Scotsman Legal Review: Charity Law

April this year marked a decade since the foundation of the Office of the Scottish Charity Regulator (OSCR), while July saw the introduction of the targeted fundraising regulation in Scotland, which aims to restore public trust and confidence in the third sector and make it easier for charities to raise funds.

Maison Bleue at Home in Edinburgh promises to feed the homeless once a week and contribute its profits to charity. Picture: Ian Georgeson
Maison Bleue at Home in Edinburgh promises to feed the homeless once a week and contribute its profits to charity. Picture: Ian Georgeson

“There has been quite a lot going on with OSCR’s tenth birthday and the new targeted fundraising regulation,” says Alan Eccles, partner in the private client department at Brodies.

“On the whole, charities have been embracing that in the right spirit and in many ways have been using those changes and focus to come back and think about what they are doing and the impact they make.”

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Since OSCR was granted its full statutory powers in April 2006, the regulator has made numerous technological improvements to assist Scottish charities in meeting their regulatory requirements.

Handling OSCR inquiries is one area which has been keeping the charities team busy at Turcan Connell.

“These [inquiries] have occasionally arisen through complaints from third parties, but are often a result of internal disputes,” says Gavin McEwan, partner and head of charities at Turcan Connell.

“Any OSCR inquiry can be a time of considerable anxiety for charity trustees and helping to steer charities through the process can be a key source of reassurance to charity boards.”

While the new fundraising regime deals with what might be considered discrete issues, Eccles says it all comes back to the good governance of a charity.

“If they have good governance in place generally then the chances are they are also doing fundraising in an effective way,” he says.

“Good charities which are doing the right thing already should be very happy to know there’s a new regime in place.”

Following recent negative coverage relating to the way in which some charities are run, Val Surgenor, partner at MacRoberts, says the focus is very much on ensuring good governance of charitable organisations.

“Openness and transparency have always been a cornerstone of the charities sector; however following the high-profile media coverage of charities in the last couple of years, such as Kids Company, and the issues raised by the fundraising practices of a number of larger charities, there has been a renewed emphasis on what does good governance and a high-performing board look and feel like,” Surgenor says.

“As a charities lawyer, the chair of a large children’s charity and the chair of the fundraising implementation group, the group charged with the implementation of the recommendations made to create this enhanced self regulation, I am conscious of how passionately Scottish charities want to make sure the donor experience is a positive one.”

In the background to the discussions around good fundraising practice is good data protection.

The tragic impact of poor handling of data was highlighted in the Olive Cooke case which hit the headlines in 2015.

The poppy seller spent much of her pension on charity donations but became overwhelmed by the number of letters and phone calls asking for more, which contributed to her suicide.

It was found that around 70 per cent of the charities which contacted Mrs Cooke had acquired her details from third parties.

The new General Data Protection Regulation (GDPR) will come into force in 2018.

Although a European regulation, the GDPR will have a direct effect on any organisation which collects and processes personal data while the UK remains part of the European Union.

“We provide a considerable amount of data protection advice to data controllers in the public and private sector,” says Fiona Killen, head of the parliamentary and public law unit at Anderson Strathern.

“Part of the advice we provided in 2016 was in anticipation of the new GDPR which will come into force in May 2018. It will repeal the Data Protection Act 1998 and replace that legislation.

“It seems highly unlikely that the GDPR will come into force before any departure from the EU and so data controllers will still need to be ready to comply with its terms.”

The third sector generally is becoming more brand aware; something Eccles says is evident from the ongoing development of clients’ digital strategies.

“There is increased awareness around the use of technology and social media within the context of donor engagement,” he says.

“With this comes, inevitably, questions around the appropriateness of certain marketing campaigns right through to brand development and the commercial opportunities that may be created from this in terms of alternative income streams as opposed to the more traditional fundraising such as legacies and individual donors.

“With this also comes the additional questions around the appropriate vehicle to support such charitable activity.”

Entrepreneurial philanthropy is emerging as a trend, with wealthy individuals showing a keen interest not just in making financial donations but in actively setting up charities.

According to Eccles, the desire to give something back is spreading beyond the entrepreneurs themselves.

“There has also been a growth in ‘family social responsibility’ and where we see that is successful family businesses bringing the next generation into their philanthropic activities to give them a feel for how important this kind of work is,” says Eccles.

“It’s people thinking beyond themselves and beyond corporate social responsibility.”

Lianne Lodge, an associate in Gillespie Macandrew’s private client and charities/not for profit team, agrees and points to the changing age of the philanthropic entrepreneur, as younger clients – often people in their 40s – seek advice on setting up charities.

“They are saying they want to do something in their lifetime, they want to be involved in it and they want to see an impact,” says Lodge.

“They are very strategic about it and it’s much more about return on investment in terms of the impact the grants they give or activities they undertake have.

“They are looking to make sure that their children are well set up but not exclusively set up and also that they are involved and understand the value of money and their privileged position.

“They are starting a philanthropic trend through the generations.”

The growth of social enterprise has been a key focus for Scottish charities lawyers. Sandwich chain Social Bite has been leading the way for social enterprise in Scotland.

In September it opened restaurant Home on Edinburgh’s Queensferry Street, in collaboration with Maison Bleue, where diners can “pay forward” for meals for the homeless.

Also in September, Angela Constance, cabinet secretary for communities, social security and equalities, announced a ten-year action plan to build on the success of social enterprises.

The plan is intended to help build on the £1.68 billion contribution social enterprises already make to the Scottish economy.

“We cannot talk about the third sector and not talk about social enterprise,” says Surgenor.

“To have this ten-year strategy announcement was fantastic. The strategy focuses on global citizenship, international trade, investment and education. Ten years ago we were still discussing ‘what is a social enterprise’ with very little public knowledge of this sector.

“We are now at a stage where things have very much moved on and Scotland is one of the global leaders in this area.”

Lodge agrees that social enterprise is a lot higher on the agenda among clients.

“When you were investing previously people would look at ethical investments,” she says.

“Now people are stretching from ethical to social and they are looking at the human rights of the company and whether they are a living wage employer.

“The good news in the sector is that people are very engaged. There are a number of people coming in and giving and there is this drive in the sector to be good at what you do.”

Briefing: Grant-making trusts, by Gavin McEwan

Grant-making trusts will need to carry out additional due diligence from this year in order to record beneficiaries who are resident outside the United Kingdom for tax purposes.

The new rules are contained in Common Reporting Standards, which have been adopted in over 100 jurisdictions, including the UK.

The rules apply broadly to grant-makers who derive the bulk of their income from investments, even where those investments are managed by professional advisers.

Where a grant-maker falls within the rules, a disclosure of grants or donations paid to non-UK residents will have to be made to HM Revenue & Customs (HMRC) each year, using a new online portal which has been developed.

The first disclosures will have to be made by May 2017, covering grants paid during the 2016 calendar year.

This means that some grant-makers may have to carry out extra checks in relation to grants already paid.

The Common Reporting Standards are part of an international effort to reduce tax evasion and will lead to automatic exchange of information between tax authorities in different countries.

Further guidance from HMRC, along with third sector engagement, will 
be delivered this autumn.

Gavin McEwan is partner and head of charities at Turcan Connell.

The Scotsman’s annual legal review looks at some of the most active areas of legal practice in Scotland. Informed by comprehensive data published by Chambers and Partners and Legal 500, the articles give exclusive insight into the work of more than 11,000 practising solicitors and over 460 practising advocates.