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Charities (Regulation and Administration) (Scotland) Act 2023

Further modification of the 2005 Act

The schedule

Paragraph 1 – Annual report by OSCR: action taken to promote awareness and understanding of the 2005 Act

125.Section 2 of the 2005 Act originally provided that OSCR must prepare and publish an annual report on the exercise of its functions, send a copy to the Scottish Ministers and lay a copy before the Scottish Parliament. This paragraph of the Act’s schedule amends section 2 to require OSCR to include information in that report about what action OSCR has taken during that year to promote charities’ awareness and understanding of what they need to do to comply with the provisions of the 2005 Act (as modified by this Act).

Paragraph 2 – Duty to review Register

126.Section 3(6) of the 2005 Act originally placed a duty on OSCR to review each entry in the Register from time to time. In addition, if (whether as a result of such a review or otherwise) OSCR considered any information set out in a charity’s entry to be inaccurate, it had to amend the entry and notify the charity accordingly.

127.As at the time of publication of these notes (August 2023), there are in excess of 25,000 charities on the Register. This paragraph of the Act’s schedule amends section 3(6) so that OSCR is permitted, but no longer required, to review every entry in the Register from time to time. This will allow OSCR, in line with its duty under section 1(9) of the 2005 Act, to focus the checks that it carries out so as to ensure that they are proportionate, targeted at cases in which action is needed, and in line with best regulatory practice. However, where OSCR considers any information in a charity’s entry in the Register to be inaccurate, OSCR will continue to be under a duty to amend it.

Paragraph 3 – Removal of former bodies

128.There are a number of bespoke ways in the 2005 Act that charities can be removed from the Register—

  • at the charity’s request (see section 18 of the 2005 Act),

  • by OSCR where, following an inquiry, it concludes that the charity no longer meets the charity test (see section 30 of the 2005 Act),

  • by OSCR where the charity fails to comply with a direction to change its name (see section 12 of the 2005 Act), and

  • in relation to SCIOs, there is provision—

    (a)

    where a charity converts to a SCIO, for the predecessor charity to be removed (see section 58 of the 2005 Act),

    (b)

    where SCIOs amalgamate, for the predecessor SCIO to be removed (see section 60 of the 2005 Act),

    (c)

    where a SCIO transfers all its assets and liabilities to another SCIO, for the transferor SCIO to be removed (see section 61 of the 2005 Act),

    (d)

    for a SCIO to be removed from the Register following its solvent or insolvent dissolution (see the Scottish Charitable Incorporated Organisations (Removal from Register and Dissolution) Regulations 2011 (SSI 2011/237)).

129.Where a charity wishes to wind up, it is required to apply to OSCR for permission to do so (see section 16 of the 2005 Act). However, to provide for the scenario whereby a charity fails to seek permission but winds itself up nonetheless, this section of the Act amends the 2005 Act to provide a clear statutory basis for OSCR to remove an entry for a charity from the Register in such a case. In light of the significance of removal from the Register, this power may only be exercised where the entry is in respect of a body which no longer exists.

Paragraph 4 – Ability to allow duplicate charity names as part of merger

130.When an application for charitable status is made, the key assessment is whether the applicant meets the charity test. However, under section 5 of the 2005 Act, there are also some less substantive matters which have to be satisfied in order for OSCR to be able to enter the body on the Register. Specifically, the body’s name needs to be unobjectionable and the application needs to comply with any regulations made by the Scottish Ministers about the procedure for applications.

131.The application process is of course relevant to all proposed charities. However, one subset of applications relates to charities which wish to change their legal form. The 2005 Act provides a bespoke conversion process only for charitable companies or charitable registered societies which wish to become SCIOs (see section 56 of the 2005 Act). Accordingly, if, for example, an unincorporated association or a trust decides that it wishes to benefit from the protection of limited liability status and therefore opts to become a SCIO or a charitable company, this can only be achieved by the setting up of a new charity. The existing charity then winds up in favour of that new entity.

132.When this occurs, the charity will often wish to retain the same name. Its charitable purposes and activities will usually be largely unchanged, and the outside world may not notice any difference in their dealings with the new incorporated charity. However, as noted above, section 5 of the 2005 Act prevents a charity from being registered if its name is objectionable. There are a number of different reasons which can cause a name to be considered objectionable (see paragraph 137) but the one that historically caused problems for charities changing legal form was that the name could not be the same as, or too like, the name of another charity. As such, either the existing or the new charity needed to temporarily adopt a different name until the other was removed from the Register. For example, a new charitable company had to be set up with a different name and then, once the transfer of assets to it was complete and the old charity had wound up, change its name to the name of the old unincorporated body. This required the name to be changed, with permission sought accordingly, with both OSCR and Companies House.

