Scottish charity law

Charities and philanthropy continue to have important roles in commercial and public life. Charitable organisations are now used to undertaking a wide array of services and activities that historically would not have been immediately associated with the charities sector. In Scotland, we are nearing the end of the first decade of having in place a Scottish charity regulator, with ever increasing focus on strong governance to underpin a flourishing charities and third sector, and to encourage philanthropy, both individually and by corporates. All of these factors can bring in-house lawyers into contact with charity law issues.


Scotland has its own charity regulator, the Office of the Scottish Charity Regulator (OSCR), which is charged with:

  • determining whether bodies meet the charity test to be entered on the Scottish Charities Register;
  • monitoring charities to ensure they continue to meet the criteria for being on the register;
  • reviewing annual accounts and reports from charities;
  • investigating complaints and queries regarding charities; and
  • using enforcement powers over trustees, charitable assets and the charitable status of organisations.

The OSCR system of regulation is distinct from those in England and Wales, and Northern Ireland, and care must be taken to ensure activities carried out across jurisdictions are indeed charitable in each separate regulatory system. There can be differences between the notion of ‘charitable’ under the tests applied by each regulator, and in some cases the differences can be material.

While OSCR regulates charities in Scotland, it does not have powers in relation to tax, with most tax issues being administered by HM Revenue & Customs (HMRC). In addition, the tax law that applies to Scottish charities is essentially English. Indeed, the main pieces of English charities legislation are stated to apply only to England & Wales except in the case of fiscal matters. Consequently, a Scottish charity wishing to be registered with OSCR, describing itself as a Scottish charity, and receiving benefits under tax law (eg participate in the Gift Aid scheme), must comply with English charities tax law and register with HMRC. Usually, the HMRC registration process will be a formality, but as noted above, there are some situations where English and Scottish regulations diverge, meaning that Scotland would not recognise the body as charitable, but England would and vice versa. It should be noted that exemptions from non-domestic rates in Scotland are based on being 
OSCR-registered and, with greater tax devolution, there will be taxes that will not be based on an English or pan-UK basis, but will be Scottish. The recently created Land and Buildings Transaction Tax is an example.

For in-house lawyers working on charitable projects across the UK (and beyond), differences in regulatory and tax systems need to be recognised and navigated.


This is not a new phenomenon. There are a number of Scottish companies that are controlled or wholly owned by a charity. 
In some cases these can be very 
well-established, while in others a charity may control a brand new, cutting edge venture. In many cases the size of the commercial enterprise involved will be very large. Well publicised examples are the Robertson Trust’s ownership of the whisky producer Edrington Group (, and the Shetland Charitable Trust, with a range of commercial projects in the property and energy sectors ( These cases create complex issues (and opportunities) for charity trustees and commercial directors alike. Charity law will provide general parameters as to what the trustees can and cannot do. Importantly, it (particularly for charities established as trusts) sets out investment rules and duties which need to be understood and appreciated by the commercial directors when considering the commercial strategy of the charity’s subsidiary. It is critical that both sets of officeholders understand the legal duties applying to each, in order to minimise miscommunication and misunderstanding of the reasons for particular decisions.

Increasingly, charitable community groups are entering into a variety of larger scale projects, including energy schemes, land, community asset and forestry buy outs and transfers, and even consideration of how best to structure town centre development vehicles such as business improvement districts. For charities, the legal success and streamlined implementation of these ventures requires careful consideration of the parameters of charity law, and a test to be carried out as to whether a proposed structure is in fact appropriate for the particular project so as to avoid the introduction of unduly intricate and opaque structures and governance which could later create uncertainty, complexity and, in the worst cases, internal discord.

It is also worth remembering that while the non-charitable subsidiary of a charity is not registered with OSCR as a charity, the regulator has certain powers which enable it to make inquiries into ‘a body controlled by a charity’ or charities, which would include a commercial trading subsidiary.

The fact that charities own and support commercial activity is a boon for the economy and the wider integration of charities, philanthropy and commercial life. It is, I would argue, good for society. An important way to make the dynamic work between a charity and trading entity is to have a strong understanding of the legal framework, as that sets the parameters for all involved.

As a postscript to charities owning commercial vehicles, charity trustees operating under trust deeds (as opposed to companies or Scottish charitable incorporated organisations) will wish to consider if a trust is the right legal structure to take forward commercial operations. Trust law has some hidden issues which can create inflexibility and risks for trustees in theses specific situations.


In the context of the interaction between commercial life and wider society, corporate social responsibility (CSR) is an important topic. Companies will often have CSR programmes of varying types and scale. Whatever their nature, companies will wish to have meaningful engagement, which makes, and is seen to make, a difference. As noted above, where charitable projects work across various jurisdictions, care needs to be taken to recognise the different regulatory systems and tax rules that apply, particularly where global philanthropy and CSR is involved.

There are some specific rules governing some commercial ‘tie-ups’ with charities. A campaign where a number of pence in every pound goes to charity is governed by regulations to ensure the amount going to charity is appropriately transparent for the public, and the relationship between charity and corporate is fair and reasonable.

