears in the 2006 Act.104 The lists are substantially similar but have differences in approach and construction which give rise to notable differences between the two. The Scottish list contains sixteen headings (p.117) instead of the thirteen set out in the 2006 Act but this does not mean that the Scots test contains a broader or wider list of charitable purposes. In fact, it is arguable that the Scots test is narrower. The thirteenth head in the 2006 Act105 and the sixteenth head in the 2005 Act106 have a broadly similar purpose. That is to allow the extension of each list to permit the inclusion of other purposes which are analogous to existing purposes. There are, however, differences in outcome which arise from the treatment in both Acts of pre-legislative purposes. The approach taken in England and Wales in the 2006 Act is to permit as a charitable purpose not only those purposes listed in the 2006 Act but also those purposes recognised as charitable prior to the 2006 Act list but which are not set out in the 2006 Act list.107 This mechanism is not mirrored in Scotland which means that the list of purposes set out in the 2005 Act is, with the exception of the analogous purposes extension, definitive. The English approach to charitable purposes is, therefore, wider in two respects. First, it maintains pre-2006 list purposes, which the 2005 Act does not. Secondly, the analogising approaches taken in the respective heads of purpose in the 2006 and 2005 Acts also differ. The English approach allows analogies to be drawn not only with the listed purposes but also the “safety net” protected prior purposes. The English approach is also wider in another respect. In the 2005 Act other purposes may be recognised only if they are “analogous to any of the preceding purposes”.108 The English approach allows analogies to be drawn with purposes which are “within the spirit”109 of other permitted purposes.

(c) Public benefit

This element of the charity test contains perhaps the clearest manifestation of the political choice to develop a distinct Scottish approach to the definition of “charity” which does not rely on English case law for the purposes of construction and interpretation. The significance of the public benefit element of the test was evidenced by the ministerial comment that it was “the bill’s central keystone”.110 The Scottish approach to the public benefit element of the test focuses on the activities undertaken111 by a body and places the responsibility (p.118) on OSCR to assess whether the activities being pursued by a body in connection with its charitable purposes actually provide public benefit.112 This may be contrasted with the English approach which continues to focus on a body’s purposes. If those purposes, as opposed to activities, provide public benefit as defined by existing case law113 then the body will satisfy the English public benefit test. The continuing reliance in England and Wales on pre-existing rules and the provision of statutory principles of law in respect of the determination of public benefit may also be contrasted with the approach in the 2005 Act. The Scottish approach to defining “public benefit” is to provide statutory guidance as to those matters in respect of which OSCR must have regard “[i]n determining whether a body provides or intends to provide public benefit”.114 The statutory statement is a distillation of the English criteria, and, although OSCR may draw on the pre-statutory public benefit case law, there is no intention or requirement that OSCR, the Scottish Charities Appeal Panel or the Court of Session should be bound by it.115 The existence of and application of the differing definition and test were clearly understood from the outset to give rise to the possibility of differing and increasingly divergent interpretations of “charity” in Scotland and England, at least for regulatory purposes.116 Scottish Ministers accepted that there were “no means of ensuring that these definitions…will eventually end up similar following…interpretation by different charity regulators and courts”.117 What the Scottish approach to public benefit attempts to do is to encapsulate in a single section what is dealt with in English law by means of a complex body of law. In so doing, it has to attempt to deal with a wide range of complex and disparate issues. These include what is meant by “a section of the public”, the status of bodies campaigning for law reform, the status of self-help organisations,118 and even more controversial elements such as fee-charging, particularly in relation to schools. While the restraints on related issues such as profit distribution,119 (p.119) ministerial or Crown control120 and political campaigning121 are welcome in the provision of some statutory guidance on restraints on charitable status, the interpretation of the public benefit test is left to OSCR. It is this approach and mechanism which are at the heart of the difference in approach to the treatment of public benefit in the 2005 Act. OSCR is charged with determining whether a body meets the public benefit test set out in the 2005 Act and, in so doing, is subject only to the constraints set out in s 8 of the 2005 Act. These require OSCR to have regard as to how any benefit gained by members of the body or any other person122 or any disbenefit incurred or likely to be incurred by the public123 as a result of a body exercising its functions compares with any benefit gained by the public and, where benefit is provided only to a section of the public, whether any condition as to obtaining that benefit124 is unduly restrictive.125 These criteria are expressed in the very broadest of terms, with no definitions given in respect of such issues as disbenefit, and OSCR is only bound to have “regard”126 to these issues. This highlights the fundamental difference in approach between the 2005 Act and the 2006 Act which flows directly from a political decision. In the 2005 Act the public benefit formulation is general in its terms and is an attempt to provide some form of synthesised interpretation of the key principles in the relevant English common law. The English approach is to continue to rely on that body of common law. Leaving aside the political merits or otherwise of adopting this approach, the necessary outcome is fundamentally different. OSCR is placed in a position of having to devise and develop principles in respect of what is meant by “public benefit” as a key requirement of the charity test, whereas the Charity Commission in England and Wales is responsible for making accessible those principles in respect of public benefit which are to be found in English case law. This places responsibility firmly with OSCR in deciding how to interpret and apply the public benefit test. In so doing, OSCR is obliged to issue guidance on how it determines whether a body meets the charity test.127 OSCR has produced such guidance.128 Although the guidance produced by OSCR is useful and informative, it is merely guidance. It remains (p.120) open for a decision by OSCR as to the application of the charity test to be reviewed129 and thereafter appealed to the Scottish Charity Appeals Panel130 and potentially thereafter to the Court of Session.131 Until decisions by OSCR in respect of the broader charity test or the narrower public benefit element of the test have been subjected to appeal to the Court of Session, the basis upon which such decisions will have been made will continue to be regulatory based guidance.