133.To better accommodate this process, this paragraph of the Act’s schedule makes a change to section 5 of the 2005 Act so that OSCR does not have to refuse an applicant entry to the Register on account of its name being the same as, or too close to, another charity’s name – provided that the application is being made in connection with a proposed merger with the charity concerned. This would cover the paradigm case, which is a straightforward change in legal form where an unincorporated charity winds up in favour of a new incorporated charity run by the same or mostly the same people. However, it would also cover a more complicated “true” merger situation where, for example, there is an amalgamation by two unincorporated charities which is being effected by the setting up of a new incorporated body.

134.The change made allows OSCR discretion as to how a similarity in names is dealt with and whether it should preclude registration of the applicant or not. This allows OSCR to consider the individual facts and circumstances of each case.

135.The 2005 Act (section 12) also allows a charity to ask OSCR to review another charity’s name on the basis that the names are too alike. As this is just a power, it is not removed – although a charity which is changing legal form would not of course in practice voice any objection to the name of the other body. However, OSCR’s original duty to act where it becomes aware (otherwise than via an objection from the charity concerned) of an objectionable name is moderated so that it is not required to act where the name is one that it allowed (despite being the same as, or too like, another charity) because the charity concerned was merging with the other charity. But while the duty is removed, the changes made to section 12 mean that OSCR remains entitled to act provided it is satisfied that it is no longer appropriate for the names to be the same or so alike (for example, because the planned merger has been abandoned).

Paragraph 5 – Change of name: delaying decision or granting or refusing consent

136.Section 11 of the 2005 Act requires charities to obtain consent from OSCR to any proposed change of name. This applies both where the charity wishes to change its name of its own accord and where it has been directed under section 12 of the 2005 Act to change its name because it is too similar to another charity’s name or because its name has become objectionable for other reasons.

137.Originally, OSCR’s only options on receiving an application for a change of name were to consent or refuse. Unless OSCR refused the application within 28 days, it was deemed to have consented. However, OSCR could refuse an application only where it considered that the proposed new name was objectionable under section 10 of the 2005 Act. That is, OSCR could refuse only where it considered that a name—

  • is the same as or too similar to another charity’s name(1),

  • is likely to mislead the public as to what the charity does,

  • incorrectly gives the impression that the charity is connected to a government body or any person, or

  • is offensive.

138.It is not always possible for OSCR to make an informed decision as to whether a proposed charity name is objectionable within 28 days, as often further information about the charity’s activities or connections is required. This paragraph of the Act’s schedule therefore gives OSCR a new option, mirroring the options OSCR has where consent is sought for certain changes under section 16 of the 2005 Act.

139.As a result of the changes made to section 11 of the 2005 Act by sub-paragraphs (2)(a) and (b) of this paragraph, OSCR will be able to issue a direction which prevents the charity from changing its name to the proposed new name for a specified period of up to 6 months (during which time, OSCR will hope to be able to satisfy itself as to whether the name is objectionable or not). The direction will be capable of being revoked or varied, but may not be varied so as to extend beyond the 6 month limit. OSCR will remain under a duty to give a substantive answer to the application. As with section 16, consent may be given unconditionally or subject to conditions. Typical conditions might be a requirement to make the change in accordance with the charity’s constitution or a requirement for a charitable company to comply with any company law obligations relating to the name change.

140.A decision to refuse permission to change name was already challengeable under section 71 of the 2005 Act. This will remain the case under section 11 as amended. Where consent is refused under section 11(3)(a) or (3B)(b) (i.e. whether it is refused immediately or whether it is refused after a temporary preventative direction), that refusal will be reviewable at the charity’s instance. However, since it is not a final decision on the matter, the issuing of a temporary direction preventing a change of name from proceeding for up to 6 months will not be reviewable.

141.Sub-paragraph (2)(c) of this section also makes a related change to when OSCR is entitled to refuse an application. As noted above, where the appropriateness of a proposed new name requires more in-depth consideration, OSCR will hope to be able to satisfy itself on that during the period which will apply under the new direction mechanism that is introduced. However, OSCR will not always be able to satisfy itself on this point without input from the charity. For example, the question of whether an incorrect impression is given about the charity’s connections to someone will depend on information that may not be in the public domain. If a charity does not cooperate and provide OSCR with the necessary evidence, OSCR will still require to come to a conclusion at the end of the period of the direction. Originally, OSCR only had the ability to refuse consent if satisfied that the proposed name was objectionable. The ability to refuse consent is therefore extended to cover cases where, despite making reasonable inquiries, OSCR is unable to satisfy itself that the proposed new name is not objectionable.

142.Finally, sub-paragraph (2)(d) recognises that in reality a charity may apply to use a particular name but then decide to opt for something else (either because the charity trustees change their minds themselves, or because OSCR indicates that consent is likely to be refused but that a slight variant on the proposed name would be acceptable). A new subsection is therefore inserted into section 11 of the 2005 Act which allows OSCR, at the request of a charity, to grant consent to a different proposed name.

