UK legal update

Philip Norton Eversheds Solicitors, Paston House, Princes Street, Norwich, NR3 1 BD, UK Tel: +44 1603 272727; Fax +44 1603 630588: e-mail nor.tph.prnOeversheds.co.uk.

Philip Norton is the Head of Eversheds Solicitors Charities Business Development Unit and the UK Legal Editor of the Journal of Nonprofit and Voluntary Sector Marketing.

ABSTRACT

This update covers developments in relation to UK chanty law, particularly in relation to

fundraising and other marketing strategies. I f readers have any particular questions on

charity law, please wtite to Philip Norton at the publishers’ ofies, so that he can answer questions which are .f general interest to readers.

OVERVIEW Once more, the major event for charities during recent months has been the Labour Government’s Budget (1 7th March, 1998). The Chancellor believes he has delivered a radscal Budget as his opening words indicate: ‘Only once in a generation is the tax system fundamentally reformed’. However, the Budget was delivered at a time when signs of a slowdown in the U K economy are appearing and such a slow- down may result in a pulhng back not only of dividend income but also share values of the major listed companies in which charities may have invested (either directly or indirectly) considerable hnds.

Principal reforms introduced in the Budget are designed to benefit individuals and f a d e s with low incomes. There were, however, one or two specific issues which affect chanties:

(a) Millennium Gift Aid From later in 1998 until the end of the year 2000, Gift Aid relief will apply for single payments of El00 or more (instead of the usual minimum of E250) if in support of education and anti-poverty projects in ‘low-income countries’ designated by The World Bank. Instalments totalling El00 or more will also qualifj7 for relief. In addi- tion, businesses will be able to claim extra tax relief when donating goods to help educational projects in these countries. Further details will be given in a press release.

(b) National insurance contributions Unfortunately, as employers, charities will be affected by the changes in NICs with effect &om April 1999. (It should also be noted that legislation on a minimum wage will have an impact on charities.)

(c) VAT There may be some small benefit available to charities here when selling secondhand goods which they may have purchased, as they will only account for VAT on their profit margin rather than on the full selling price of the goods.

TRUSTEE INVESTMENT ACT In late November 1997, the Economic Secretary to the Treasury ruled out swift action to reform the Trustee Investment Act 1961 because of pressure on par- liamentary time. While accepting the principle and need for reform, the

Government wants to provide a com- plete and lasting solution, which can only be achieved by primary legislation. The Government believes the fast-track process of a Deregulation Order to be inappropriate. The requirement to divide portfolios into narrow and wide- range investments therefore remains, un- less wide investment powers are contained in constitutional documentation or the Charity Commission otherwise allow.

LEGACl ES A recent High Court ruling indicates that the Courts will not interfere to enforce a promise to make a gift or bequest in some circumstances. It is therefore essential that such ‘promises’ be recorded in a form of simple deed even if this might prove an embarrassing process.

CHARITY ACCOUNTING The Charity Commissioner for accounting issues has said that a review of the Charity SORP is to begin this year. This may lead to changes in the Charities (Accounts & Reports) Regulations 1995. Methods of accounting for investments are believed to be a major part of ths review.

CHARITIES - THE LOlTERY AND SHOPS The chanties sector is responsible for Ll8bn of income in Britain each year. However, a mere 1 per cent of this comes fiom donations and collections. An ofien- heard complaint, particularly from small chanties, is that they are now competing with the National Lottery. However, for the larger charity, income fiom individuals is often committed through covenants or membership fees of one kind or another. Small charities also complain that Lot- tery money goes to larger, well-known

chanties - a review of Lottery distributions shows only six of the top 500 charities received Lottery grants in the first year and these total less than 1 per cent of those chanties’ voluntary income. Where then is all the income coming &om?

Trading activities of the top 500 charities result in a turnover of in excess of A300m and provide a return on sales of some 45 per cent. In a survey by NGO Finance of nearly 5,000 shops - the average profitability rate was 26 per cent of turnover. In addition to providing an excellent income source, high street shops provide cost-effective advertising and promotion.

LEGAL STRUCTURE CHANGES It is hoped by many lawyers that the Labour Government will take forward plans to introduce a new corporate legal structure for charities offering trustee protection. The Charity Law Association supports such proposals and is working to produce user-fiiendly principles on which parliamentary draftsmen can work.

THE EUROPEAN CONTEXT Work is continuing on the creation of legislation for a ‘European Association’, which would allow charities and other voluntary bodes to operate throughout the European Union without setting up a new organisation in each country. A recent communication on voluntary organisations commends such groups to policy makers because of their social and economic importance. There are currently potential difficulties for voluntary organisations seeking to raise fimds in other EU countries. Part of the problem is that continental EU members have no concept of what a trust is. It would seem that a new form of corporate charity would help alleviate such problems, particularly as EU

competition rules do not hsadvantage taxes affect chanties. The results of this nonprofit making bodies. Developments review will have an effect on fundraising in this area are awaited. and trading issues as well as income tax,

rates and VAT. Details are therefore eagerly awaited.

REFERENCE Esrares Gazette, August 23, 1994.

CHARITIES TAX REVIEW T h s continues, with those involved look- ing at the way various direct and indirect