Eighteen top 100 charities pay trustees, finds research

 

Eighteen of the UK’s top 100 charities pay one or more of their trustees, according to research published today in Charity Finance magazine.   The figures are drawn from an analysis carried out by Helena Wilkinson, partner and head of charities and not-for-profit at Price Bailey.

The analysis examined the accounts of the charities that feature in the haysmacintyre / Charity Finance 100 Index – a list of the largest charities in the UK which excludes public sector bodies, and is based on a three-year rolling average of income.   To be able to pay trustees, charities need to obtain permission from the Charity Commission. It is unknown how many charities overall pay their trustees, though William Shawcross, {the then} chair of the Charity Commission, has said the regulator looks sympathetically on requests.

 

The above are extracts from an article published in “Civil Society News” on 2-Oct-17
https://www.civilsociety.co.uk/news/eighteen-top-100-charities-pay-trustees-finds-research.html
The following is a comment to the article posted on Facebook.

 

Yes, and it happens lower down the financial scale, too.
I know of leisure centres whose paid CEO / Operations Manager is also a Trustee.

It's a disgrace that the Charity Commission keeps no official records on remunerated trustees (as various FoI requests have revealed).

Working on a HelpLine for small charities I regularly get asked why people wanting to set up a charity but, having a family to support, can't take a reasonable remuneration from it (ie: rather than employing someone else to do the same job).

It's very distressing having to tell them that it's unlikely that the Charity Commission will allow that on the clearly hypocritical grounds that "Trustees are supposed to be voluntary" whilst knowing that there are some charity trustees who have been given dispensation to be remunerated (often at annual salaries which are higher than the annual turnovers of most small charities - indeed higher than the national average salary).

What is a Charity?

The problem is summed up rather nicely by none other than Lord Hailsham, who said:    
“ … the words ‘charity’ and ‘charitable’ bear, for the purposes of English law and equity, meanings totally different from the senses in which they are used in ordinary educated speech or, for instance, in the Authorised Version of the Bible.”

 

Or, as Lewis Carroll put it more eloquently in Alice’s encounter with Humpty Dumpty in “Alice Through the Looking Glass:

""I don't know what you mean by 'glory,' " Alice said.

Humpty Dumpty smiled contemptuously. "Of course you don't—till I tell you.
I meant 'there's a nice knock-down argument for you!' "

“But 'glory' doesn't mean 'a nice knock-down argument'," Alice objected.

“When I use a word," Humpty Dumpty said, in rather a scornful tone, "it means just what I choose it to mean—neither more nor less."

“The question is," said Alice, "whether you can make words mean so many different things."

“The question is," said Humpty Dumpty, "which is to be master—that's all."

 

 

The following text is taken without alteration from the HM Revenue & Customs website
https://www.gov.uk/hmrc-internal-manuals/vat-charities-manual/vchar2000

 

What is a Charity?

Distinction between a charity’s objects and the way it operates (VChar2050)

You should not confuse the way in which a charity fulfils its objects with the charitable nature of the objects.   There is nothing to stop a charity charging a large amount of money for its charitable services.   Private hospitals, nursing homes and schools can have charitable status and may charge substantial fees.   They will normally be charitable organisations provided they are non-profit making ie there is no distribution of profits to shareholders.

 

Trading subsidiaries (VChar2100)

Charity law restricts the activities in which a charity can engage to those relating to its charitable objectives.   In addition trading activities of charities are exempt from corporation tax only to the extent that they are in pursuit of the organisations charitable objectives.   For these reasons many charities establish trading subsidiaries.   Charity trading subsidiaries engage in a wide range of commercial ventures in order to raise funds for the parent charity.   Profits of trading subsidiaries can be passed to the charity free of corporation tax.   It is important to remember that charities’ trading subsidiaries are not charities.   Some VAT relief, such as the sale of donated goods and fund-raising events, specifically extend also to charities trading subsidiaries.   But in many cases relief is available only to the charity.

 

Terminology (VChar2150)

Charities will often refer to certain of their activities as “trading” activities.   In this context the term “trading” is usually used to describe the organisation’s non-charitable commercial fund-raising activities.   These activities are usually, if they are of any scale, carried out by the charity’s trading subsidiary.   It is important not to confuse the term “trading”, when used in this way, with the term “business” as used for VAT purposes.   For VAT purposes “business” can have a much wider application than “trading”, as understood by charities.   A charity’s trading activities will invariably be business activities for VAT purposes.   But it is important to bear in mind that, in addition, some or all of the charity’s primary or charitable activities might also be business activities for VAT purposes.