Paragraph 6 – Oversight in relation to working names

143.A charity’s official name is subject to oversight in a number of ways—

  • its name is considered as part of the process of applying for charitable status and an application must be refused if the name is objectionable (section 5(2)(a) of the 2005 Act),

  • if OSCR later concludes that the charity’s name is objectionable, it must direct the charity to change the name (section 12 of the 2005 Act),

  • where a charity wishes to change its name, either voluntarily or following a direction, OSCR’s permission must be obtained and can be refused where the name is objectionable (section 11 of the 2005 Act).

144.In all cases, the test as to what is objectionable is the same (see paragraph 137).

145.In addition to an official name, some charities also have one or more working names by which they are known. For example, the Earl Haig Fund (Scotland) (charity number SC014096) is known as Poppyscotland, while Charity Projects (charity numbers 326568 and SC039730) is known as Comic Relief. This differs from the situation where a specific project run by a charity is known by a particular name (for example, Sport Relief is an event run by Comic Relief).

146.The 2005 Act did not originally regulate working names (although, under the Charities References in Documents (Scotland) Regulations 2007 (SSI 2007/203), charities other than SCIOs are required to include on various documents both their name and any other name by which they are commonly known).

147.This paragraph of the Act introduces the ability for OSCR to exercise a degree of oversight of working names. This applies in two different ways.

148.First, the existing rule in section 10 of the 2005 Act on what is objectionable as an official name is extended so that it also covers a charity’s official name being the same as, or too similar to, another charity’s working name. This would mean that, for example, if a prospective charity applied to use the name Poppyscotland, that could be denied on the basis of the existing use of that as a working name for a charity. However, the onus is not put on OSCR to investigate working names. For example, if OSCR is processing an application for charitable status, it is not expected to spend time searching for charities which might have that working name already without OSCR being aware of that use. There is no obligation on charities to register their working names and OSCR cannot check these in the same way as it can check official names.

149.In consequence of this extension, the existing ability which a charity has under section 12 of the 2005 Act to complain about another charity’s name is extended to cover another charity’s working name being the same as, or too like, that charity’s official name. Further, this right of objection is also expanded to allow a charity to complain about a clash between its own and another charity’s working names.

150.The outcomes available to OSCR on such a complaint being made are extended accordingly to accommodate the fact that the outcome could be to direct that the charity’s working name stop being used. The position is as follows—

  • Where the complaint relates to a clash between two official names, the position is unchanged. If the objection is upheld then OSCR must act and either one or both charities will be directed to change name.

  • Where the complaint relates to a clash between two working names, if the objection is upheld then OSCR may (but does not have to) act. If it does act, either one or both charities could be directed to stop using that working name.

  • Where the complaint relates to a clash between an official name and a working name, if the objection is upheld then OSCR may (but does not have to) act. If it does act, it could act by directing that the official name be changed or that the working name stops being used (or both).

151.Second, a new standalone power is granted to OSCR to issue a direction to a charity in relation to its use of a working name. This power (found at inserted section 12(3)(b)) is similar to the existing power in relation to official names (restated at inserted section 12(3)(a)). However, in contrast with section 5 of the 2005 Act, this power to take action in response to a charity’s working name does not apply at the application stage, so a proposed charity’s application for charitable status will not be affected by any working name it intends to use. But, once registered, OSCR will be empowered to direct the charity to stop using a working name if that working name is objectionable. For these purposes, the test of what is objectionable is the same as it is for official names.

152.A direction to stop using a working name must specify a period within which it is to be implemented. A direction to a charity to stop using a working name could be implemented by the charity changing to a different working name or ceasing to use a working name altogether. If the charity opts to change to a different working name, there is no approval process in respect of the new working name but if the replacement is also objectionable then it could be the subject of a separate direction.

153.As a result of these changes, section 12 will now deal with directions to stop using a working name as well as directions to change an official name. Provision is therefore made under which any direction under section 12 can be revoked or varied by extending the period specified in it. In the case of a direction to stop using a working name, that means the period within which the charity is to stop using it. In the case of a direction to change name, that means the period referred to in section 12(4) of the 2005 Act – i.e. the period within which the charity must give notice of its proposed new name.

154.Changes are also made by the Act to sections 12(4) and 12(5) of the 2005 Act in order to confine those provisions to directions to change name (i.e. directions under section 12(2), (2A)(a) or (3)(a)). Section 12(4) is not relevant to a direction to stop using a working name because, as noted at paragraph 152, there is no approval process in relation to the adoption of a new working name. Section 12(5) is not relevant to a direction to stop using a working name because just as a charity’s working name is not a bar to it being entered onto the Register, nor will it put a charity at risk of removal from the Register. However, failure to comply with a direction to stop using a working name would, as with failure to comply with any other direction, be misconduct in the administration of the charity under section 66(4) of the 2005 Act. It could lead to OSCR initiating an inquiry into the charity under section 28 of the 2005 Act.

