Exempt Charity Status – What does this mean for Schools and Academies?
We look here at what it means for a school or academy trust to be an exempt charity and how they can comply with their duties.
Many maintained schools and all academy trusts are exempt charities. How many schools and academies understand what this means and pay anything more than lip service to their position as an exempt charity?
The governing body of a maintained school categorised as a foundation, voluntary or foundation special school along with all academy trusts are exempt charities by virtue of the Charities Act 2011.
The governing body of a community school or of a community special school is not a charity even though it will principally exist to advance education in the same way as a foundation or voluntary school or academy trust.
An independent school (i.e. private, fee paying) may or may not be a charity (depending on how it is constituted), but it will not be an exempt charity so is not covered here.
Exempt charity status means that the school or academy trust cannot register with the Charity Commission but they remain subject to and must comply with charity law. Schools and academy trusts have the Secretary of State for Education as their principal regulator. A memorandum of understanding is in place between the Charity Commission and the Secretary of State to assist with regulation.
The Charity Commission does retain certain significant powers in relation to exempt charities, including in relation to certain regulated changes to the articles of association of academy trusts (it's constitution) involving the objects, application of property on dissolution and payments or other benefits to members, trustees or connected persons.
The Charity Commission also has power to direct an exempt charity to produce documents or to suspend or remove a governor or trustee, but will only exercise such powers with DfE consent (or at their request) in accordance with the agreed memorandum of understanding.
As principal regulator, the Secretary of State also has a role. The Charity Commission's guidance Exempt Charities (CC23) says a principal regulator: must promote compliance with charity law; checks charity law compliance; can ask the Charity Commission to use its regulatory powers (such as undertaking a statutory inquiry); works with the Charity Commission to make sure that an exempt charity is accountable to the public; and receives reports on matters of material significance from auditors.
The current 2019 Academies Financial Handbook seeks to emphasise the role of proper governance in academy trusts. This builds on the 2019 update to the Governance Handbook, Competency Framework for Governance and Clerking Competency Framework which has wider application to foundation and voluntary schools (which are exempt charities) and to community schools.
However, there is some question whether the Department for Education ("DfE") or Education and Skills Funding Agency ("ESFA"), both of which act under delegated powers from the Secretary of State, have the requisite charity law expertise to discharge the functions as principal regulator or even at times to recognise or acknowledge that such a duty exists on the Secretary of State.
The Academies Financial Handbook applies to all academy trusts, and their academies, as a contractual provision under each funding agreement. Similarly, academy trusts are contractually required to have regard to Charity Commission guidance. Enforcement is generally seen as a contractual matter.
Where a maintained school or existing academy is seen to be failing then the DfE will step in and is likely to compel conversion or a re-brokering under other powers (e.g. pursuant to the Education and Inspections Act 2006) rather than consent to any use by the Charity Commission of its powers.
Why then should foundation and voluntary schools or academy trusts be concerned or take any note of their exempt charity status?
The manner in which the Secretary of State, DfE and/or ESFA seek to exercise their powers does not diminish the need for schools and academy trusts, as exempt charities, to comply with charity law.
Also, many of the problems that may lead to the failure of a school or academy trust can be avoided by a clear focus on effective governance and leadership, which is in itself consistent with exempt charity status and charity law duties.
As charity trustees, school governors and the directors/trustees of an academy trust are subject to various duties (similar to those which apply to all governors): to comply with their instrument of government or articles of association; act in the best interests of the governing body or trust; manage conflicts; avoid private benefits; and act with reasonable care and skill.
As governors and trustees, they also need to ensure clarity of vision, ethos and strategic direction; oversee financial performance and make sure money is well spent; and hold the headteacher and senior executive to account for the educational performance of their schools.
Governors or trustees of schools or academy trusts can be assisted in ensuring compliance with charity law and their duties by adopting the Charity Governance Code which has been generated by charity sector bodies as a practical tool to: ensure compliance with the basic duties of charity trustees and with legislation and regulation; and develop exemplary leadership and governance and the attitudes and culture to ensure future success. For each principle – (1) organisational purpose (2) leadership (3) integrity (4) decision making, risk and control (5) board effectiveness (6) diversity and (7) openness and accountability – the Code confirms why it's important, the key outcomes that should be observed and the recommended practice.
As exempt charities, maintained schools and academy trusts must and can do more than simply acknowledge their exempt charity status. Their position as exempt charities requires compliance with charity law. Moreover, a clear focus on exempt charity status, assisted by the Charity Governance Code, is the bedrock of effective governance and leadership which can ensure the success of maintained schools and academy trusts for the benefit of students and communities.
If you would like to discuss any aspect of this article further, please contact Graham Shaw or any other member of the Education team on 0113 244 6100.
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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