2.1.4 Charitable community benefit societies
A charitable community benefit society is a community benefit society with exclusively charitable purposes. The recognition and regulation of charities is a devolved matter. In England and Wales, the Charity Commission for England and Wales provides guidance on what constitutes a charitable purpose, based on the Charities Act 2011, which sets out 12 main charitable purposes plus any other purposes that can be recognised as charitable under existing law. (For further information see www.gov.uk/running-charity/setting-up)
In Scotland, the Scottish Charity Regulator provides guidance on what constitutes a charitable purpose, based on the Charities and Trustee Investment (Scotland) Act 2005. (For further information see www.oscr.org.uk/charities/becoming-a-charity)
The Charity Commission for Northern Ireland may take a different view on charitable community benefit societies to those expressed in this Handbook.
A charitable community benefit society must only undertake activities that further its exclusively charitable objects. This means that a charitable community benefit society that intends to engage in trading activities that are neither in pursuit of its primary purpose nor ancillary to that purpose, may have to establish a trading subsidiary to carry out this trade.
A charitable community benefit society must have an asset lock. This must take the form of a rule stating that if the society is dissolved, any residual assets must be transferred to another charity with the same or similar charitable purposes. The asset lock rules prescribed by the Community Benefit Societies (Restriction on the use of assets) Regulations 2006, and the equivalent regulations in Northern Ireland, cannot be used, as they do not give exclusive rights to charities. (This matter is dealt with in greater detail in Section 2.4.)
In England and Wales a charitable community benefit society cannot register as a charity with the Charity Commission. Instead it must apply to HMRC to be recognised as an exempt charity for tax purposes. The Charities Act 2006 introduced changes to how exempt charities are regulated, and required all exempt charities to have a principal regulator. However, a principal regulator has yet to be appointed for charitable community benefit societies that are not registered social landlords. (For further information see: Charity Commission, C23 Exempt charities.)
A charitable community benefit society may include the words ‘charity’ or ‘charitable’ in its name if it has obtained prior permission from the relevant authorities (see Section 3.2.1). The Charity Commission will only agree to the use of these words by entities it considers to be charitable. Exempt charities are entitled to the same tax benefits as registered charities. These include relief from income tax, corporation tax and capital gains tax, exemption from inheritance tax and relief from business or non-domestic rates.
In Scotland, there is no such term as the ‘exempt charity’ and therefore to be a charitable community benefit society the society must also apply to the Scottish Charity Regulator to be registered charity. To obtain tax benefits the organisation will also have to apply to HMRC. The same is true in Northern Ireland, where charitable community benefit societies must become registered charities with the Charity Commission for Northern Ireland, and apply separately to HMRC for tax benefits.
Both The Charity Commission and the Scottish Charity Regulator have acknowledged that charitable community benefit societies may issue community shares and pay members interest on share capital, subject to a number of conditions. (See Section 6.5 for further details.)
When registering a new charitable community benefit society, information must be provided about the charity’s trustees. This includes their full name, contact details, occupation, date of birth and signature. The FCA checks that the persons named are not disqualified from acting as charity trustees. However, the FCA does not grant exempt charity status, this is a matter addressed by a separate application to HMRC.
If you have any questions or suggestions for new information you would like to find in the Handbook, contact the team by email at [email protected]