Given the approach which has been taken to the structure of the charity test and the key public benefit element of the test, there remains the very real prospect that Scots law in this area could develop in a direction which differs fundamentally from that which remains applicable in England and Wales. From a political perspective, such an outcome was accepted as a potential outcome132 but the consequence attached to the divergent approaches in Scotland and England and Wales is the potential for legal uncertainty at two levels. First, and while there is no evidence at present to suggest that this is the case, OSCR could interpret the provisions in the 2005 Act in a manner which differs fundamentally from the approach deployed in England and Wales in respect of the definition of “charitable purposes” and the associated public benefit requirement. Secondly, even if OSCR construes charitable purposes and public benefit in a manner which is broadly consistent with the approach adopted in England and Wales, until such time as those decisions have been the subject of full review and appeal, there can be no absolute certainty as to the fundamental validity of the interpretations made in respect of purposes and public benefit. The outcome of political choice in the structure of the 2005 Act in this particular area is, therefore, legal uncertainty.

(6) Cross-border charities

The 2005 Act has a strong central policy theme which is protection against “the corrupt use and abuse of the word ‘charity’”.133 In attempting to deliver against this policy theme, the 2005 Act recognises that it is important that the Scottish public should be able to donate to and engage with non-Scottish charities operating in Scotland with a level of confidence and security comparable to those bodies which are Scottish charities for the purposes of the 2005 Act. The clearest origins of this approach to protection of the charity brand are (p.121) to be found in the McFadden Report which recommended that “any organisation that wants to get any benefits of being a Scottish Charity – including collecting money from the Scottish public by way of public charitable collections – should be registered with [the Scottish charity regulator]”.134 The substantive manifestation of this policy approach is to be found in ss 13 and 14 of the 2005 Act, the combined effect of which is to require that any body which wishes to represent itself as a Scottish charity must register with OSCR and be subject to the regulatory regime contained in the 2005 Act. There is a limited exception to this requirement which applies when a non-Scottish charity has no significant operations in Scotland. Section 14 of the 2005 Act specifies that a non-Scottish charity may refer to itself as a Scottish charity provided (i) that it does not “occupy any land or premises in Scotland, or (ii) carry out activities in any office, shop or similar premises in Scotland”.135