155.By dint of the changes made to section 71 of the 2005 Act, the decision to issue a direction under new subsection (2A) will be subject to the 2005 Act’s normal review processes. The issuing of a direction under subsection (3) is already subject to those review processes and this will cover the expansion of that provision. In the event of the issuing of a direction of any kind under section 12, the charity will be given notice of the decision to issue a direction and the decision will be suspended until both the notice has been given and either any appeal process has been exhausted or the period during which OSCR can be required to carry out a review passes without a review being requested.

156.Finally, a consequential modification is made to section 3 of the 2005 Act so that the issuing of any direction under section 12 continues to be flagged on a charity’s Register entry.

Paragraph 7 – Giving notice to OSCR: removal of 42 day rule

157.Charities cannot change name or take certain other actions without OSCR’s consent (either deemed or actual). Originally, they also had to give notice of their wish to take such an action 42 days in advance.

158.This paragraph of the Act changes that by removing the need for that notice to be given to OSCR 42 days in advance. It will still be the case that the charity will be unable to proceed until consent is granted. However, once consent is granted, the charity will be able to act on that straight away if it wishes to rather than having to wait till the end of the 42 day period.

Paragraph 8 – Consent to and notification of changes

159.Section 16 of the 2005 Act sets out various actions which may be taken by charities only with OSCR’s consent. This includes, for example, a charity amending its charitable purposes under its constitution or winding itself up (in each case, where its constitution permits this and a reorganisation scheme is not required).

160.Section 16(3) provides that the requirement to obtain OSCR’s consent does not apply where an action is taken in pursuance of a reorganisation scheme which OSCR has already approved or where OSCR’s consent is already required under another enactment. This avoids a charity being required to obtain OSCR’s consent twice.

161.However, section 16(4) sets out that notice must be given before the action is taken. Although the notice is essentially the application for consent, no exception to this notice requirement was originally made for charities which do not actually need to seek consent on the basis that they are already suitably covered by another consent rule.

162.Sub-paragraph (2) of this paragraph of the Act’s schedule therefore adjusts section 16(4) to state that notice does not need to be given if OSCR’s consent is not required under subsection (1) (that is, because OSCR’s consent is secured under another rule).

163.Meanwhile, in addition to the requirement to obtain consent under section 16, section 17 of the 2005 Act sets out various changes which must be notified to OSCR. This includes, for example, a change in the charity’s principal office or in any of its other details in the Register, a change of any nature to its constitution, or the charity winding itself up.

164.Originally, the interaction between sections 16 and 17 was not clear. Where a charity has obtained consent to take an action under section 16 and then subsequently takes it, sections 17(1)(c) and (d) provided that OSCR was to be given notice of that happening. However, section 17(2) stated that section 17(1) did not apply in relation to any action which required OSCR’s consent. This seemed to negate the inclusion of section 17(1)(d) in particular.

165.Sub-paragraph (3) of this paragraph of the Act’s schedule resolves this clash by inserting a new section 17(2) which no longer purports to disapply section 17(1) but instead clarifies that, in the case of paragraphs (c) and (d), the notification rule remains subject to section 16. As such, a charity which, for example, wishes to wind itself up will need to obtain consent to do so under section 16 and then, once it has acted on the consent, notify OSCR under section 17 that it proceeded with that course of action.

166.Sub-paragraph (4) adjusts the heading of section 17 of the 2005 Act so that this becomes “Notification of changes” to make the position clearer, which is that changes made in implement of consent granted under section 16 still have to be notified to OSCR under section 17 when made.

Paragraph 9 – Removal from register: protection of assets

167.Section 19 (removal from register: protection of assets) of the 2005 Act provides that even when a body has been removed from the Register, any assets held by the body before it was removed which were raised to be used for charitable purposes are effectively “locked” for charitable uses. It has widely been taken as read that the assets must also be used for public benefit, in order to meet both pillars of the charity test (see section 7(1) of the 2005 Act). In practice, former charities are likely to continue to apply their pre-removal assets in a way which does provide such public benefit since, on the face of it, they are under a continuing obligation to apply such assets in the same way as if it were still a charity. However, section 19(1) originally referred only to assets being applied “in accordance with [the charity’s] purposes as set out in its entry in the Register immediately before its removal” so did not in terms restrict their use of the assets to charitable purposes which give rise to the provision of public as opposed to private gain. It is assumed that permitting former charities to use their assets in this way was not an intended policy intention of the 2005 Act.

168.This paragraph of the Act’s schedule makes technical changes to section 19 in order to remove any ambiguity about what former charities are able to do with their assets, so that it aligns with the charity test. Subsection (1) is replaced by 2 new subsections ((1) and (1A)), which reworks the provision to provide, in addition to existing the requirements, that former charities must apply those assets for public benefit in Scotland or elsewhere. Subsections (1B) to (1D) make provision about what is meant by public benefit for the purposes of this section, by essentially replicating section 8(1) (public benefit) of the 2005 Act in subsection (1B) and applying section 8(2) for the purpose of determining whether a body is applying its protected charitable assets for public benefit in subsections (1C) and (1D). No changes are made to what is meant by “public benefit” in either the context of registered charities or former charities.

