Memorandum of Understanding Forming a Charity by yqc43112

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									OSCR Response to the Calman Commission



     The Office of the Scottish Charity Regulator

1.   The Office of the Scottish Charity Regulator (OSCR) is established
     under the Charities and Trustee Investment (Scotland) Act 2005 (the
     „2005 Act‟) as a Non-Ministerial Department forming part of the Scottish
     Administration. OSCR is the registrar and regulator of charities in
     Scotland. OSCR‟s responsibilities are the operation of an effective
     regulatory framework including the granting of charitable status,
     maintenance of a public register of charities, the investigation of
     apparent misconduct and facilitation and compliance with the 2005 Act.
     There are currently over 23,000 charities registered in Scotland.


     OSCR Evidence

2.   This paper provides factual evidence in response to the Calman
     Commission request for further evidence, specifically on the differences
     in regulatory regimes in Scotland and England and Wales as
     encountered in practice.


     The 2005 Act and how this operates

3.   The Charity Commission for England and Wales have never had a role
     in the regulation of Scottish charities. Until the creation of the Executive
     Agency OSCR in December 2003, Scottish Ministers delegated the
     limited supervisory powers they had over charities to the Crown Office
     and Scottish charities derived their charitable status by virtue of
     recognition by the Inland Revenue, now HMRC, as being eligible for the
     relevant tax relief. The Charities and Trustee Investment (Scotland) Act
     2005 created for the first time in Scotland a statutory charity regulator
     with both status granting and supervisory functions.

4.   Since tax is a reserved matter it continues to be HMRC who accord tax
     relief, including Gift aid and the administration of income and corporation
     tax. HMRC follow the law of England and Wales in the definition of
     charitable purposes.

5.   As far as registration as a charity is concerned, the position in Scotland
     is different from that in England and Wales where there is no
     comprehensive statutory Register of charities. In Scotland the 2005 Act
     directly links charitable status to the statutory Scottish Charity Register.


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     Maintenance of the statutory Scottish Charity Register is one of the
     prime functions of OSCR. The principle adopted in the 2005 Act is that
     the Register is intended to be comprehensive, and as a result it is a
     requirement that bodies which wish to have charitable status in
     Scotland, and refer to themselves as a charity, must register with OSCR.
     The only exclusion is for certain “cross-border” charities (non-Scottish
     organisations which operate as charities in more than one jurisdiction)
     with no significant presence in Scotland – they may refer to themselves
     as a charity registered in a different jurisdiction if they meet certain
     requirements. At present the „home country‟ for virtually all such cross
     border charities is England and Wales, and the Charity Commission for
     England and Wales is the prime other/home country regulator. However
     the Northern Ireland Assembly has just passed legislation setting up a
     separate Northern Ireland charity regulator and all bodies that are
     charities under the law of Northern Ireland will be required to register
     with the Northern Ireland regulator.

6.   In terms of reporting and other requirements, all charities on the Scottish
     Charity Register are subject to the responsibilities and requirements of
     the 2005 Act.

7.   S 20 of the 2005 Act specifies that “OSCR must so far as consistent with
     the proper exercise of its functions, seek to ensure co-operation
     between it and other relevant regulators“(which includes regulators in
     the UK or elsewhere). As a part of its own strategic thinking and as a
     matter of best regulatory practice, OSCR has adopted an objective of
     minimising the burden of regulation where possible, with a particular
     emphasis on avoiding dual or multiple reporting.


