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Abstract
This article explores the impact of charity law and regulation on churches in the period 1993–2009 in the jurisdictions of England and Wales, Scotland, and Northern Ireland. In the past, churches have often escaped the full requirements of charity regulation on issues such as registration, reporting, and accountability to regulators. Many of these exemptions have been removed as a result of modernization of charity law throughout the UK, and the implications of these changes are explored both normatively and qualitatively.
Notes
The principal source for this information is the published accounts of various church entities described.
The term ‘trustees’ is used in this article in the sense of ‘charity trustees’ as defined by s. 97(1) of the Charities Act 1993, i.e. ‘the persons having the general control and management of the administration of a charity’. Most of the responsibilities of charity regulation considered in this article fall on the charity trustees. Many churches, however, use different terms internally, for example ‘church council members’, ‘members of the Diocesan Board of Finance’, ‘church elders’ or ‘diaconate’. Note: Trustees in this sense are to be distinguished from ‘holding trustees’, i.e. those who just hold the title to charitable property. Holding trustees are not discussed in this article.
Provision for parishes is made under Roman Catholic Canon law, but this has no force in English law.
A company limited by guarantee which is also a charity.
From 2007 the Charity Commissioners became the Charity Commission (by virtue of s. 1A of the Charities Act 1993, inserted by s. 6 of the Charities Act 2006).
2006 Act, s. 1: the new definition took effect from 1 April 2008.
2006 Act, s. 2(2).
The key case is the judgment of Lord Macnaghten in Commissioners for Special Purposes of the Income Tax v Pemsel [1891] AC 531.
2006 Act, s. 3.
2006 Act, s. 2 (2)(c).
Case law has, however, established that simply placing property in trust for the purposes of a particular religion, or for aiding a particular church, is not sufficient to constitute exclusively charitable purposes: there must be a specific requirement to apply the property for the advancement or promotion of the faith or religion concerned. See, for example, the discussion and cases cited in Charity Commission Citation(2008d), paras 2.9 and 2.13(8)–(10); also Ellis v IRC (1949) 31 TC 178.
2006 Act, s. 3.
2006 Act, s. 4(6). The general guidance on the public benefit requirement is published in Charity Commission Citation(2008a) and the specific public benefit guidance in relation to advancement of religion is in Charity Commission Citation(2008c).
Case law has, however, established that a closed religious order does not meet the public benefit test: Cocks v Manners (1871) LR 12 Eq 574; Gilmour v Coates [1949] AC 426 (HL)—see Luxton (2001, p. 132). This principle is restated in the context of the 2006 Act in Charity Commission (2008c, p. 15).
Gift Aid is a relief which allows UK charities to recover the income tax paid by donors on their donations. For most churches, individual giving is the largest source of income, and Gift Aid is thus very significant—even the smallest churches normally operate a Gift Aid scheme.
Law Reform (Miscellaneous Provisions) (Scotland) Act 1990, s. 1–15.
The Charities Accounts (Scotland) Regulations 1992 (SI 1992/2165), made under ss. 4–5 of the 1990 Act.
The English definition of ‘charity’ is now to be found in the Charities Act 2006 ss. 1–5, and by virtue of s. 80, this definition extends to Scotland and Northern Ireland for tax purposes. Previously, a charity was defined for tax purposes in s. 506(1) of Income and Corporation Taxes Act 1988 as ‘any body of persons or trust established for charitable purposes only’ (where ‘charitable purposes’ would have been interpreted in accordance with case law deriving from the 1601 Act).
Charities and Trustee Investment (Scotland) Act 2005, s. 3.
2005 Act, s. 14.
‘Excepted charities’ in England and Wales are excepted under ss. 3–3B of the Charities Act 1993 from the requirement to register with the Charity Commission.
Charities Act 2006, s. 80(3) and (4).
Charities Act 2006, s. 80(5) and (6).
Charities Act (Northern Ireland) 2008, s. 16.