Paragraph 10 – Provision of documents: period for compliance

169.Section 23 of the 2005 Act imposes an obligation on charities to provide a copy of their constitution and latest statement of account to any person who reasonably requests it, and the documents must be supplied in such form as the person reasonably requests. Charities can charge a fee for complying with this obligation, but that fee is capped at the cost of supplying the document or, if lower, any maximum fee set by the Scottish Ministers by order. This obligation to supply these documents when reasonably requested is subject to a possible exception: the Scottish Ministers can under subsection (3) make an order exempting charities which meet particular criteria. However, to date no such order has been made.

170.There was originally no provision as to how quickly a request under section 23 of the 2005 Act had to be dealt with. This paragraph of the Act changes that, specifying that if someone has a right to receive the document, they have the right to be given it within 28 days of the date on which the charity receives the request. As such, it does not change who is entitled to request a document or when a request might be unreasonable; it simply imposes a timescale. The existing right to be given the documents in the form that the person reasonably requests is moved and restated as part of the new subsection, but is unchanged.

Paragraph 11 – Disclosure of information by and to OSCR: a designated religious charity

171.Section 65 of the 2005 Act allows OSCR to designate a charity that meets certain criteria as a designated religious charity (“DRC”). DRCs are exempt from some of the provisions in the 2005 Act in recognition of the fact that many religious bodies operate effective self-regulatory mechanisms by having an internal organisation with supervisory and disciplinary functions and therefore should not be over-regulated. As such, DRCs hold some regulatory responsibilities that are usually held by OSCR, and certain of OSCR’s regulatory functions do not apply in relation to DRCs, or to any component element of a DRC which is itself a charity. For example, the Church of Scotland is the DRC, and each congregation within the Church of Scotland that is registered as a standalone charity is a ‘component’ part or element of the DRC.

172.This paragraph inserts a new section 24A into the 2005 Act, which will assist both OSCR in the exercise of its functions and DRCs in relation to the exercise of the supervisory and disciplinary functions which exist in respect of their component parts. It does this by enabling OSCR and DRCs to share information with each other for these purposes.

173.This new information-sharing power could be used where OSCR holds information in relation to a component part of a DRC that should be shared with the DRC (for example, information received from an auditor or independent examiner in their report on a charity’s accounts). Originally, OSCR was unable to disclose this information to the relevant DRC, which in turn was then unable to fulfil its regulatory functions. This modification rectifies this.

174.Paragraph 11 also modifies section 25 of the 2005 Act which further ensures that any restrictions on disclosure of information (such as the restriction in section 29(4) of the 2005 Act preventing OSCR from disclosing information obtained in the course of its inquiries) do not prevent OSCR or DRCs from sharing information with each other for these purposes. The Act makes clear, however, that disclosures in contravention of the data protection legislation (as defined by section 3(9) of the Data Protection Act 2018) are not permitted.

Paragraph 12 – Retention of accounting records

175.Section 44 of the 2005 Act requires charities to keep proper accounting records.

176.Originally, these records were required to be kept for 6 years from the end of the financial year in which they are made. However, it is possible that the preparation of records could span two financial years (for example, where preparation of the records begins during the financial year to which they relate, but is completed after the end of that financial year). In such a case, it may become difficult to establish the period for which those records are to be kept. Even where the preparation of the records did not span more than one financial year, information to this effect would need to be retained so that it was clear when the records could be disposed of.

177.In addition, the previous requirement to keep financial records for the specified period applied only to charities. No provision was made about former charities – for example, bodies which have ceased to be charities or those which have wound up altogether.

178.Sub-paragraph (2) of this paragraph of the Act’s schedule therefore adjusts the rule found in section 44(2) of the 2005 Act so that financial records will now instead have to be kept for 6 years from the end of the financial year to which they relate (regardless of when the records themselves were prepared).

179.In addition, sub-paragraph (3) of this paragraph of the Act’s schedule inserts a new rule which provides that where the charity ceases to be a charity before the end of the retention period, the records must be held for the remainder of that period by someone else. This obligation is imposed as follows—

  • Where the body continues to exist without charitable status, it will be the body itself which must retain the records.

  • Where the body no longer exists, the records must be retained (where applicable) by someone who is notified to OSCR and who was its charity trustee immediately prior to the body ceasing to exist. This means that the body will need to notify OSCR of who this person is (and update OSCR if that changes). This will only apply in a situation where the charity was removed from the Register as a result of being wound up or dissolved etc. If the body continued to exist as a non-charitable body, nobody will have been a charity trustee of it immediately before it ceased to exist.