How this impacts on charities

8.   There are two groups of charities who may be directly affected by
     differences in regulatory regimes as between Scotland and elsewhere in
     the UK

     a.   Scottish charities: these are charities that are established under
          the law of Scotland or that are wholly or mainly managed of
          controlled in or from Scotland (s 13 of the 2005 Act). They are
          required to register with OSCR. Scottish Charities may have
          activity in other parts of the UK, or abroad. If they (also) operate in
          England or Wales there is no requirement to register with the
          Charity Commission, but if they (in future) have a presence in
          Northern Ireland, there will be a requirement to report to the
          Northern Ireland regulator.

     b.   Non Scottish or ‘Cross border’ charities: for the purposes of this
          paper this means charities that operate throughout the UK, or
          abroad, and are not „Scottish charities‟ (as above), but that are
          required to register with OSCR if they wish to refer themselves as a




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           charity due to having a (significant) presence in Scotland (s 14 of
           the 2005 Act).


Scottish Charities

9.    It was recognised during the passage of the Charities and Trustee
      Investment (Scotland) Bill that there would be differences between
      Scotland and England and Wales in the registration and recognition of
      charities. The Bill differed not only from the existing law of England and
      Wales but it was also generally recognised that it was likely that English
      legislation too would be amended in the near future. The Scottish
      Parliament debated the possibility of difference at some length,
      particularly when considering the question of potential differences in
      respect of charitable purposes. It is worth noting that the English
      legislation was subsequently amended. Despite the recognition of
      possible differences, the starting point for both Scotland and England
      and Wales was the publication of the Cabinet Office report Private
      Action Public Benefit. This identified the importance of modernising the
      then existing concept of charity, including expanding charitable purposes
      and focusing more on public benefit.

10.   At the time of the 2005 Act, HMRC and OSCR issued a joint statement
      which anticipated that difficulties in this area might be more hypothetical
      than real. Since 2006, OSCR has worked with HMRC and we have a
      formal Memorandum of Understanding which addresses how we deal
      with difficult issues in practice. This includes requiring new applicants to
      register with OSCR before seeking tax relief from HMRC. A copy of the
      Memorandum of Understanding is attached (appendix A).

11.   Since April 2006, we have assessed over 3000 new applications (this
      includes some 530 cross border organisations). All these organisations
      have to pass the charity test as set out in sections 7 and 8 of the 2005
      Act before they qualify for entry on the Scottish Charity Register

12.   As at 1st April 2006, all Scottish charities with existing recognition from
      HMRC transferred automatically onto the statutory Register. It was
      envisaged that OSCR would in time assess these existing charities
      against the new charity test in a process that has become known as the
      “Rolling Review”. OSCR has published 2 group assessments the
      „Rolling Review - Pilot Study Report‟ (July 2007) and „Rolling Review –
      Phase 1a Report‟ (November 2008). These include a full narrative and
      analysis of elements of the charity test which are particularly relevant in
      this context.

13.   In practice the differences between the Scottish legislation and the
      position in England and Wales, as encountered by Scottish charities and
      OSCR to date, have been:

      a.   The Scottish Charity Test specifies that the constitution of a charity
           must not allow Ministerial control of a charity‟s activities. While



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           there is a developed principle of independence in the law of
           England and Wales, there is no exactly corresponding provision in
           their legislation. In practical terms, Scottish Ministers have made
           wide use of their power to exempt certain named charities from this
           requirement. We are aware of two examples where the charity has
           been removed from the Scottish Charity Register because it fails to
           meet this part of the charity test, but continues to attract tax relief.

      b.   On the issue of charitable purpose, having checked the position
           with HMRC, we are not aware of any charities where the charitable
           purpose, while acceptable to OSCR, was not acceptable to HMRC.
           Nor are we aware of any charities acceptable to HMRC which have
           not been accorded status by OSCR.

      c.   The constitution of a number of charities that were in existence prior
           to 2005 refer specifically to the use of the charity‟s property for
           purposes that are charitable in the context of tax legislation. As
           these are not identical to the charitable purposes of the 2005 Act,
           this means that charities must change their constitution to meet the
           charity test as set out in section 7. For a fuller explanation see
           Appendix B. In our formal recommendations to Scottish Ministers
           and Scottish Parliament in our Annual Report 2007/08 we
           recommended that the 2005 Act be amended to include a provision
           deeming all references to “charity” and “charitable” in pre -2005
           constitutions to be interpreted to include the 2005 Act. This would
           avoid the need for charities to amend their constitution for this
           reason alone. If enacted this recommendation would remove a
           potential difficulty for a number of Scottish charities ensuring that
           they satisfy both OSCR and HMRC.