The dual registration requirement for non-Scottish charities with a significant Scottish presence is in marked contrast with the approach taken in England and Wales where registration by non-English charities is not mandatory. The requirement to register in Scotland brings with it the full force and effect of the Scottish regulatory regime and means, for example, that an English charity with significant operations in Scotland will be subject to dual regulation by OSCR and the Charity Commission in England and Wales. While both regulators have agreed to “minimise the burden of dual regulation on cross border charities”,136 it does not alter the fact that dual regulation is a direct consequence of the approach taken to non-Scottish charities in the 2005 Act and an undoubted additional burden for such charities. A substantial number of cross-border charities have registered with OSCR.137 However, the existence of a regulatory compact between the OSCR and the Charity Commission and the implementation by OSCR of a relatively “light touch” monitoring regime for cross-border charities138 are all potential indicators that the dual registration and regulation mechanisms have not, in the short term, served to act as a disincentive to cross-border charitable activity. It is, however, another example of how the actual effect of certain provisions in the 2005 Act differs from what was originally anticipated139 and the recent (p.122) Commission on Scottish Devolution recommended that there should be no such requirement for separate registration.140

F. Conclusion

The very issue of whether or not to seek charitable status is an issue of choice which faces those charged with the responsibility of governing a body whose purposes and activities may be, or could be intended to be, charitable. In assessing whether to exercise that choice, trustees, committee members or directors of a body will have regard to a range of factors to consider and upon which they will ultimately exercise their choice. These will include the perceived benefits or otherwise of obtaining relief from local and national taxation, the benefits attributable to being associated with the charitable brand and the accessibility which charitable status may provide to income sources and opportunities for engagement which are available only to charities. Balanced against the positive attributes which may be associated with charitable status are the initial and ongoing registration and monitoring requirements, specific accounting obligations and the general responsibilities and duties imposed on charities and their trustees which flow from the regulatory regime now enshrined in the 2005 Act. The 2005 Act incorporates a range of mechanisms which will be broadly familiar to ongoing and putative charities in the form of criteria for the grant of charitable status, potential intervention in the affairs of a charity and standards such as the need to prepare accounts. What marks out the current regime as different from that which prevailed under the 1990 Act is the extent to which it establishes, as a matter of political choice, a regime which has an inherently Scottish approach to certain issues but which seeks to accommodate charitable activity across and within jurisdictions within the United Kingdom by taking account of other legal and regulatory structures and mechanisms, particularly those in England and Wales. The most striking example of this approach is to be found in the Scots approach to the charity test and public benefit. New approaches to the definitions of “charity” and “public benefit” have been deployed in Scotland which have their origins in, but diverge from and may or may not ultimately become significantly different from, those used in England and Wales. At the same time, however, one of the core benefits of charitable (p.123) status – relief from national taxes – continues to be dealt with by HMRC on a national level, based on nationally applicable criteria derived from English common law, and although it has been argued that this approach should be changed,141 it seems unlikely that any such change will be forthcoming in the foreseeable future. The net result is that bodies which are currently charities or seek to become charities in Scotland will have to exercise their choice to retain or acquire that status on the basis of a legal regime which has an increasingly distinctive Scottish dimension but which is nonetheless strongly influenced by English concepts and principles and a fiscal regime which is unreservedly national. The exercise of choice in respect of charitable status is not, however, solely restricted to those who seek to enjoy that status. OSCR has been afforded a unique role by the Scottish Parliament in the ongoing development of key issues such as the concept of public benefit, and, in so doing, OSCR will be exercising choice, within the framework of the 2005 Act, as to how such pivotal issues develop. Choice is, therefore, at the heart of charity law in Scotland. What will be fascinating to record over the next fifteen years is whether the exercise of choice by all involved in the use and shaping of charity law in Scotland sees a continuing interaction and dialogue between jurisdictions at fiscal, legal, regulatory and user levels or the development of increasingly distinctive Scottish mechanisms, approaches and outcomes.


(*) Senior Lecturer in Law, University of Dundee.

(1) Hereafter “the 2005 Act”.

(2) Wink’s Executors v Tallent 1947 Sc 470.

(3) Wink’s Executors (n 2) at 476 per LP cooper.

(4) More commonly referred to as “the Statute of Elizabeth” or “the 1601 Act”.

(5) Being a class which is concerned principally with the provision of benefit to that section of the public which can be categorised as “the poor”: see Special Commissioners for the Purposes of Income Tax v Pemsel [1891] Ac 531 at 561 per Lord watson.

(6) Scottish public trusts are trusts where “the beneficial interest is intended for the benefit of a section of the public”: The Laws of Scotland: Stair Memorial Encyclopaedia, vol 24 xxiv, para 6.