  • Where the body no longer exists and was not on the Register at the point of ceasing to exist, the records must be retained by someone notified to OSCR who was concerned in its management or control immediately prior to it ceasing to exist (for example, in the case of a company, one of its directors). Again, there is an implicit duty on the body to notify OSCR as to who is nominated to hold the accounts.

Paragraph 13 – Ability to appoint person to prepare statement of account

180.Section 45 of the 2005 Act provides a mechanism designed to ensure the preparation of charity accounts in a situation where a charity has failed to prepare these itself as required. In such cases, OSCR is permitted to appoint a suitably qualified person to prepare the accounts at the expense of the charity’s charity trustees.

181.This paragraph of the Act’s schedule makes a minor, technical change to subsection (1), which sets out when the ability to use this power applies. Previously, this subsection stated that the section applied where a charity failed to send a copy of its accounts to OSCR by the deadline for doing so. This would theoretically have covered a scenario where accounts had been submitted, but had been submitted late. While there would be no reason for OSCR to instruct the preparation of accounts where they had already been submitted, this paragraph narrows the language to match new section 45A(1) (inserted by section 12 of this Act). This provides instead that the section applies where the charity has failed to submit its accounts and the deadline for doing so has passed.

Paragraph 14 – Reports from auditors etc.

182.Charities are required under section 44(1)(c) of the 2005 Act to have their annual statements of account independently examined or audited.

183.Section 46 of the 2005 Act deals with the position where the person appointed as independent examiner or auditor becomes aware of certain things in the course of that examination or audit. The person must immediately report to OSCR on any matter relating to the affairs of the charity or a connected body which the person has reasonable cause to believe is likely to be of material significance for the purposes of OSCR’s exercise of its inquiry-related powers. Where that threshold is not met but the person has reasonable cause to believe that the matter is likely to be relevant for the exercise of any of OSCR’s functions, there is a power (but no duty) to report on the matter to OSCR.

184.This paragraph of the Act’s schedule modifies the duty which exists under section 46(2) – i.e. where the matter which arisen is thought to be of material significance for the purposes of OSCR’s inquiry-related powers. It ensures that the independent examiner or auditor is not just obliged to report immediately to OSCR on the matter, but obliged to do so in writing.

Paragraph 15 – Annual returns

185.All charities in Scotland are asked to complete an annual return. This is used by OSCR to monitor charities’ activities and to provide up-to-date information for the public via the Register. However, originally, there was no statutory requirement to complete an annual return: it was done voluntarily or on the understanding that otherwise a notice would be issued under section 22 of the 2005 Act requiring the information requested in the return.

186.This paragraph of the Act’s schedule introduces a statutory requirement for all charities on the Register to complete an annual return. Under section 66(4) of the 2005 Act, failure to do so will be treated as misconduct in the administration of the charity. It could lead to OSCR making inquiries into the suitability of the charity trustees under section 28 of the 2005 Act.

187.It will be for OSCR to determine the form and content of the annual return. As at the time of publication of these notes (August 2023), the level of detail required depends on a charity’s gross income: additional questions are asked for charities where this is £25,000 or above, and further questions still are asked for charities where this is £250,000 or above. There are also extra questions which are asked of cross-border charities or registered social landlords. OSCR will continue to be able to vary the form and content for different types of charities in the same way it did previously. However, OSCR will have to publicise the requirements that it imposes so that charities know what is required of them.

188.Charities will be required to submit the annual return to OSCR by the date their statement of account for the financial year is due each year. As at the time of publication of these notes (August 2023), the deadline for the submission of accounts is set in regulation 5 of the Charities Accounts (Scotland) Regulations 2006 (SSI 218/2006) and is set at 9 months after the end of the charity’s financial year in most cases. Where a charity is removed from the Register, this is set as 9 months from the date of that removal, but that will not be relevant for the purpose of this provision as former charities are not charities and so will not be required to submit an annual return under this provision.

Paragraph 16 – SCIO documents

189.Section 15 of the 2005 Act allows the Scottish Ministers to make regulations imposing requirements on Scottish charities about the information that they must disclose on such documents as are specified in the regulations. This power has been used to impose requirements under the Charities References in Documents (Scotland) Regulations 2007 (SSI 2007/203). Under these, a charity is required to state its charity number, official name, any other name by which it is commonly known and, where its name does not include “charity” or “charitable”, to state that it is a charity using one of a number of designated terms. This rule applies to a whole host of documents issued or signed on the charity’s behalf – including business letters and emails, adverts, any document soliciting donations for the charity, contracts, and the home page of the charity’s website.

190.However, under section 52(4) of the 2005 Act, these rules do not apply to SCIOs. Instead, SCIOs are subject to their own rules. Under section 52 of the 2005 Act, a SCIO is required to state its name and, if it is not already clear from its name, the fact that it is a SCIO. This must be done on such documents as are specified in regulations. As at the time of publication of these notes (August 2023), regulation 9 of the Scottish Charitable Incorporated Organisations Regulations 2011 (SSI 2011/44) specifies the same list of documents as applies under section 15 of the 2005 Act. There was, though, originally no ability to expand the information which must be included.

