News & events
02/07/2012 - Recent Charity Law cases
Recent Cases - Charitable status
Decisions upon charitable status rarely reach the higher courts. The Court of Appeal judgment in Helena Partnerships Ltd -v- HMRC, which was published in May, is therefore of particular importance. It analyses whether the provision of housing is a charitable purpose and illustrates the approach of the court in the construction of the objects of an organisation claiming to be a charity.
Helena Partnerships Ltd was incorporated in January 2001. It was a registered social landlord and its objects were the provision of housing, accommodation, assistance to help house people and associated facilities and amenities and any other object that could be carried out by a social landlord for the benefit of the community. In July 2002, Helena took a transfer from St Helens Metropolitan Borough Council of a large part of the council housing stock. In November 2004, Helena changed its objects and registered as a charity with the Charity Commission. HMRC contended that, between October 2001 and November 2004, it was not a charity and assessed it to corporation tax of some £6m.
The key points to emerge from the judgment of the Court of Appeal are:
- A statement in the objects that the activities of an organisation must be for the benefit of the community is not enough to confer charitable status.
- The provision of good quality housing stock is not analogous to the other public works that have been regarded as charitable.
- The provision of housing is only charitable if it is directed at the relief of a charitable need such as the relief of poverty or illness.
- A key point in determining that the provision of housing is not analogous to other public works is that there is such a significant level of private benefit that it cannot be said to be subordinate to the overall public benefit. Issues of private benefit are necessarily of less importance in considering the balance of public and private benefit in a charity for the relief of individual needs.
The case was decided upon the law prior to the Charities Act 2006 and the court made extensive reference to the prior case law and to the preamble of the Statute of Charitable Uses 1601 but there is no reason to think that the decision would have been any different had the case been decided under the Charities Acts 2006 and 2011.
The lower courts have also had occasion to look at the objects of an organisation, again in the face of a challenge from HMRC. Wire Independent Recycling Enterprise Limited ("WIRE”) -v- HMRC illustrates the importance of careful attention to the objects of an organisation and that mistakes can be costly.
WIRE was established to recycle old furniture. Some was given to people in social and economic difficulty and some was sold in a shop, which helped to finance WIRE. The turnover exceeded the VAT registration threshold and HMRC told WIRE to register for VAT. WIRE claimed that it was entitled to exemptions from VAT on the basis that it was "a social enterprise with charitable aims”.
The objects of WIRE included:
- Providing "the local community with a ready source of fully restored and attractively finished pre-owned furniture at realistic prices”. This object was not charitable as it allowed anyone to purchase the furniture, whether or not they were in need.
- Making "a significant contribution to the diverting of bulky household waste away from landfill, therefore benefiting the environment”. The tribunal held that this was not worded in a way that was exclusively charitable.
The objects clause in WIRE's governing document included provisions that were properly powers. The confusion of objects and power meant that it was difficult to see that the objects were exclusively charitable.
WIRE was not, therefore, charitable until it adopted new objects that were clearly exclusively charitable. HMRC had properly registered it for VAT and WIRE was liable for the VAT on the goods sold in its shop until it was registered, even though the consequences were potential insolvency. Happily, Wire is still a registered charity carrying out valuable work but the case illustrates the importance of distinguishing between a social enterprise and a charity and ensuring that the trustees are clear about the status of an organisation and its taxation position – one cliché that you will never hear from HMRC is "never mind, it's all in a good cause”!