The distinction between “trading” and “business” is a common source of confusion for charities.   A charity may consider very carefully the VAT aspects of their trading activities, but neglect to consider whether their charitable activities might also be “business” for VAT purposes.

When seeking advice charities will often refer to their “trading” activities.   It is important when responding that you do not use the term “trading” if what you mean to refer to are the charity’s business activities.

 

Not for profit (VChar2200)

Charities and “not for profit” organisations are not the same thing.   While all charities will be non-profit making organisations, not all non-profit making organisations will be charities.   Clubs and associations, professional and trade bodies, mutual societies (including many large insurance companies and building societies), friendly societies, motoring organisations, the Co-operative movement, trades unions, political parties and lobby groups etc are all non-profit making organisations, but they are not necessarily charities.   Bodies which exist to benefit their members, as opposed to the community at large, are not usually charities.   Organisations with political aims and objectives are not charities.

Charities may have a membership structure and the members may derive some benefits.   But usually it is a case of the body of members coming together to support work which is of benefit to the wider community.   An organisation which exists solely to benefit or further the aims of its members is not a charity.

 

The status of commonly found organisations (VChar2250)

The following paragraphs outline the status of some common organisations.

Sports clubs

Sports clubs are not usually charities.   This is because the promotion of sport is not a charitable object in itself and such clubs usually exist to provide facilities for their members.

However, it may be possible for some sports clubs to be charities.   If the organisation has objects which are:

  • for the public good
  • in the interests of social welfare
  • the club exists for people who are in some way in need by reason of youth, old age, infirmity, disability, poverty or social circumstances.

Under these conditions an organisation which exists to promote, for example, swimming to assist the rehabilitation of injured people might qualify as a charity.   Or the provision of sporting facilities might be ancillary to wider charitable objectives.   Also, certain umbrella bodies which exist to promote a sport and physical welfare in general might have charitable status as being for the benefit of the community.

Affiliation to a national charity

A local organisation may be affiliated to a national organisation which is a clearly recognised charity.   It may be that all affiliated organisations are governed by the same written constitution and share the same aims as the national charity.   Only where this is the case can you accept that the local organisation is also a charity.

Philanthropic organisations

There are a number of organisations which exist to do good work but are not charities.   Many such organisations choose not be charities.   Charitable status brings with it many restrictions on the use to which funds can be put.   Some organisations prefer to retain freedom to spend money on non-charitable activities.

Educational organisations

Charities that are advancing education are a benefit to the community.   The term “advancing education” includes not only the obvious purpose of schools and universities but also other activities of benefit to the public such as research or information services.   However, there are commercial organisations providing similar services and the main distinction between the commercial and the charitable organisation is likely to be the intention or not to make a profit.

Hospitals

Many private hospitals (ie non-NHS) and nursing homes are operated by charities.   Others may be profit-making commercial organisations.   NHS hospitals and NHS Trusts are Crown bodies for VAT purposes and are not charities.   However, such hospitals may have associated charities, leagues of hospital friends etc which exist to help and raise money for the hospital.   NHS Hospital managers and consultants frequently act as trustees of charitable Trusts founded to help the hospital in its work and funded from donations or bequests.   These charitable Trusts will usually have charitable status in their own right.

Political organisations

Charities freedom to engage in political activities is limited and they cannot have political objects.   They are constrained by law to reasonable lobbying to further their non-political objects.   The Charity Commission have set guidelines to specify what is and what is not acceptable.   Many political organisations operate along the same lines as charities.   For example they will engage in fund-raising and rely on volunteer support.   They will usually have a membership structure.   They are not charities because they pursue political objects; as do lobby groups, eg Greenpeace and Amnesty International.   (However, please note that some political organisations may set up a charitable foundation or trust which does not get involved in the lobbying.).

Housing Associations

Particular care should be taken with Housing Associations.   Some have charitable status and some not.   Charitable Housing Associations usually exist to provide housing for a particularly needy sector of the community eg the elderly, people with disabilities or those who are homeless.   Other Housing Associations exist to provide housing generally, or to serve a particular locality; these will not necessarily be charities.   You will find that some Housing Associations are Industrial and Provident Societies.   This does not entitle them to claim the charity reliefs - you will need to check if the Housing Association is registered with the Charity Commission or recognised as a charity by HMRC.