191.This paragraph of the Act’s schedule expands the regulation-making power which relates to SCIOs. This expansion means that, like other charities, they can be required to provide further information (beyond just their name and their SCIO status) on any specified documents. This would allow, for example, SCIOs to be required to provide their charity numbers (or any working name they use) in the same way as any other charities. As with section 15 of the 2005 Act, there is also an ability to create exemptions or to allow certain things to be stated in a language other than English where the documents in question are otherwise wholly or mainly in another language.

192.Breach of the requirement that a SCIO states its name and SCIO status on specified documents can be a criminal offence (see section 53(1) of the 2005 Act). This is because it is important for those dealing with a SCIO to know what legal form it takes, since its limited liability status may have implications for those dealing with it. Since the additional information which may be required under regulations is not of the same nature, the offence is not extended to it. However, failure to comply with the new requirements will, as with a failure to comply with requirements imposed on other charities under section 15, constitute misconduct in the administration of the charity under section 66(4) of the 2005 Act.

Paragraph 17 – Conversion of charity which is a company or registered society

193.This paragraph makes a minor modification to section 56 of the 2005 Act. It modifies the heading of section 56 of the 2005 Act to remove an erroneous reference to a registered friendly society, instead of just a registered society, and removes an incorrect reference number for the legislation referred to in that section.

Paragraph 18 – Existing powers to make secondary legislation

194.There are a number of existing powers to make secondary legislation in the 2005 Act.

195.Sub-paragraph (2) of this paragraph of the Act’s schedule ensures that the existing power to make regulations about SCIOs under section 64 of the 2005 Act can be exercised by textually amending the 2005 Act itself. This will allow signposting to regulations, similar to inserted section 45A(6) (inserted by section 12 of the Act), to be added at other places in the 2005 Act where it might otherwise appear from the face of the 2005 Act that a rule applies to all charities when in fact, because of their unique nature, rules are sometimes applied with slight modifications for SCIOs. Sub-paragraph (3)(c) provides that where the power is exercised in a way that textually amends the 2005 Act, it will be subject to the affirmative procedure.

196.Sub-paragraphs (3) and (4)(a) of this paragraph of the Act’s schedule extend slightly the existing ability to make ancillary provision which is found in section 102 of the 2005 Act. It is extended to ensure that the power can be exercised not just for the purposes of or in consequence of this Act, but also any orders or regulations made under it. Clarification is also added that the power to modify any enactment includes the 2005 Act itself.

197.Sub-paragraph (4)(b) of this paragraph of the Act’s schedule tidies up the existing provision that is made in the 2005 Act about whether regulations and orders are subject to the affirmative or the negative procedure. It does not make any change to the split of powers and procedure which is provided for in the 2005 Act. It simply avoids the need to restate the list of powers each time when saying that those powers that are not subject to the affirmative procedure are instead subject to the negative procedure (other than commencement orders which continue, as standard, to be subject only to a laying requirement).

Paragraph 19 – Trustee remuneration

198.Sections 67 and 68 of the 2005 Act deal with remuneration (i.e. payment) of charity trustees. In general, section 67 originally provided that where a charity trustee provided services or might benefit from remuneration paid to a connected person (such as the trustee’s spouse) for their services, remuneration could only be paid from the charity’s funds if various conditions were met.

199.Sub-paragraph (2)(a) of this paragraph of the Act’s schedule makes an initial adjustment to when the remuneration rules apply. Instead of applying where a charity trustee provides services or might benefit from remuneration paid to a connected person, the rules will apply where a charity trustee provides services or is connected with a person who provides services. That is, the concept of whether the charity trustee might benefit from the remuneration paid to the connected person is removed and is replaced instead with a straightforward test based on whether or not there is a connection. This mirrors the approach taken in section 69(4)(c) of the 2005 Act where the question is simply the existence of the connection without needing to second-guess whether the person “might” benefit as a result. In practice, the concept of when someone “might benefit” has been construed so widely that it is not expected that this will result in any different conclusions being reached.

200.Sub-paragraph (2)(b) of this paragraph of the Act’s schedule then makes an adjustment to section 67(4)(c) of the 2005 Act. As noted above, where the remuneration rules apply, remuneration can only be paid from the charity’s funds if various conditions are met. Originally, one of these conditions was that immediately after entering into an agreement about the provision of those services, fewer than half of the charity trustees were—

  • party to such a service agreement,

  • otherwise entitled to receive remuneration from the charity, or

  • connected with another charity trustee who falls within either of the bullet points above.

201.As such, the overarching rules apply where a charity trustee is connected to someone who is receiving remuneration but is not themselves a charity trustee (for example, where a trustee’s spouse is paid for providing advertising services to the charity). However, the condition set out above would not be concerned with such a payment because the spouse is not themselves a charity trustee of the charity.

