Knowing how to meet the charity test in Scotland
The Office of the Scottish Charity Regulator (OSCR) is updating its guidance note on what is a fundamental assessment under Scottish charity law – "Meeting the Charity Test". Under S.5(1) of the Charities and Trustee Investment (Scotland) Act 2005, OSCR may enter an applicant in the Scottish Charity Register, and subsequently allow it to call itself a charity, only if the applicant meets the charity test.
The test itself is found in S.7 of the 2005 Act. The test is two-fold: (1) the applicant’s purposes must consist only of one or more of the "charitable purposes" (of which there are 16 and these are slightly different from the purposes applicable in England and Wales and Northern Ireland), and (2) it provides, or intends to provide if the activities are not already established, public benefit in Scotland or elsewhere.
The charity test is not only applied to bodies seeking to become a charity; once the test has been met at the point of registration, the charity is then under an ongoing obligation to continue to comply. Under S.30 of the 2005 Act, if after carrying out the necessary inquiries, OSCR is of the opinion that a charity no longer meets both arms of the test, it can issue directions to encourage compliance and/or it can remove the charity from the Register.
Serious issues
Removal from the Register can result in serious issues for the body (as it can no longer hold itself out as a charity). For example, Scottish Charitable Incorporated Organisations (SCIOs) will cease to exist if they are removed, which means a total inability to carry on activity.
Therefore it is clear that ensuring their organisation meets, and continues to meet, the charity test is vitally important for all trustees. To assist them and their advisers, OSCR issued guidance on the application of the test. The most recent version was issued in November 2008, not long after OSCR’s inception. The guidance was based on the bare bones of the legislation and was largely theoretical since OSCR did not have extensive practical experience of applying the test at that time.
Over the greater part of the last decade, OSCR has granted charitable status to approximately 10,000 organisations, a figure that does not include any applications which were rejected. It has also amassed practical experience applying the test in a number of inquiries both on individual charities and groups of similar bodies. Recently, OSCR published reports on its review of fee-charging schools and Arms’ Length External Organisations (ALEOs).
Consultation closed
To put this first-hand experience to good use, OSCR has revised its "Meeting the Charity Test" guidance and as per S.9 of the 2005 Act, prior to issuing it, OSCR must first consult representatives of the charitable sector and other such persons as it thinks fit. To fulfil this obligation, OSCR put the draft guidance out to consultation. The consultation closed on 26 May and the final version of the guidance will be available later in the summer.
WHAT´S DIFFERENT? At first glance, the guidance is more informal and the wording and structure have been softened for an easier read. There is no denying the new guidance is designed to be more user-friendly, however, some commentators question whether OSCR has gone a little too far.
References to the legal principles in the 2005 Act appear to have been sacrificed for the new colloquial nature of the guidance. It is important that the reader understands the test itself and why OSCR are applying the rules in the manner it does. I believe that references to the law should be reinserted.
Interactive quality
A leap forward is the new interactive quality of the guidance. It was produced for consultation in an electronic PDF format, similar to the current guidance. However, the new PDF contains links for easier movement throughout the 84 pages. Key words are linked to a useful glossary to expand on their meaning. The guidance also contains hyperlinks to relevant external sources.
The most significant additions to the new guidance are the cases studies under the different charitable purposes which OSCR uses to demonstrate common issues and themes it has encountered and explain the practical application of the test. The case studies help illustrate OSCR’s processes and considerations.
Even though this is the main amendment, OSCR has not provided case studies for all of the charitable purposes. Could this be due to a lack of available material? Also, all of the examples are from new applicants. As the test is equally relevant to established charities, some examples from their perspective would be welcomed.
Consistent range
A consistent range of case studies would be particularly valuable to the reader. If each of the charitable purposes contained a successful and unsuccessful application or inquiry as well as an example where OSCR sought further information or directions were given, this would cover a number of potential outcomes.
CAN OSCR LEARN ANYTHING FROM THE CHARITY COMMISSION/CHARITY COMMISSION NORTHERN IRELAND? While I am not seeking to compare the charity test across borders, the way the guidance of the respective tests is published, and the elements of that guidance, can be. One thing that isn’t clear at the moment is whether the OSCR guidance will be published as a PDF only, or whether it will also be set out in a web-based format and allow for ease of flow and reference between pages.
The OSCR guidance is wrapped up in a single "Meeting the Charity Test" package, whereas the Charity Commission guidance is split into different components to allow the reader to drill down into each part quicker. While I am not suggesting OSCR simply follows the Charity Commission (the Commission´s website contains a greater volume of information and it is easy to get lost), consideration should be given to how the guidance is made available online.
Familiar feel
The Charity Commission Northern Ireland counterpart is not too dissimilar to the new OSCR draft document; the flow of movement through the documents feels familiar. One thing I noticed, and this may seem a trivial point, is that the key words/words with a link to the glossary are in bright green and pink in the CCNI guidance. There is no missing these beacons on the white page. OSCR has chosen deep blue and purple.
If you are going to the effort of highlighting significant words for different reasons, they should be given prominence through use of easily distinguishable colours or it is a wasted exercise.
As is the collaborative way of the third sector, OSCR should look to its regulatory neighbours for ideas.
WHAT HAVE WE LEARNT FROM THIS EXERCISE?
One final point which may be up for discussion in more detail after the consultation closes, is that reviewing the guidance has reminded me and no doubt others that the test the guidance is talking about is now 10 years old. The principles behind the guidance remain the same; the guidance is simply being updated to reflect OSCR’s experiences and current practices.
Is this an indication that the 2005 Act should be reviewed and updated? Has the application of the test and OSCR’s role as "assessor" changed enough to warrant a legislative review? Many different charity applications are crossing OSCR’s desk with purposes which may not fit squarely into the categories of the 10 year old list. It may be time to re-evaluate the Scottish charity legislation as a whole.
