The Charity Law Update 2013

1. The Charity Law Update 2013 Maclay Murray & Spens LLP The Gathering February 2013

2. Some legal and governance issues • some key governance issues • successful commercial activities- legal issues • some current employment law issues • voluntary workers • equality • recent improvements in charity law • new reorganisation provisions • SCIOs • key tax issues • grant giving foundations

3. OSCR, “Protecting Charitable Status” • “However, our review programme shows that while we have primarily focused on whether charities meet the charity test, these detailed assessments of charities may also highlight other issues of regulatory concern, such as governance or concerns about long term financial sustainability. It is important, in maintaining public confidence in charities and achieving a flourishing charity sector, that we address all these issues in designing our programme of future reviews.”

4. Let’s get physics-cal • Quarks • what’s really inside the apparently fundamental • The Heisenberg uncertainty principle • look and you shall see? • Schrödinger’s cat • thinking about the inside of the box while thinking outside of the box • Higgs Boson • energy well spent?

5. Quarks • an elementary particle • the innards of atomic nuclei • found within a proton or neutron • a quark was discovered by looking beyond what we thought was fundamental • redefining what we thought was the core of the matter

6. Reorganisation provisions • an OSCR based route to altering a charity where no power to do so in constitution • legislation needs a “spruce” • excellent, even transformational, in practice • rules extended • the Charities Restricted Fund (Scotland) Regulations 2012 • restricted funds where donor’s view unascertainable • “desirable to introduce a provision (other than a provision setting out a new purpose) to a charity's constitution” • encourages positive reorganisation applications

7. Reorganisation provisions C + O + S = R Conditions Outcome Scheme Reorganisation

8. Reorganisation • looking beyond what appeared fundamental • searching for the core • searching for a true meaning • discovering something new • the need for a Large Hadron Collider

9. Large Hadron Collider… charity law style 40+ charities and a plethora of purposes Single charity Sub-fund Reorganisation provisions Sub-fund Sub-fund “LHC”

10. The Heisenberg uncertainty principle • the idea that when seeking to observe a thing, the act of observation itself impacts on the thing • is that good or bad? • the process of review, monitoring and observation is crucial (e.g. One Plus) • wood and trees- missing the big picture

11. Schrödinger’s cat • involves hypothetical situation of cat in sealed box with vial of cyanide gas capped by radioactive atom, which would release poison once decayed • in theoretical quantum physics, the atom could be in both states - decayed and non-decayed • only by looking in box would you know cat’s fate • if you did not look, you would have to consider cat both dead and alive

12. Schrödinger’s cat • again, this is about observation • however, in some ways about the impact of not looking • the effect we can have by not observing • legal, financial, HR, strategy, macro-issues • Schrödinger’s ostrich?

13. Schrödinger’s cat • what could be the box? • constitution • contract • funding arrangements • what could be the cat? • overall purposes • constitutional “power” • trustee/member dynamic- matter/anti-matter result • a project • a team member

14. Schrödinger’s cat • the effect of not looking in the box • uncertainty • all is ok… or it is not! • don’t close (and lock) a box • should you put the cat in the box in the first place?

15. Commercial ventures • why do it? • is this an “investment”? is it a sound investment? • use of charitable funds, risk and investment rules • the role of social investment and return • parent charity controls • “who’s in charge” and how? tail wagging dog? • authority and accountability / risk and strategic direction • trading company board composition • can a trading subsidiary also be a charity? • yes, but unusual • charitable trusts and unincorporated associations • risky, (anti-Bartlett), trustee, office-bearer and member personal liability

16. Commercial ventures- why do it? • Higgs Boson • sounded right in theory • significant experimentation/ due diligence • high level of analysis (“sigmas”) • lots of energy (literally) expended • what is the result/benefit? • was it a good idea to place the cat in the box?

17. A commercial structure • CHARITY • community development • employment • -citizenship • -arts and culture governance social outcomes purposes public benefit engagement consultation loan, investment etc? GiftAid TRADINGCOMPANY (NON-CHARITABLE) private investment and impact on structure? tax, legal and ethics? e.g. shop, service, renewables Public Sector Partnership eg SE, Europe, Council, Scottish Government

18. Board composition • role of the “Trustee” directors • “our man” • oversight • communication channel • regular written and face-to-face communication • roles/ skills set of “executive” directors • operational skills • other necessary/ desirable skills • remuneration • alignment of interests • “incentivisation” • continuity • appropriate (“ethical hardwire”) commercial direction • What can be invested in? What is a return? • understand the overall picture- the charity’s purposes • the place for “non-trustee non-execs”?

19. A little on self-directed support • Social Care (Self-directed Support) (Scotland) Act 2012 • contract issues • incapacity law • employment law • data protection

20. Current Employment Law Issues • Volunteers • Equality Act reminders

21. Beware the worker! Personal service Mutuality of obligation No customer relationship Volunteers Rights: • holidays & holiday pay • rest breaks • wages: unlawful deduction • accompanied at disciplinaries & grievances • discrimination • NMW........