202.Sub-paragraph (2)(b) of this paragraph of the Act’s schedule addresses this by changing the final bullet point to instead cover a charity trustee who is connected with anyone (whether another trustee or not) who is party to a service agreement or otherwise entitled to receive remuneration from the charity. In the example above, this would mean that the charity trustee whose spouse received remuneration would be counted as a remunerated trustee for the purposes of the rule requiring fewer than half of the trustees to have a financial interest in the charity’s affairs, despite the spouse not being a trustee themselves. As such, if the charity had only three charity trustees, no other charity trustees could be remunerated or connected with remunerated persons (as if two of the three trustees fell into that category then that would constitute 67% of the charity trustees and the line is set at needing to be below 50%).

203.Separately, sub-paragraph (3) of this paragraph of the Act’s schedule makes a minor change to correct a missed consequential during the passage of the 2005 Act. Section 68(2) of the 2005 Act defines who counts as a “connected person” for the purpose of the trustee remuneration rules. Under paragraph (b), this includes certain relatives of a charity trustee, as well as any spouse of such a relative. This is now adjusted to also include the civil partner of such a relative.

Paragraph 20 – Notices

204.Section 100 of the 2005 Act deals with the service of formal communications. This primarily covers certain communications which OSCR and a charity it regulates will have with each other. Subsection (4) provides for a number of ways by which a formal communication can be given. However, in relation to service by post on a charity, it is limited to service at the address set out for the charity in its Register entry.

205.This paragraph of the Act’s schedule expands what is allowed. Where OSCR has cause to believe that using this address will not cause the formal communication to be received (for example, because a previous formal communication has been returned as undeliverable), subsection (5B) provides that the communication may also be sent to a different address which OSCR considers is likely to cause the communication to be received by the charity or a charity trustee. That is, OSCR continues to have the option of using, for example, email communication instead under subsection (4)(c), and subsection (5B) is simply providing an additional option which OSCR may also use. However, where subsection (5B) is used, that is sufficient on its own to effect service – it does not need to be done in addition to a method set out in subsection (4).

206.In practice, it is likely that the schedule of trustees provided for by section 3 of the Act will include charity trustees’ addresses and this will probably be the first port of call for OSCR when OSCR has reason to believe that the charity has moved principal office without giving notice of this as required under section 17 of the 2005 Act. However, it would also be open to OSCR to use, for example, an address which appears from internet searches or other investigations to be the address from which the charity is now opening. It remains the case though that registered or recorded delivery mail has to be used.

207.The means of serving a notice by OSCR are further expanded for certain notices. This applies where OSCR has reason to believe that service by post will not work (for example, because OSCR has previously tried to post things to the address on the Register/its internal schedule of trustees and things have been returned as undeliverable), and OSCR considers that, based on the contact details it has, it is not reasonably practicable to serve the notice in person or by some other means such as email (for example, because OSCR does not hold an email address for the charity/trustees at all or because any emails sent are returned as undeliverable). In such cases, OSCR will be able to serve specified notices by such means as it considers appropriate. This could be done by publishing the notice on OSCR’s website or by publishing it in a newspaper. This applies to the following notices—

  • notice to a charity under section 45A(2) that OSCR intends to remove it from the Register for failure to submit accounts and failing to respond to OSCR’s communications about that failure,

  • notice to a charity that, having had no response from it in 3 months following the notice above, OSCR intends to proceed with removing the charity from the Register under section 45A(3),

  • notice to a charity/body that a third party must provide information under section 29(1) for an inquiry into the charity/body,

  • notice to a charity/body that a financial institution etc. is being directed not to part with the organisation’s property under section 31(7) or (9) without OSCR’s consent,

  • notice to charity trustees that OSCR intends to appoint an interim trustee under section 70A(1) or (2)(c).

208.All of these notices concern cases where the action being taken is one which it would still be appropriate to take even if the charity/body itself cannot be contacted directly. The provision is aimed at ensuring that OSCR is not prevented from taking action (for example to protect charitable property) in such circumstances. The provision ensures that efforts are made to bring it to the attention of the charity/ body to the extent possible.

Paragraph 21 – Variation of constitution

209.The term “constitution” is defined in section 106 of the 2005 Act by reference to the different legal forms that charities may take. Charities can vary their constitutions in a number of ways. This paragraph of the schedule clarifies that where a charity of any legal form has varied its constitution (by way of reorganisation or by other means), references in the 2005 Act to the charity’s constitution mean the constitution as varied. This reflects what is understood to already happen in practice and what it is believed was intended by the 2005 Act, and simply ensures there is no room for ambiguity over the meaning of the term “constitution” where a variation has taken place.

1

This is extended by paragraph 6 of the schedule to also cover the name being the same as or too similar to another charity’s working name.

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