Cross Border Issues in Scotland

Some of these changes will affect English and Welsh charities operating in Scotland (“cross border charities”). 

Proposed changes to the Act

The proposed changes are based on recommendations made by OSCR from its first few years’ operating experience. The proposals and the impact on cross border charities, are:

OSCR (The Office of the Scottish Charity Regulator) would be given power to vary the directions it makes for charities to meet the charity test. These directions will often concern provision of public benefit and, if not met, result in automatic removal from OSCR’s register. OSCR seeks power to alter directions if, for example, circumstances change or new information becomes available. Unfortunately, no right of appeal against directions is proposed, and charities will only have the ability to request a review rather than to require the matter to be appealed. For charities this means, in practice, that decisions which have a major impact cannot be appealed. It is only when OSCR takes the further step of removing a charity from the register on failure to comply with the directions that there is a right of appeal. For cross border charities, OSCR is committed to working with the Charity Commission on public benefit and other issues.

OSCR would be given powers to assist charities by appointing additional trustees, and charities would be given new powers to add or alter administrative and governance provisions and to re-organise restricted funds. This will not affect cross border charities, as they are governed by English legislation with equivalent and indeed wider powers. However, the changes will be helpful to enable Scottish charities to modernise and so may prove useful in dealings between cross border charities and Scottish charities, for example to ease joint working or mergers. 

References to “charitable purposes” in pre-2005 charity constitutions should be construed as including charitable purposes under the 2005 Act. This will ensure that charities registered with charitable purposes defined according to tax law (which is not necessarily the same as the test under the 2005 Act) need not amend their constitutions. The same problem has affected many cross border charities which refer in their constitution to funds being applied for charitable purposes. However, cross border charities are governed by the law of England and Wales, not that of Scotland so it is unlikely that the proposed provision will cover them.

Charities registered with OSCR would be required to state their name, charitable status and charity number on their websites. Most charities, not least cross border charities, will already be meeting these requirements.

In addition to the changes under consultation, it has already been announced that the Public Services Reform Bill due to be introduced in Scotland later this year will contain provisions allowing charities to provide trustee indemnity insurance for their trustees. Currently this is not permitted, even for cross border charities which have a statutory power to do so, although OSCR is not now pursuing the issue with charities which do provide such insurance.

Accounting and reporting proposals

The key changes concern reporting requirements and thresholds.

Perhaps most importantly, the consultation paper considers the pros and cons of aligning accounts thresholds with those applying in England and Wales. It is recognised that this would be particularly helpful for cross border charities with the greatest impact on charities with a gross income in the £100,000-£250,000 range (the different thresholds for fully accrued accounts) or with assets between £2.8m and £3.26m (the different thresholds for full audit). The Scottish Government considers that the case for aligning thresholds is finely balanced and charities are therefore urged to make their views known.

The Scottish Government has also considered allowing cross border charities to file accounts within ten months of their year end to mirror the Charity Commission’s deadline. Change appears unlikely here as the Scottish Government is not convinced of the need to make a special case, especially as charitable companies are subject to a nine month deadline for filing at Companies House. However, it is possible that the issue will be re-examined as part of the assessment of the consultation last year on monitoring of cross border charities.

The consultation ends on 24th July 2009.

Go to https://www.oscr.org.uk/about-charities/charity-law/for more information.