CHAPTER 6
Charitable Organisations and Shops6.1 Registered Charities
6.1.1 Under section 67(10) a charity is an institution or other organisation established for charitable purposes only, or any persons administering a trust for charitable purposes only. In practice, the question on whether an organisation is a charity may be determined in most cases by referring to the register of charities maintained by the Charity Commissioners. The absence from the register, however, does not necessarily mean that an organisation is not a charity because it may be excepted from the register or exempt - see 6.4 and 6.5 below.
6.2 Charity Shops
6.2.1 Charity shops are entitled to mandatory rate relief under section 43(5) (read in conjunction with section 64(10) of the LGFA 1988 - "A hereditament shall be treated as wholly or mainly used for charitable purposes at any time, if at the time it is wholly or mainly used for the sale of goods donated to a charity and the proceeds of sale of the goods (after any deduction of expenses) are applied for the purposes of a charity").
6.2.2 Although this is a mandatory relief, billing authorities need guidance as they still have a decision making role to play. Many billing authorities, charities and others have told us that the rules about what constitutes 'wholly or mainly' are not clear, so that there is inconsistent treatment up and down the country. This lack of clarity makes it difficult for charities to comply with the rules and causes problems for billing authorities seeking to apply them. The legislation does not determine what constitutes wholly or mainly for charitable purposes. Whilst we are unaware of any case law that provides guidance on the meaning of 'mainly' in relation to the rating legislation, in other circumstances, 'mainly' has been held to mean 'more than half' (see Fawcett Properties Ltd v Buckingham County Council [1961] AC 636 at 669).
6.2.3 In deciding whether a charity shop is 'wholly or mainly' used for the sale of donated goods, we understand that some billing authorities currently take some or all the following relevant factors into account:
I. The percentage of floor space occupied by donated goods.
II. The percentage of turnover and profit represented by the sale of donated goods.
III. The percentage of individual items sold which are donated goods.
6.2.4 The use of the above factors may not, in every case provide billing authorities with the solution for determining eligibility for rate relief. Charity shops often present difficulties for billing authorities in determining eligibility for rate relief because in terms of quantity of goods displayed, most items may be goods donated by the public. However, in terms of value, the donated goods may represent only a small proportion of turnover. In such circumstances, the weight given to the charitable and non-charitable uses of the hereditament may also need to be considered even if the charitable use, which could be the main use, occupies less than half of the floor space. Clearly, the three factors given above can go up or down depending on the prevailing local economy. In the interests of certainty to ratepayers, billing authorities should try to ensure that properties do not move in and out of charitable relief regularly as a result of such minor fluctuations.
6.3 Friendly and Industrial and Provident Societies
6.3.1 A number of billing authorities have asked for guidance on whether exempt charities within the meaning of the Friendly Societies Act and the Industrial and Provident Societies Act (see 6.5) like credit unions and housing associations are eligible for mandatory and/or discretionary rate relief.
6.3.2 It is our opinion that these societies may not normally meet the requirements under sections 45 and 47 of the LGFA 1988. They are not registered charities, nor do they usually operate as one as they are usually constituted for the purpose of making a return on the investment made by their members whereas charities must have the aim of benefiting the community rather than members.
6.3.3 So registration as a friendly society or an industrial and provident society will not in itself automatically mean that the organisation concerned meets the requirements of the 1988 Act. For a friendly society to qualify for mandatory rate relief it must be "an organisation established for charitable purposes only (section 67(10) and use the property in question "wholly or mainly for charitable purposes" (section 43(6)). Some friendly societies may qualify as charities. Such a society should be in receipt of a letter from Inland Revenue saying it is entitled to exemption from taxes under the provisions of section 505 of the Income and Corporation Taxes Act 1988. This letter can be presented to the billing authority as proof that it is entitled to mandatory rate relief.
6.3.4 To be eligible for consideration for discretionary relief a friendly society or an industrial and provident society must be a non-profit making body and the property it occupies must be used for social, philanthropic, educational or religious purposes.
6.3.5 It still remains for each billing authority to decide whether or not a particular friendly or industrial and provident society is a charity (as defined in section 67(10) of the 1988 Act), and is eligible for rate relief under the provisions of the rating legislation.
6.4 Excepted Charities
6.4.1 Charities are excepted from the need to register with the Charity Commission if they do not meet the minimum requirements for compulsory registration as described in section 3(5) of the Charities Act 1993. The minimum requirements for registration are:
a permanent endowment; or
the use or occupation of any land; or
annual income from all sources amounts of more than £1,000.
6.4.2 In addition to the above there are some other charities which have been specifically excepted from the requirement to register by legislation or Commission order (mainly churches, also voluntary schools).
6.5 Exempt Charities
6.5.1 Any charity comprised in Schedule 2 of the Charities Act 1993 referred to, as an 'exempt charity' is not required to be registered with the Commission. No charity is required to be registered in respect of any registered place of religious worship (under the Places of Worship Registration Act 1855). In any case, such hereditaments and some buildings ancillary to these places of religious worship are exempt from rates under paragraph 11 of Schedule 5 to the 1988 Act.
Exempt charities are those listed in Schedule 2 of the Charities Act 1993 and include:
Charities which are Industrial and Provident Societies within the meaning of the Industrial and Provident Societies Act 1965;
Charities which are also registered societies, within the meaning of the Friendly Societies Act 1974;
Most Universities; and
Some museums and galleries
6.5.2 More information on Exempt Charities can be found in the Charity Commission leaflet - Exempt Charities (CC23) - which can be viewed and printed from their web-site at www.charity-commission.gov.uk.
6.5.3 Those institutions listed in Schedule 2 of the Charities Act are only exempt to the extent that they are, in law, charities. Organisations such as co-operatives for example, are not normally considered charitable as they are established for the benefit of their members rather than for the public at large, which is one of the criteria considered when establishing the charitable status of an organisation.
6.6 An organisation that has had its application for registration as a charity refused by the Charity Commissioners can still be considered for discretionary rate relief.
6.7 However, it should be noted that it is not enough for a hereditament to be put to charitable uses, as the use of the hereditament must be in pursuance of the purposes of a defined charity or charities.
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Published 5 December 2002
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