It is important for both charities and commercial entities to carefully and clearly set out their relationship. A CSR success is one to be trumpeted, however a CSR relationship breakdown can cause reputational and financial damage for both sides. An understanding of the charity law regulatory landscape, and clear agreements where required, will be key steps to minimise the risk from a project or relationship which is not as successful or fruitful as was hoped.


There are many instances where charities work with or carry out services on behalf of public bodies – often local authorities. For legal advisers, the usual raft of contractual, property and other work applies, as with any organisation working with a local authority. However, the charitable background must be understood. The parameters of charitable activities need to be acknowledged and governance issues, such as conflict management, evidenced. There are also changes to charity accounting on the near horizon, which will require greater narrative on legal structures and governance, as well as third-party relationships, in publicly available charity accounts and trustee reports.

The breadth of the charity sector, in terms of scale, activities, regulation, legal form and beneficiary groups, can often be encapsulated in the activities of public sector-related charities: from sport and health-focused leisure trusts, to museums and galleries via social housing provision and grant giving trusts. In relation to the latter group of trusts, we have seen significant rationalisation via OSCR’s reorganisation processes, with the result that these trusts are able to unlock significant funds and have contemporary purposes while respecting the spirit of the original purposes.

Alongside the charities sector for 
public-related bodies, there are community interest companies (CICs), which have a separate regulator (the CIC regulator). They are perhaps most easily described as a hybrid between a private company and charity. They do not have the same tax benefits of charitable status, but allow certain amounts of private return, subject to assets being ‘locked’ for the benefit of a stated community (geographical defined or otherwise). CICs are sometimes used within a group structure as trading vehicles for charities rather than ‘standard’ private companies, although a CIC might not always be the right fit in such circumstances.


Part II of the Transparency of Lobbying, Non-Party Campaigning and Trade Union Act 2014 (better known as the Lobbying Act 2014) came into effect on 19 September, 2014. The Act tightens up significantly the rules governing the involvement of non-party campaigners, such as charities, in the run up to UK-wide, Scottish, Welsh and Northern Irish elections.

From 19 September 2014 until 7 May 2015 (the date of the next UK general election), where a non-party organisation undertakes activities resulting in ‘controlled expenditure’, it must register with the Electoral Commission as a non-party campaigner. The threshold for ‘controlled expenditure’ is £20,000 in England, and £10,000 in each of Scotland, Wales and Northern Ireland. Where this expenditure limit is breached, organisations must register with the Electoral Commission. Once an organisation has registered, it must account for its expenditure and activities to the Electoral Commission, and becomes subject to campaigning expenditure limits laid out in the Lobbying Act. In respect of UK general elections, these are £319,800 in England, £55,400 in Scotland, £44,000 in Wales and £30,800 in Northern Ireland, and no more than £9,750 in any one constituency. After the 2015 UK general election, the period during which non-party campaigners will have to register with the Electoral Commission will be in the preceding 12 months for any general election, and four months for other elections, ending on the day of the election.

The test for whether an activity comes into the category of ‘controlled expenditure’, laid out in the Lobbying Act, is whether expenditure can be considered by the Electoral Commission as ‘reasonably regarded as intended’ to promote or 
oppose electoral success for:

  • one or more registered political parties;
  • one or more registered political parties who advocate (or do not advocate) particular policies; or
  • one or more candidates or group(s) of candidates who hold (or do not hold) particular opinions, or advocate (or do not advocate) particular policies.

That the activities might be intended to achieve other purposes is not relevant.

The important thing about this test is that it is objective – what matters is whether the result of campaigning activities is that the campaigning organisation appears to support a political party or candidates, rather than whether the original intent was to do so. This means that charities and other campaigning organisations will have to take into account the potential effect of their campaigning activities, as the lack of intention to engage in political campaigning alone will not exempt them from these new rules. For example, where a candidate or political party supports a charity’s campaign upon a particular issue, and the charity includes this endorsement in its public literature, this would most likely fall into the category of activities affected by the Lobbying Act.

Charities will have to consider the reputational effect that registering as a non-party campaigner will have upon their support – it is possible that registration will identify a charity in the public mind with one particular political party or viewpoint, and repel supporters of alternative parties. This may, in turn, lead to charities becoming more cautious in any campaigning activities or publicity events carried out in the run-up to elections. Additionally, larger charities may find that their proposed expenditure upon a campaign may be curtailed due to the new limits for non-party campaigners during the pre-election period. In the run up to the general election it is quite possible that charities may feel compelled to comment on political policy where they have concerns about the potential impact on specific client groups or on the charity sector in general.


This note can only give a flavour of the breadth of the charities and third sector. For legal advisers, the sector is much wider than perhaps one would first expect. Charities issues can crop up in a commercial setting and vice versa. The intermingling of charities, philanthropy, business, public bodies and wider civic society, means that charity legal issues, whether obvious or not, arise in a range of situations, all of which are vitally important.

By Alan Eccles, partner, Brodies LLP.