22. Yes: Expenses actually wages: Migrant Advisory Service v Chaudri Yes: Volunteer agreement was binding contract: Murray v Newham CAB No: Expectation are not “obligations”: an “if” contract South East Sheffield CAB v Grayson No: “standards” don’t of themselves create mutuality Melhuish v Redbridge CAB Volunteers: Workers?

23. Volunteers: Voluntary Workers? Conditions: • work for charities, voluntary organisations, associated fund-raising bodies or statutory bodies • no payment other than expenses actually incurred or reasonably estimated as likely to have been incurred in the performance of their duties • no benefit in kind other than reasonable subsistence or accommodation Result = no entitlement to NMW

24. Volunteers: Mitigating Risks • Avoid payments that look like wages • Reduce /minimise perks • Reduce obligations on volunteers

25. Equality Act 2010 Do you: • employ people or have volunteers? • provide services.......(goods, facilities)? • carry out public functions? Are you an association with > 25 members?

26. Age Disability Gender reassignment Marriage & civil partnership Pregnancy & maternity Race Religion or belief Sex Sexual orientation Protected Characteristics

27. Direct Indirect Discrimination arising from disability By association Perception Victimisation Harassment Types of discrimination

28. What’s different for charities? You can restrict the people who benefit......... • Is the restriction specified in your constitution? • If no, speak to Alan! • If yes, is it either: • to prevent/compensate for a disadvantage? or • a proportionate means of achieving a legitimate aim? • Fundraising: can restrict to one gender

29. What’s different for charities? but.....: • must not discriminate on the basis of skin colour • if perform a public function public sector equality duty may apply

30. Other exceptions........ There are a number of other exceptions which are not charity specific relating to: • religious or belief organisations • associations • schools • further & higher education • positive action

31. Equality Act 2010: St Margaret’s Children and Family Care Society Catholic Care (Diocese of Leeds)

32. Architecture • Osc(a)r Niemeyer • Brazilian modernist architect • “I am not attracted to straight angles or to the straight line, hard and inflexible, created by man. I am attracted to free-flowing… curves. The curves that I find in the mountains of my country, in the sinuousness of its rivers, in the waves of the ocean… curves make up the entire Universe, the curved Universe of Einstein”

33. Scottish Charitable Incorporated Organisations • SCIO • The Regulations • The Scottish Charitable Incorporated Organisations Regulations 2011 • regulate creation and life • Separate Dissolution Regulations • When? • UA/ trusts conversion and new charities • 1 April 2011 • Company/ I&PS conversion • 1 January 2012 • What? • Limited liability corporate charity vehicle

34. Scottish Charitable Incorporated Organisations • Key characteristics (mandatory in regulations) • SCIO to meet the Scottish charity test • SCIO’s constitution to set out important governance mechanisms such as: • the SCIO’s powers • the SCIO’s "structure" (which is a slightly nebulous requirement) • the composition of "the board" • rules for meetings of the board and members • the process for appointment and removal of charity trustees and members • conflict of interest provisions • the maintenance of a register of charity trustees • the maintenance of a register of members

35. Scottish Charitable Incorporated Organisations • Who will (or from MMS experience has) use(d) it? • a large number of unincorporated associations • new grant giving foundations which would have previously been set up as a trust might prefer the limited liability environment of the SCIO- and avoids quirks of trust law • organisations that do not want a "two tier" members/ trustees governance structure (simplicity/ reduce scope for contention) • existing companies who do not “need” or wish to be companies • existing companies and trusts seeking to simplify administration • Limited liability as an attractive feature for quality trustees • organisations that are attracted to a SCIO providing more of a "blank canvass" for structure and governance arrangements than traditional vehicles • trusts that have passed or approaching 21st anniversary

36. Scottish Charitable Incorporated Organisations • any down sides? • “unknown quantity” / familiarity • technical issues • member duties/ winding up/ charitable status is existential • getting the constitution “wrong” • drafting more important than ever • little underlying law to fill any “gaps” • for existing charities:- • unlikely to offer clear advantages for existing charitable companies • still worth considering for “one off” streamlining, administrative simplification or part of wider governance improvements • the process of transfer of assets and liabilities on conversion can be difficult • lenders/funders/creditors etc • education process • understanding the risk profile of the SCIO • overseas parties being “comfortable” with a SCIO

37. the Brasilia issue • great concept • the need to maintain the original • is it fit for purpose: • over time? • circumstances change? • reflective of current aims and activities?

38. grant giving foundations • Issues affecting “grant giving” charities • increased numbers of applications • scrutiny of applications • monitoring and evaluation • 2005 Act investment duties became “real” • take advice as appropriate and consider it • consider suitability of investment • consider diversification

39. tax update • HMRC • U-Turn on changes to charity income tax relief • remember basics- e.g. Deeds of Variation • new Inheritance Tax relief- if 10% of estate passes to charity 36% IHT not 40% • interaction between Wills and Death Benefits/Policy Trusts • reduction in additional rate tax to 45% • encourage pre-6 April 2013 donations

40. time

42. Get in touch Alan Eccles Partner, Head of Charities 0141 271 5375 alan.eccles@mms.co.uk Alison Weatherhead Associate, Employment 0141 271 5725 alison.weatherhead@mms.co.uk

43. Keep in touch www.mms.co.uk/knowledge Twitter@MMS_Law