      Non Scottish Charities

14.   As outlined above, it was always intended that organisations set up
      other than under Scots law or those managed or controlled wholly or
      mainly outwith Scotland, but which have a significant presence in
      Scotland would have to register with OSCR if they wished to call
      themselves a charity in Scotland. To date this has primarily applied to
      charities based in England and Wales. We produced joint guidance with
      the Charity Commission for England and Wales, and invited English and
      Welsh charities to register during the period November 2006 – March
      2007. Most of those that had a significant presence in Scotland appear
      to have applied during this period. There are currently just over 530
      „cross border‟ charities now entered on the Scottish Charity Register.

15.   Registration: In the course of registration with OSCR, some „cross
      border‟ charities found they needed to make amendments to their
      constitution, primarily because they referred specifically to the use of the
      charity‟s property for purposes that are charitable in the context of tax
      legislation, and these are not identical to the charitable purposes of the
      2005 Act . This issue is very similar to that faced by Scottish charities



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      and referred to above (see Appendix C for a further explanation). In
      some cases this has taken considerable time. However, 75% of these
      charities that applied were registered within 2 years of the 2005 Act
      coming into force.

      We have continued to receive new „cross border‟ applications but, as
      anticipated, this has reduced. We conclude that most existing „cross
      border‟ charities operating in Scotland have now applied for registration
      although it is difficult to definitively prove this. We have no evidence that
      any English charities have withdrawn from activity in Scotland either
      before or after registering with OSCR.

16.   Reporting: All charities registered with OSCR are subject to the full
      responsibilities and requirements of the 2005 Act. That includes
      reporting to OSCR and we have a proportionate monitoring regime
      which was introduced in April 2006. However, we have recognised that
      a number of „cross border‟ charities will already be reporting directly to
      the Charity Commission for England and Wales. Since one of our stated
      strategic objectives is to “reduce the burden of regulation on charities
      wherever possible, with particular emphasis on reducing multiple
      reporting”, we have carefully considered the nature of reporting and
      regulatory requirements for „cross border‟ charities. We recently
      consulted on proposals for a modified reporting regime and a copy of the
      proposals is attached for ease of reference (Appendix D). This also
      serves to summarise the income profile of the 530 „cross border‟
      charities and the differences in accounting requirements in England and
      Wales and in Scotland.

      The deadline for responses to the proposals was 23 December 2008.
      We have summarised the 133 responses received and the results of our
      pilot study. The evaluation is published on our website and we are
      currently finalising proposals for introduction in April 2009.

17.   Other requirements: All charities on the Scottish Charity Register are
      required to state their Scottish charity number on stationery and public
      documents. For „cross border‟ charities this means in addition to their
      English and Welsh number. Our guidance gives examples for „cross
      border‟ charities.


Co-operation between regulators

18.   In line with s 20 of the 2005 Act we have a Memorandum of
      Understanding with the Charity Commission (and a number of other
      regulators such as the Scottish Housing Regulator and the Care
      Commission as well as HMRC: all are published on our website). This
      Memorandum of Understanding sets out provisions for information
      sharing and joint working arrangements such as delegated and joint
      enquiries in the event of a complaint about a „cross border‟ charity.




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We also have a Charity Regulators Forum which includes senior
representation from OSCR, the Charity Commission for England and
Wales, the Department of Social Development in Northern Ireland, the
Department of Community, Rural and Gaeltacht Affairs in the Republic
of Ireland (also currently in the course of new charity legislation) and
HMRC. The Terms of Reference and minutes of the meetings are
published on our website.




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