April 08, 2019


The Charity Commission have recently released their guidance on charities connected with non-charities. Anyone that has heard my opinions on the draft guidance issued at the end of last year will be aware that I was concerned by the tone and some of the content in it – it felt particularly harsh given that it was the first piece of guidance on the topic released by the Charity Commission. The good news is that the final guidance has been toned down. There is more focus on the potential positive aspects of such a relationship, which was missing from the draft; however it is still quite negatively focused. A lot of the key principles and points have remained from the draft and putting aside the tone, I think that the final document is a positive step forward in formalising things that myself and others in the sector have been pointing out for a while. I imagine, however, it will come as a shock to some charities, particularly those who have a very close, almost integrated relationship with a non-charity (primarily a trading subsidiary). The guidance focusses on two main relationships that charities commonly have with non-charities – trading subsidiaries and charities that are set up by non-charities in support of non-charities (e.g. PTA’s, Friends groups, NHS charities). It has identified six key principles:

1. Recognise the risks

Connection with a non-charity can help to deliver outcomes and are not in themselves a cause for concern. However alongside opportunities, this can bring new risks such as the charity:
  • Supporting or carrying out work outside its charitable purpose
  • Being controlled or inappropriately influenced by the connected non-charity
  • Being hard to tell apart from the non-charity.
The guidance advises that trustees should review the risk where money is involved at least once a year to confirm that any risks are being reasonably managed.

2. Do not further non-charitable purposes

Charities are unique in delivering public benefit and having to comply with charity law. The most basic underpinning of this is that charities should only spend money delivering their charitable objectives. The issue with a connection with a non-charity is that charity funds could end up supporting non-charitable purposes. Any investment made in a trading subsidiary should be made with the same consideration as any other investment. This includes not making investments or loans to prop up failing trading subsidiaries – this could result in tax liabilities. The guidance gives specific examples of grant funding, political campaigning and delivering research with non-charities as well as working with trading subsidiaries.

3. Operate independently

A charity must be governed by its trustees who have a duty to only act in the best interests of the charity. Whilst there are clearly implications here for trading subsidiaries, these are covered elsewhere, and the main bulk of the section is in relation to charities set up by non-charities. In this case, the guidance is clear that trustees must maintain a choice as to whether to accept funding from their founder, or any non-charity. Charities must also be able to make their own decisions about services and products and who benefits from them.

4. Avoid unauthorised personal benefit and address conflicts of interest

Trustees have a legal duty to act only in the best interests of the charity. Conflicts can arise due to a relationship with a non-charity as a result of:
  • A trustee benefitting from the relationship
  • A trustee either working in, or being a director of, the non-charity
  • The non-charity being able to appoint trustees.
There is no specific guidance on how to deal with conflicts of interest – rather the guidance points you towards the general Charity Commission guidance on the topic. This should cover all possibilities as long as you have identified the potential conflict, which is often harder in these circumstances.

5. Maintain your charity’s separate identity

A charity has its own legal identity and tax status and the guidance is very clear that they must be kept distinct from non-charities. Whilst there are plenty of “shoulds” in this section of the guidance, there are also some “musts” that will be new for some:
  • You must keep the financial structures of the two organisations separate.
  • Donors must be aware of which organisation they are funding, and which organisation carries out which activities.
  • Charities must not be allowed to raise money to be used by the non-charity in ways that the trustees have not agreed and that do not further the charity’s purposes.
  • You must be clear in all fundraising communications about which entity is asking for the money and whether there is any percentage of the funds that are shared.
  • You must ensure that donations intended for the charity are not rerouted to the non-charity.
  • You must be able to show that you have identified and assessed any risks to the charity of choosing to maintain the relationship with the non-charity.
These are essential musts as confusing the two entities could result in tax issues for the charity.

6. Protect your charity

Having a relationship with a non-charity must be in the charity’s best interests. Trustees must protect the charity’s assets, reputations and beneficiaries. They must therefore act with reasonable care and skill and get value for money. The guidance also states that trustees must protect their charity by using appropriate agreements or contracts. This was a particularly contentious area of the draft guidance and whilst it has been scaled down slightly to talk about taking a proportionate approach, the requirement is still there not only to consider an agreement, but also to consider including a way to exit from the arrangement. Where a charity is set up by a non-charity and only (or mainly) furthers its aims by funding or supporting the non-charity the trustees must be able to show how this is in the best interests of the charity. Rather helpfully, the Charity Commission have also released an infographic with some discussion points, and three checklists for different scenarios that assist trustees in documenting that the correct decisions have been made. The guidance is wide-ranging and puts into formal wording general advice that has been talked about for as long as I can remember. This is a massive step forward as previously it has been hard to quantify the issues with having a close relationship with a non-charity as it wasn’t formalised in any kind of guidance. However I can see some charities still failing to take this seriously enough. The point I would make here is that this isn’t just guidance for the sake of it – there are governance and financial implications in the potential disallowance of gift aid and charitable tax exemptions which could be significant. I would recommend to all charities that may be affected that they should be obtaining a copy of the relevant checklist and going through this as soon as possible, ideally their next trustees meeting (or sub-board). Should you require any help or assistance with anything I’ve raised, please don’t hesitate to get in touch.


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