In England, Wales and Northern Ireland – the law in Scotland is slightly different – the legal definition of a charitable purpose includes a requirement to be for the public benefit.4 That benefit can be to the public in general or ‘a sufficient section of the public’, such as people who live in a particular place or work in a certain profession. The remarkably wide range of charitable purposes means that all sorts of organisations, doing all kinds of things, can qualify to be charities.
The main starting point for charity law was the preamble to the Statute of Charitable Uses of 1601 in the reign of Elizabeth I. This preamble was retained when the statute was finally repealed in 1888, and was summarised shortly afterwards by the senior judge Lord Macnaghten as the four ‘heads’ of charity: relief of poverty, advancement of education, advancement of religion and other purposes beneficial to the community. These heads were revised and expanded in the Charities Act 2006 as 13 descriptions of charitable purposes covering a broad spectrum: as well as the familiar purposes of relief of poverty, health, education and religion, they include the advancement of citizenship, the arts, amateur sport, human rights, environmental protection and animal welfare. Other descriptions are conflict resolution; the relief of those in need by reason of youth, age, ill-health, disability, financial hardship or other disadvantage; the promotion of the efficiency of the armed forces or emergency services; and any other purpose ‘analogous to or within the spirit of the existing charitable purposes’.
Yet more charities
So far we’ve referred to charities registered with the relevant charity regulators in the UK. But in England and Wales they are only part of the story. There are also about 180,000 charities that do not have to register, although they are subject to regulation by the Charity Commission.5 In this category are charities with an income below £5,000 a year and so-called ‘excepted’ charities that include Christian churches, Scout and Guide groups and certain armed forces charities.
Adding registered and excepted charities together brings us to a total of nearly 350,000. But we’re not finished yet. There is a third category known as ‘exempt’ charities – a mixed collection including more than 8,000 academy schools, further education colleges, many universities and most big national museums. Their total number is estimated by the Charity Commission to be nearly 15,000. They are exempt from registration with the Commission because they are considered to be adequately regulated by some other body, known as a ‘principal regulator’.
Principal regulators are often government ministers, but universities and higher education institutions in England, for instance, have the Office for Students as principal regulator. However, all the principal regulators have an agreement with the Charity Commission designed to ensure that they follow the principles of charity law in the way they exercise their functions.
So we’re now up to an impressive total of more than 360,000 charities in England and Wales with a combined estimated income as high as £160 billion. This is a complex sector, with many accretions and anomalies; over time, bits have been bolted on or sub-categories created to accommodate legal, social and political developments as they arose. In Collins Concise Dictionary the meanings of the word ‘charity’ are ‘the giving of help, money, food etc. to those in need’; institutions set up to perform that giving; and ‘a kindly attitude towards people’. In the world of charities as defined in law, that term ‘etc.’ stretches very widely; the phrase ‘in need’ is equally elastic; and kindliness is variable.
The result is that there are charities that do things that many people would not regard as charitable in the everyday sense, because they carry out quasi-governmental functions, such as state-funded academy schools or the British Council, or run controversial religious organisations such as the Jehovah’s Witnesses or the Plymouth Brethren, or provide expensive private healthcare or education, such as the London Clinic or Eton College and other public schools.
The Institution of Mechanical Engineers is a charity. So is Send a Cow, which started by sending dairy cows to Uganda and now helps Africans get the most out of their land. Some housing associations are charities. The Hitchin Bridge Club in Hertfordshire is a charity. So is the British Boer Goat Society. Some think-tanks are charities, which can be controversial if they are associated with a political point of view. Some grant-making charities hold all their assets in investments and donate the income to good causes, mostly through other charities. Others rely on constant fundraising. Charities can be as big as private sector corporations or as small as a local reading group.
Legal structure of charities
Charities can also take a complex variety of legal forms, which determine their structure and the ways they can act.6 Smaller charities that don’t employ staff frequently take the form of the unincorporated association, which is essentially a contractual agreement between individuals to combine for a particular purpose. Such an association will have a governing document that sets out rules for matters such as membership, the appointment of office holders and the conduct of meetings, but it does not have a separate legal identity. This means it cannot borrow money, enter into contracts or take legal action in its own right, and officers can be held personally liable if the charity is sued or incurs debts.
Many charities, especially larger ones such as Oxfam or CRUK, restrict the personal liabilities of office holders by registering under company law as companies limited by guarantee. These are different from companies limited by shares, which distribute earnings to shareholders. Members of a company limited by guarantee hold no shares, but undertake to pay a nominal sum towards costs if the company goes out of business. Crucially, the company, and therefore the charity, has its own legal personality, which means it can enter into contracts, such as contracts of employment, in its own name rather than those of individuals. From 2013 a new legal form, the charitable incorporated organisation (CIO), was made available, which allows a charity to have the status of a limited company without having to register with Companies House as well as the Charity Commission.
Another legal form is the charitable trust, commonly used when someone donates assets or a sum of money to be used for charitable purposes. As in the case of an unincorporated association, a charitable trust does not have a legal personality of its own, which means that the trustees must act as individuals if they enter into contracts and are personally at risk if the charity is sued. Charitable trusts and so-called ‘foundation CIOs’ are run by trustees and do not have wider memberships, whereas unincorporated organisations and ‘association CIOs’ generally have a wider membership that has a role in some of the decision making. Charitable companies can choose whether or not to have wider membership.
A final twist to all this complexity is that a number of charities, some of them going back centuries, were originally established by Royal Charter, granted by the monarch. Before the development of modern company and charity law, one effect of a charter was to give an organisation its own legal personality, usually with the same limited liability as a company and the ability to enter into contracts, hold assets and borrow money. Historic charter bodies that are charities include many schools and universities. In more recent times, existing charities have been able to apply to the Privy Council for a Royal Charter: the British Red Cross, described at the start of this chapter, received one in 1908; the Institute of Fundraising received one in 2020.
This labyrinth of both function and form is defined by an accretion of statutes and court judgments going back a century and more; but the difficulty for the average citizen is that the legal test of a charity does not always coincide with popular interpretations of the word.
The benefits and burdens of charitable status
Leaving definitions aside, what are the advantages of being a charity? The main one in practice is tax relief. Charities were spared from tax on income when it was first introduced to finance the war against Napoleon in 1799. Nowadays charities are spared not only tax on most forms of income, but also corporation tax, capital gains tax and business or non-domestic rates on their buildings; they are also exempt from inheritance tax. In most circumstances they do have to pay value added tax (VAT),