(7) See, in particular, P J Ford, “Supervising charities: a Scottish-Civilian alternative (2006) 10(3) Edin LR 352, and P J Ford, “The Charities and Trustee Investment (Scotland) Bill: falling between two stools? (2005) 16 KCLJ 1 at 4.

(8) Efficiency Scrutiny of the Supervision of Charities (1987) (hereafter “Woodfield Report”).

(9) Woodfield Report para 144.

(10) See Income Tax Commissioners v Pemsel (n 5) at 570 and 587 per Lord Macnaghten. The main relief from taxation sought by charities was in respect of income tax, which relief is set out in the Income and Corporation Taxes Act 1988 s 505.

(11) 1990 Act s 1(7).

(12) See, e.g., IRC v Falkirk Temperance Cafe Trust 1927 SC 261 and IRC v City of Glasgow Police Athletic Association [1953] Ac 380.

(13) See 1990 Act ss 3 and 4.

(14) 1990 Act ss 6–8. The powers of investigation into mismanagement and misconduct were conferred on the Lord Advocate, who also had very limited powers of intervention. The Court of Session was given fuller powers of intervention

(15) For further information about the Charity Commission, see: http://www.charity-commission. gov.uk/About_us/About_the_Commission/Our_status_index.aspx, where it describes itself as “a non-Ministerial Government Department, part of the Civil Service. The Commission is completely independent of Ministerial influence and from the sector it regulates. It has a number of quasi-judicial functions where it uses powers similar to those of the High Court”.

(16) The Inland Revenue maintained an informal register of charities in Scotland which had received confirmation from the Revenue that their purposes were charitable in terms of the Income and Corporation Taxes Act 1988 s 505.

(17) The Report of the Commission on the Future of the Voluntary Sector in Scotland, Head and Heart (1997).

(18) Scottish Charity Legislation: An Evaluation (2000).

(19) The Report of the Scottish Charity Law Review Commission, Charity Scotland (2001). The Commission was chaired by Ms Jean McFadden.

(20) See the statement from the Minister for Communities, Scottish Parliament, Official Report, cols 133–136 (28 may 2003). See also further statement, Scottish Parliament, Official Report, cols 1955–1958 (24 September 2003).

(21) The Scottish Charities Office exercised the Lord Advocate’s powers under the 1990 Act.

(22) In relation to the debate on the definition of “charity” in English law see, e.g., C Mitchell, “Redefining charity in English law” (1999) 13 Trust Law International 21.

(23) In England and Wales the Charities Act 1960 (c 58) was replaced by the Charities Act 1993 (c 10), which also consolidated the changes to the 1960 Act contained in the Charities Act 1992 (c 41).

(24) Report of the Commission on the Future of the Voluntary Sector, Meeting the Challenge of Change-Voluntary Action in the 21st Century (1996).

(25) For the Public Benefit? A Consultation Document on Charity Law Reform (2001).

(26) Report of the Strategy Unit of the Cabinet Office, Public Action, Private Benefit: A Review of Charities and the Wider Not-for Profit Sector (2002).

(27) See the Home Office report, Charities and Not-for-profits: A Modern Legal Framework (2003).

(28) See Public Action: Private Benefit (n 26) para 1.7.

(29) Scotland Act 1998 s 30, Sch 5, Pt II Head C1.

(30) 1998 Act s 30, Sch 5 Pt II Head A1.

(31) But ultimately re-introduced and passed as the Charities Act 2006 (hereafter “the 2006 Act”).

(32) Scottish Parliament, Official Report, Communities Committee, col 1474 (8 December 2004).

(33) See para D. (1) above.

(34) The policy memorandum can be located electronically at http://www.scottish.parliament.uk/business/bills/32-charitiesTrustee/b32s2-introd-pm.pdf (hereafter “the Policy Memorandum”).

(35) As introduced to the Scottish Parliament on 15 November 2004.

(36) It should be noted that the Policy Memorandum sets out the objectives determined by the Scottish Executive and not the Scottish Parliament.

(37) Policy Memorandum (n 34) para 1.

(38) Policy Memorandum (n 34) para 5.