2008 Act, s. 167.
2008 Act, ss. 1–5.
Prior to the Finance Act 2000, when Gift Aid became available for monetary gifts to charity of any amount, tax relief on charitable giving generally required the donor to enter into a ‘deed of covenant’ with the charity for a minimum of four years.
Charities Act 1960, s. 4(4) and (9).
1960 Act, s. 4(4)(a) and Second Schedule.
1960 Act, s. 45(2). The Act defines an ‘ecclesiastical corporation’ as a corporate body within the Church of England which is either a ‘corporation sole’—for example an incumbent of a parish or a bishop; or a ‘corporation aggregate’ if it only holds property for ecclesiastical purposes.
Now in Charities Act 1993, s. 96(2).
SI 1996/180, made under s. 3(5) of the Charities Act 1993. The regulations were intended to be of a temporary nature, due to expire in 2001, but were extended by SI 2001/260, SI 2002/1598 and SI 2007/ 2655—so exceptions now continue until 1 October 2012, apart from those bodies specifically removed from excepted charity status by the Charities Act 2006.
The exceptions are: Baptist churches; Congregational churches; churches affiliated to the Fellowship of Independent Evangelical Churches; Unitarian and Free Christian churches; Calvinist Methodist churches and the Presbyterian Church of Wales; the Church of England; the Church in Wales; the Methodist Church; the Religious Society of Friends; the United Reformed Church.
Places of Worship Registration Act 1855, ss. 6 and 7.
The new requirements are (or will be) contained in ss. 3–3B of the 1993 Act (as amended by the 2006 Act). In the case of excepted charities, registration for those over £100,000 income took effect from 31 January 2009. The government anticipates that the changes for exempt charities (either registration on the same basis as formerly excepted charities, or supervision by a ‘principal regulator’—under s. 11 of the 2006 Act) will be implemented from autumn 2009 (Cabinet Office, Citation2009).
By SI 2008/3267.
Charities and Trustee Investment (Scotland) Act 2005, s. 65.
The list includes the six Roman Catholic dioceses in Scotland, together with the Church of Scotland, the Free Church of Scotland and the United Free Church of Scotland (although the effect of designation of the Church of Scotland for this purpose extends to all constituent parishes of the Church—around 1400 Scottish charities in total).
Where necessary, s. 73A of the Charities Act 1993 (as amended by the 2006 Act) now allows for payments to trustees for specific non-trustee services to be authorized by the other trustees, but it is subject to four demanding conditions, and this provision cannot be used to make a trustee an employee. There is similar provision in Scotland under ss. 67–68 of the 2005 Act although the scope is slightly broader in that remuneration for services as a trustee or under a contract of employment can potentially be authorized.
In England and Wales, s. 26 of the Charities Act 1993 enables the Charity Commission to authorize trustee remuneration in exceptional circumstances.
This principle is laid down in the SORP, but is also enforced by regulations: in England and Wales by the Charities (Accounts and Reports) Regulations 2008, reg. 8(10), Sch. 2, para. 1(e) and in Scotland by the Charities Accounts (Scotland) Regulation 2006, reg. 8, Sch. 1, para. 1. The Scottish regulations even requires disclosure of trustee remuneration for accounts on the receipts and payments basis, under reg. 9, Sch. 3, Part 2, para. (e).
Statement of Recommended Practice on Accounting and Reporting by Charities (see Charity Commission, Citation2005 for the latest version). See Morgan Citation(2009) for discussion of the impact of the SORP accounting regime on churches.
The requirements for a trustees' annual report are set out in the Charities (Accounts and Reports) Regulations 2008, reg. 40.
SSI 2006/218.
Charities (Accounts and Reports) Regulations 2008, reg. 40(2)(c)(ii). It is a requirement of s. 4(6) of the 2006 Act that trustees have regard to the Commission's guidance.
Charities (Accounts and Reports) Regulations 2008, reg. 40(2)(b)(i). For charities subject to a full audit, slightly more detail is needed, reg. 40(2)(b)(ii).