 

Conclusion  (VChar2300)

Despite the apparent complexity of the issues set out above, the status of an organisation is rarely a subject of dispute.
If there is doubt it is up to the organisation concerned to demonstrate its charitable status.

 

Or, as Humpty Dumpty puts it, if you presume to be the "master" you can make words mean what you want and it is up to everybody else to fathom out what they mean, and act accordingly.

 

 

 

What’s the Problem with British Charity?
a modern-day parable.

Published in “The Third Sector” on 29-Jan-16 (https://www.thirdsector.co.uk/online-comment-whats-wrong-british-charities-modern-day-parable/fundraising/article/1381528 ) this article is based on some real stories from charities helped by Small Charity Support.

 

 

A certain man was going from Chelsea to Westminster, and he fell among muggers, who beat him up and left him half dead.   By chance, Larry, a well-to-do businessman, was going the same way.   He was so distressed by the sight of the beaten up man that he had to cross the road to pass by on the other side.   In the same way, Percy, a well-known local politician, when he came to the place, was also so distressed by the sight of the injured man that he had to cross the road to pass by on the other side.

But when Sam, a street trader in the nearby rather run-down housing estate came by in his donkey cart he was moved with compassion, gave the injured man some basic first aid, took him in his donkey cart to a nearby inn, bought him some food and drink and gave him enough money to get home.

For most people the story ends there.   But that is actually not the case.

Sam was so moved by the plight of the person that he’d helped – and particularly the comment of the inn-keeper that it was not uncommon for people to get mugged on that road – that he decided to get together with some friends to set up a small charity to help the victims of muggings on that road.   Unfortunately his first application to the Charity Commission was rejected on the grounds that, although its proposed objects were indisputably of benefit to the individual victims who were mugged, they did not meet the “public benefit” requirements for registration as a charity.   However, with the help of a clever (and expensive) lawyer, Sam was able to redraft his charitable objects as being for the relief of the distress and inconvenience caused by the presence of mugged and injured persons forcing the general public to have to cross the road in order to pass by on the other side.

And so “The Good Sam” charity was duly registered.

Sad to say, the inn-keeper was right – and “The Good Sam” charity was regularly called upon to help others who had been mugged on the road.   And so “The Good Sam” charity started to grow.   Fundraising events were needed to supplement the personal donations of Sam and his friends, and Sam needed to employ an administration assistant to deal with all the calls for help and to organise the volunteers.

But still “The Good Sam” charity grew despite the difficulties in raising funds.

“The Good Sam” charity took on a fundraiser who quickly realised that most of the victims who got mugged were quite well off themselves (that was part of the reason they had been mugged) and were actually able to repay “The Good Sam” charity for the help they received.   So a “victim’s contribution” system was introduced to supplement the charity’s income.   And as the public benefit of keeping streets clear of the victims of mugging was promoted to other local authorities the outsourcing of such services to “The Good Sam” charity became politically expedient and contracts to provide commissioned services started to come in.   As a result, the income from such primary purpose trading quickly and substantially outstripped the meagre income from voluntary donations.   “The Good Sam” charity set up its own chain of “Good Sam” Cafes to provide victims (and other members of the public as a way of generating further income) with food and drink because, being staffed by volunteers they were “more cost effective” than commercial cafes.   And the growing fleet of iconic “Good Sam” trade-mark donkey carts (by now with superior facilities for the comfort of beneficiaries) became a well-loved sight in the community – particularly for the victims of muggings.

“The Good Sam” charity soon became a local and then national phenomenon.

Sam stood down as a Trustee to become the CEO.   And as the charity grew, so did the complexity of its operations and, therefore, Sam’s salary.

Businessman Larry & Politician Percy, now impressed by all the good work that Sam was doing, agreed to join “The Good Sam” charity as Trustees and were often seen out and about promoting the cause at this high-profile event and that.   The “Good Sam Fun Run” became a popular annual fundraising event, with “I’ve Done the Good Sam Fun Run” T-shirts being in high demand as social status symbols.   “The Good Sam” annual report proudly proclaims that it meets it charitable objects “by providing quality services that its beneficiaries are prepared to pay for”.

Eventually Sam, by then a wealthy man, decided to retire.   His final charitable act was to use his wealth to set up a donkey sanctuary to provide a safe home for all the donkeys who had served “The Good Sam” charity so well, ferrying the victims of mugging to safe havens.