(39) Remarks of Ms Johann Lamont, Deputy Minister for Communities, Scottish Parliament, Official Report, col 17821 (9 June 2005).

(40) Policy Memorandum (n 34) para 1.

(41) “Office of the Scottish Charity Regulator”: 2005 Act s 1. OSCR replaced the Scottish Ministers’ executive agency which had the same name and exercised the powers of the Scottish Ministers under the 1990 Act.

(42) 2005 Act s 3.

(43) 2005 Act ss 10–12.

(44) 2005 Act ss 13–15.

(45) 2005 Act ss 28–33.

(46) 2005 Act s 34.

(47) 2005 Act ss 39–43.

(48) 2005 Act ss 44–48.

(49) 2005 Act ss 49–64.

(50) 2005 Act ss 66–70.

(51) Known as SCAP (“the Scottish Charity Appeals Panel”): 2005 Act s 75.

(52) 2005 Act ss 75–78

(53) The abolition of SCAP has already been announced by Scottish Ministers as part of a broader move by the Scottish Government to merge or abolish a number of bodies scrutinising public services. See the Scottish Government news release (dated 6 November 2008) at http://www.scotland.gov.uk/News/Releases/2008/11/06103757. This step will see part of the 2005 Act cease to have effect before the entire Act has come into force (the provisions in respect of the Scottish Charitable Incorporated Organisation are not yet in full force and effect).

(54) McFadden Report (n 19), recommendation 1 and paras 1.25 and 1.26.

(55) See n 41.

(56) See para E. (3)(b) below.

(57) 2005 Act s 1(1).

(58) 2005 Act s 1(2).

(59) Which include bodies such as the General Register Office for Scotland and the Registers of Scotland.

(60) 2005 Act s 1(10) Sch 1, para 3(1)(a).

(61) 2005 Act s 1(10) Sch 1, para 3(1)(b).

(62) 2005 Act s 1(10) Sch 1, para 1(1).

(63) Written evidence from the Charity Law Association (Scottish Parliament, Communities Committee, Stage 1 Report on the Charities and Trustee Investment (Scotland) Bill, 1st Report, 2005 (Session 2) Vol 2 (31st Meeting, Session 2 (2004)) (15 December 2004).

(64) Neither of which issues is dealt with in the 2005 Act in the manner originally suggested.

(65) Scottish Parliament, Official Report, Communities Committee, cols 1680–1681 (26 January 2004).

(66) 2005 Act s 1(5)(a).

(67) 2005 Act s 7.

(68) 2005 Act ss 1(5)(b) and 3.

(69) With one significant difference between the two being that any body holding itself out as a charity in Scotland must be registered in Scotland unless the activities undertaken in Scotland are limited in nature: 2005 Act ss 13 and 14.

(70) 2005 Act ss 10–12.

(71) 2005 Act ss 45–48.

(72) 2005 Act ss 39–43.

(73) 2005 Act ss 28–33.

(74) 2005 Act ss 49–64.

(75) In particular, those under s 31 of the 2005 Act.

(76) Under s 31 of the 2005 Act.

(77) Charities Act 1993 s 18; and Charities Act 2006 ss 19–21.

(78) Under ss 28 and 21 of the 2005 Act.

(79) See, e.g., s 28(1)(c) of the 2005 Act.

(80) Via s 1(1) and (7).

(81) The provisions specifically related to “recognised bodies”, being bodies recognised by the Inland Revenue Commissioners as entitled to tax relief under s 505 of the Income and Corporation Taxes Act 1988 because of their charitable purposes and also being bodies located in Scotland or established under Scots law.

(82) See the Kemp Report para 7.9.3, where particular criticism was made as to the adequacy of the index.

(83) McFadden Report (n 19) para 3.18.

(84) 2005 Act ss 3(1) and 4–9

(85) 2005 Act ss 10–17.

(86) 2005 Act ss 3 and 13–15.

(87) In terms of ICTA 1988 s 505.

(88) 2005 Act ss 13 and 14.

(89) Under s 4(2) of the Local Government (Financial Provisions etc) (Scotland) Act 1962.

(90) Subject to limited exceptions in respect of groups such as small charities: see 1993 Act s 3.

(91) Irrespective of the location of establishment.

