Public and Personal Benefit in Charities

Every week the Charity Commission issues almost daily notifications (and sometimes more than one a day) about its regulatory role and the findings of its investigations. It’s surprising how often the issue of unauthorised or inappropriate personal (or private) benefit features amongst the Commission’s criticisms. For a sector that prides itself on its values of service and integrity, this seems to us to be rather worrying.

As far as we can tell, there isn’t any systematic analysis out there about how many enforcement cases involve unauthorised personal benefit or how many such findings arise from malicious intent (as opposed to honest mistakes and/or ignorance of the law - which is no defence anyway).

Of course, we all know that there are people who really have nothing to do with the charity sector and its values; they are using charitable vehicles for all kinds of nefarious purposes including tax evasion, money laundering and fraud. It’s interesting though, that in many cases where the Commission discovered unauthorised personal benefit they did not choose to disqualify the Trustees or take regulatory action beyond a metaphorical ‘slap on the wrists’. We wonder, therefore, whether ignorance or honest mistakes lie behind at least a significant proportion of these cases and so we thought a quick survey of what public and personal benefit are would be helpful.

What is public benefit and why does it matter?

Public benefit is part of what it means to be a charity; charities must, by law, discharge their charitable purposes for public benefit. This means that what they do must:

• be beneficial - the benefits must outweigh any harms and, if necessary, the Trustees need to be able to provide evidence of why this is the case; and

• benefit the public in general, or a sufficient section of the public and not give rise to more than incidental personal benefit (see below).

This latter “public” test is often more difficult; a “sufficient section of the public” is not (generally) defined by the numbers who will benefit and varies from one charitable purpose to another. The so called ‘public class’ of beneficiaries could, depending on the purpose, be defined by geographical area, a group of people with a common charitable need or a specific (often, but not always, ‘protected’) characteristic or an occupation/profession. It cannot be defined by skin colour and usually cannot be defined by family relationship or membership requirements.

The ‘public’ test can also be complicated if a charity charges for its services at a level that is more than a person of modest means could reasonably afford, in which case provision must be made for them to receive benefit from the charity that is more than minimal or tokenistic.

Our intention here is not to provide exhaustive guidance on this issue but rather to flag that Trustees need to understand what public benefit is, that charities must discharge their charitable purposes in ways that meet the public benefit test and to encourage you to read more about these essential requirements. It is a legal requirement for charity Trustees to have read and had regard to the Charity Commission’s guidance on pubic benefit (and you have to say you have done so in your annual report).

What is personal benefit and when it’s allowed?

Charities can only discharge their charitable purposes in ways that give rise to personal benefits if these are ‘incidental’ to carrying out their purpose.

Personal benefit is very broadly defined as any benefit that someone (either an individual or an organisation) receives from a charity. It includes:

• financial benefits - which could be cash, grants or other payments (including paying employees);

• non-financial benefits or payments in kind - such as goods or services provided to anyone; or

• benefits to trustees - it is illegal for trustees to receive any benefit from their charity including in return for any service they provide to it, unless they have legal authority to do so.

Incidental means that (having regard both to its nature and to its amount) the personal benefit is a necessary result or by-product of carrying out the charitable purposes.

For example, an education charity will often pay teachers and other staff, which constitutes a private benefit to these employees. Therefore the Trustees need to be satisfied that this is ‘incidental’ to the public benefits the charity is delivering; i.e. that it is necessary to deliver the greatest possible public benefit within the resources available to the charity and that the size of the public benefit is not excessive. Further guidance on personal benefit can be found in the Charity Commission’s guidance on public benefit.

To find out more about this important and often poorly understood aspect of charity governance, including the support we can offer, please contact us at julian@almondtreeconsulting.co.uk to arrange free initial telephone discussion.