And the story does finally end with Sam being recognised for his services to charity by being awarded a Knighthood in the New Year’s Honours List.

So what’s wrong with British Charity?
For those charity trustees and executives with the skill and acumen to be able to exploit the needs of others by running their charities like large profitable commercial businesses, clearly, nothing at all.

The problem is that most ordinary people (ie: “The people on the Clapham omnibus”) understand ‘Charity’ as meaning “The voluntary donation of money/time/resources for the benefit of those in need” (the definition you’ll find in most dictionaries).   
But the legal meaning of the term ‘charity’ (ie: as defined by the Charities Act), and hence the way in which many charities (particularly the larger ones) operate, is quite different.

The problem is summed up rather nicely by none other than Lord Hailsham, who said:    
“ … the words ‘charity’ and ‘charitable’ bear, for the purposes of English law and equity, meanings totally different from the senses in which they are used in ordinary educated speech or, for instance, in the Authorised Version of the Bible.”

 

 

The problem is reinforced by section VCHAR2000 of the HM Revenue & Customs internal manual for the management of charities – which can be found in another “Charity Thought”.

 

Care charity raises £33m in less than a week from bond issue
Greensleeves Care, a charitable care home provider, has raised £33m in less than a week from a bond issue.   The bond is the largest raised so far by an operational charity.   Each investor in the bond will receive interest of 4.25 per cent a year until the bond matures in nine years’ time, when they will receive their capital back.

 

The above is the opening of an article published in “Civil Society News” on 17-Mar-17
(https://www.civilsociety.co.uk/news/care-charity-raises-33m-in-less-than-a-week-from-bond-issue.html)
The following "thought" is a comment (since removed) posted to the article.

 

£33,000,000, at 4.25% interest?
Wow ! That's £1,485,000 of charity money going into the pockets of private investors EVERY YEAR ! That's a cool £13,355,000 of "CHARITY" money over the 9-year term of the bonds !

Now I appreciate that for the clever accountants and lawyers who live in Humpty Dumpty land, where "...when they use a word .... it means just what they choose it to mean - neither more or less..." the word "interest" (as in the money that you get back for investing in an organisation's bonds) doesn't mean the same as the word "profit" (which is the money that you get back for investing in an organisation's shares). The key difference being, of course, that charities paying "interest" to investors in bonds from their profits (sorry - I should have said "surpluses") on their charitable activities isn't contrary to charity law in the same way as paying "profits" to investors in shares.

But to less clever "ordinary" folk like me, the difference is just "weasel words" - the means by which the wealthy get round charity law to make themselves more wealthy by capitalising on the loopholes and tax breaks provided by so-called "charities".
I don't doubt that Greencare Homes provide an excellent and much appreciated services to their clients (sorry, in Humpty Dumpty words that's "beneficiaries"), But look at their annual accounts downloadable from the Charity Commission website and just about all of their "charitable income" and "charitable expenditure" comes from their "charitable activities" - ie: they are operating pretty much like any ordinary commercial trading organisation except that their "commercial profits" can be called "charitable surpluses".

I've often wondered why my local butcher shop isn't a charity - passing on its lower business rates to me in the form of lower priced products. After all, it too provides excellent and much appreciated services to its beneficiaries (sorry, "clients"in Humpty Dumpty words) for the public benefit.

 

Post-script:   Since writing the original comment above my local butcher has gone out of business, the closure notice on the door citing rising unaffordable business rates as one of the causes.

 

Charity Thoughts

This page is a collection of "thoughts" based on some of the issues that Small Charity Support has helped other small charities deal with.

Click on the headings to go to the relevant article.

 

The Good Sam
This "thought", was originally published in "The Third Sector" magazine ("members only" section) on 29-Jan-16.   A modern adaptation of the well-known story of "The Good Samaritan" it is based on some real issues encountered by Small Charity Support in helping other small charities.

 

Charity Bonds Raise £33M
This "thought" originally appeared as a comment (since deleted) in response to an article which appeared in Civil Society News on 17-Mar-17.   The article was reporting on a charity Care Home which had raised £33M by issuing interest-paying bonds.

 

What is a Charity?
This "thought" on misunderstandings about what organisations can, or cannot, be called "charities" is inspired by Lewis Carroll's description of the encounter between Alice and Humpty Dumpty in "Alice Through the Looking Glass".

 

18 Top Charities Pay Trustees
This "thought" is about the difficult issue of payments (ie: a wages/salaries) to trustees.