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Charity Law Updates

16 May 2016

A brief look at recent charity law and company law developments which are of relevance to independent schools.

Donations by Trading Subsidiaries to Parent Charities

It has been common practice for wholly-owned subsidiary trading companies of charities to donate all taxable profits to their parent charity and claim full tax relief. This has often been the case even if the amount donated exceeded the amount of profits available for distribution under the Companies Act 2006 and is a practice that was previously recognised in Charity Commission guidance (CC35).

A technical release issued by ICAEW and revised Charity Commission guidance has now made it clear that the amount on which tax relief may be claimed is limited to the profits that the trading subsidiary has available to distribute (which may be less than its taxable profits).

This means that where the taxable profits of the trading subsidiary are higher than the distributable profits, the trading subsidiary may have a tax liability. In addition, historic donations made over the past six years may have to be partially repaid. The updated Charity Commission guidance and the ICAEW technical release provide guidance on some potential ways of addressing the accounting issues that may arise when rectifying the position and HMRC's guidance on Charities and Trading contains guidance on the tax treatment. Charities and their trading subsidiaries may also wish to take advice in relation to their specific circumstances. Guidance and further information can be found below:

Trustees trading and tax: how charities may lawfully trade

Guidance on donations by a company to its parent charity

Direct tax: do charities pay tax on the profits of their trading companies?

Public Benefit Requirement

Charity Commission guidance on how independent schools can comply with their duty to provide a sufficient public benefit has  been updated.  The guidance recommends that details of activities undertaken for the public benefit are included in schools' annual reports.  The Charity Commission has updated its example annual report for a charitable school to reflect the recommendations in the updated guidance. The guidance is available here:

Serious Incident Reports

Charities are required to report 'serious incidents' to the Charity Commission in their annual returns.  It is best practice, however, to report them as soon as possible after such incidents come to light. The Charity Commission recognises that trustees may need some time to gather information and establish the facts following an allegation or incident but still expect a report as soon as is reasonably possible. If there is any media interest (or risk of media interest) it would be advisable to contact the Charity Commission immediately.

'Serious incidents' include incidents that result in, or risk significant financial loss to a charity, loss or damage of assets; or harm to a charity's work, beneficiaries or reputation.

Charity Commission guidance provides a non-exhaustive list of examples of serious incidents which should always be reported to the Charity Commission such as: fraud and theft; not having a policy in place for safeguarding vulnerable beneficiaries; and any suspicions, allegations and incidents of abuse or mistreatment of vulnerable beneficiaries.  It is important to note that even if an incident has been reported to the police or another relevant authority the trustees must still make a report to the Charity Commission. Further guidance can be found at:

"People with significant control"

From April 2016 there is a new requirement for companies (including independent schools operating through companies) to maintain a register of "People with significant control" (PSCs) and from 30 June 2016 to include this information in returns to Companies House.

Failure by the school (if established as a company) to comply with the rules may constitute a criminal offence by its officers. Even if you do not identify a PSC (or Registrable Relevant Legal Entity), Governors and Bursars need to be aware of the requirements, maintain a register (even if just to record a nil return) and report annually to Companies House.

Where the school is part of a group of companies separate registers will be required for each company.  While a PSC is defined as an individual, in most cases the school will still meet the requirement to be recorded on the register of its trading subsidiary as a "Registrable Relevant Legal Entity" if it is a legal entity that meets at least one of the conditions for entry on the register.

For more detail on the PSC Regime please see: Companies required to declare all 'persons with significant control.

The Charities (Protection and Social Investment) Act 2016

The Charities (Protection and Social Investment) Act 2016 (Act) was given Royal Assent on 16 March 2016. The Act gives the Charity Commission new powers to suspend and disqualify trustees and to issue official warnings to charities. The Act also gives charities greater scope to make social investments.


If you would like to discuss any aspect of this article further, please contact Clare Lawrence on 0113 244 6100.

You can also keep up to date by following Wrigleys Schools team on Twitter here

The information in this article is necessarily of a general nature. Specific advice should be sought for specific situations. If you have any queries or need any legal advice please feel free to contact Wrigleys Solicitors



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Clare Lawrence


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