(92) With a limited exception for those bodies which are established as “charities” outwith Scotland and have no direct territorial connection with Scotland. See 2005 Act s 14.

(93) See n 89.

(94) HMRC and OSCR have entered into a Memorandum of Understanding which sets out the basis for co-operation between the two bodies. For details of the Memorandum of Understanding, visit OSCR’s website at http://www.oscr.org.uk/publicationitem.aspx?id=bb71672b-c53b-4ea7-96aa-a56b883d9736.

(95) Policy Memorandum (n 34) para 53.

(96) Policy Memorandum (n 34) para 53.

(97) Which did not favour reliance on “precedents based on English law”: McFadden Report (n 19) para 1.30.

(98) Policy Memorandum (n 34) para 53.

(99) Policy Memorandum (n 34) para 53.

(100) 2005 Act s 7(1)(a).

(101) See s 7(2) of the 2005 Act.

(102) 2005 Act s 7(2)(b).

(103) 2005 Act s 8(1).

(104) Being the classification set out by Lord Macnaghten in Pemsel as drawn from the statement of uses set out in the preamble to the Charitable Uses Act of 1601. See n 5 above.

(105) 2006 Act s 2(2)(m).

(106) 2005 Act s 7(2)(p).

(107) 2006 Act s 2(4)(a).

(108) 2005 Act s 7(2)(p).

(109) 2006 Act ss 2(2)(m) and 4(b).

(110) Comment from the Minister for Communities at Stage 3 of the Bill. See Scottish Parliament, Official Report, Plenary Session, col 17881 (9 June 2005).

(111) In the case of a body which has not yet been formed and which has not carried on any activities, OSCR will assess the public benefit criterion on the basis of the body’s intended activities. See para 8.1 of OSCR’s Guidance on Meeting the Charity Test (hereafter ”OSCR Guidance”).

(112) 2005 Act s 7(1)(b).

(113) See 2006 Act s 3(3).

(114) 2005 Act s 8(2).

(115) See the comments of the Deputy Minister for Communities in evidence to the Communities Committee, Scottish Parliament, Official Report, Communities Committee, col 1742 (2 February 2005).

(116) Noting that, in respect of relief from income and other taxes, a unitary approach and single definition continue to apply across the united Kingdom.

(117) Policy Memorandum (n 34) para 53.

(118) See, e.g., Dingle v Turner [1972] Ac 601.

(119) 2005 Act s 7(4)(a).

(120) 2005 Act s 7(4)(b).

(121) 2005 Act s 7(4)(c).

(122) 2005 Act s 8(2)(a)(i).

(123) 2005 Act s 8(2)(a)(ii).

(124) Which includes any charge or fee: see 2005 Act s 8(2)(b).

(125) 2005 Act s 8(2)(b).

(126) 2005 Act s 8(2).

(127) 2005 Act s 9.

(129) 2005 Act s 71(a).

(130) 2005 Act s 76.

(131) 2005 Act s 78.

(132) See n 117 above.

(133) See n 39 above.

(134) McFadden Report (n 19) paras 3.22-3.28.

(135) 2005 Act s 14(b)(i) and (ii).

(136) Memorandum of Understanding between OSCR and the Charity Commission (2007) para 1.1.

(137) More than 450 as of 2009. See OSCR’s Cross Border Monitoring Consultation Evaluation Report at http://www.oscr.org.uk/publicationitem.aspx?id=347c4355-3b21-48bc-b1bf-226519983444.

(138) See OSCR’s guidance on Cross border charity regulation in Scotland at http://www.oscr.org.uk/publicationitem.aspx?id=f7f4d972-2197-4a0b-9654-b0f1ca664a9e.

(139) For a clear view of what was anticipated by Scottish legislators, see Scottish Parliament, Official Report, Communities Committee, Stage 1 Report, vol 1, paras 21, 77 and 78 (2005).

(140) See recommendation 5.3 of the Report of the Commission on Scottish Devolution, Serving Scotland Better: Scotland and the United Kingdom in the 21st Century (2005) at http://www.commissiononscottishdevolution.org.uk/uploads/2009-06-12-csd-final-report-2009fbookmarked.pdf (hereafter “the Calman Commission” after its chair, Sir Kenneth Calman).

(141) The Calman Commission (n 140) recommendation 5.2.