Purpose: This guidance is intended to introduce caseworkers to a series of guidance so that they know how to identify reporting charities and linked charities for registration purposes. For detailed guidance on linked charities see OG 34 B1, and for branches see OG34 B3.

Note: - Although the guidance touches on related accountancy issues, it is not intended that it should address them in detail. Advice should be sought from an accountant where appropriate.

Divisional responsibility

For action:

Charity Support Division
Registration Division

For information:

All other operational divisions

Contents

1. Purpose of this OG
2. What are the problems?
3. The Law
4. Why it is important to identify distinct and reporting charities?
5. Basic Principles of Registration

Meaning of expressions - list of Glossary terms used in this Guidance
Index to further related information

1. Purpose of this OG

This series of OGs will help caseworkers to identify whether an organisation:

• needs to be registered as a charity in its own right;

• should be registered under the same number as another charity;

• should not be registered at all.

It also provides guidance on how to:

• identify bodies which meet the SORP definition of "branch",

• distinguish these bodies from organisations which may be known to their trustees as "branches" but which do not meet the SORP definition, and;

• deal with both types of organisation in terms of properly registering them and establishing how they should be accounted for.

2. What are the problems?

2.1 Identifying a distinct charity
2.2 Can it be combined with other charities for accounting and reporting purposes?
2.3 Special Trusts and Uniting Directions

A distinct charity is not allowed to fragment itself for the purpose of complying with the accounting obligations in part VI of the Charities Act 1993. The fragmented accounts would fail to give a true and fair view of the charity's overall financial position.

In some cases, two or more distinct charities are combined for the purpose of complying with the obligations in Part VI of the 1993 Act, so that only one annual report and accounts, and one annual return, is prepared to cover both or all of them. The objective is partly to facilitate the administration of charities that are connected with each other. But it is also partly to ensure that the accounts of distinct, but connected, charities give a true and fair view of the overall financial position of the group.

Additionally, wWe therefore need to be able to identify whether any particular organisation is; a distinct charity, or a subordinate group which, though managed by a committee, is wholly within the control of a parent charity and its trustees, and therefore not a distinct charity at all.

• a distinct charity, or

• technically part of another charity, and therefore not a distinct charity at all.

2.2 Can it be combined with other charities for accounting and reporting purposes?

Once we have established that an organisation is a distinct charity we need to decide if it is combined with one or more other charities for the purposes of complying with the obligations in Part VI of the 1993 Act.

It will not always be obvious, Iin cases where there are close associations between charities (such as, for example national associations with local groups), it will not always be obvious whether; there is just one charity to register covering the whole operationwhether each group is a special trust of a "parent" charity to be registered together under the same number, or whether all charities involved should be separately registered as reporting charities.

• there is just one charity covering the whole operation;

• each group is a distinct charity, but the administrative influence exerted by the parent association is such that each group should, in the interests of transparency, be "linked" with the national association for the purpose of complying with the statutory accounting obligations; or

• each group is a distinct charity, with the degree of autonomy from the national association that suggests that each should prepare its own accounts.

The trustees of any distinct charity must comply separately with the statutory accounting obligations unless:-

• the charity is a "special trust" of another charity; or

• the charity has been united with another charity or other charities for the purposes of complying with those obligations as the result of a direction made by us under section 96(5) or (6) of the 1993 Act.

If charity A is a "special trust" of charity B, or we have directed under section 96(5) that charity A should form part of charity B for accounting purposes, then the trustees of charity B have the duty to account for charity A. If charities A and B have been the subject of a uniting direction under section 96(6), then the trustees of the united charity have the duty to account for both of them. A "reporting" charity is one whose trustees have the statutory accounting obligations for it, and for any "linked" charity. A "linked" charity is one where the trustees of another charity have the obligations to account for it. Normally, in practice, the trustees of the "linked" charity are the same as those of the related "reporting" charity, but this will not invariably be the case. such as, for example, charities which operate nationally through local groups, charities which affiliate to others, and charities within a federal structure.

2.3 Special Trusts and Uniting Directions

There is guidance on the technical issues relating to special trusts and uniting directions. A summary of the key points is in B1. If the charity in question does not fit into this category, B3 may help: this looks at the situations where the accounting responsibility maybe less than clear, such as, for example;

• charities which operate nationally through local groups;

• charities which affiliate to others; and

• charities within a federal structure.

It is our normal policy, where two or more charities are combined for the purpose of complying with the obligations in Part VI of the 1993 Act, that they should also, if registerable with us, be registered under the same number. This can only be achieved by making a uniting direction under section 96(5) or 96(6). But the legal consequences of registration are the same, whether a charity is registered under its own number, or under the number of some other charity.

3. The Law

4. Why is it important to identify distinct and reporting charities?

This has been explained in Section 2 above. Because the range of possibilities, as regards relationships between charities, is very wide and complex, clarity about the terminology we use is all-important. Caseworkers should refer to the Glossary, and to other sources of definitions referred to in this guidance.

4.1 Current Approach and Terminology
4.2 Previous Terminology - "Main" and "Umbrella" Charities
4.3 Previous Terminology - "Subsidiary" Charities

4.1 Current Approach and Terminology

A distinct charity is defined as a charitable institution having a distinct foundation. Such a charity will be registerable, either;

As indicated above, linked charities are normally registered under the same number as their reporting charity. An example of a reporting charity with linked charities registered under its number is Taunton and Somerset NHS Trust Charitable Funds (registered number 1059922). These linked charities are all registered under the reporting charity's number, with their own identifier, for instance, Musgrove Park Hospital Charitable Funds (registered number 1059922/1), Bridgwater Hospital Charitable Funds (registered number 1059922/2) and so on.

On initial application for registration, therefore, we need to ensure that a distinct charity's structure is identified, in order that it can be correctly recorded on the Register.

Any proposal that a linked charity should be registered under a different number to that of its related reporting charity should be referred to the accountants.

4.2 Previous Terminology - "Main" and "Umbrella" charities

Reporting charities were formerly known as main charities (or in the context of NHS trusts, umbrella charities). Use of this term has been discontinued, since it implies a hierarchical relationship which may not legally exist, and which may be misleading in the context of group registration and accounting.

4.3 Previous Terminology - "Subsidiary Charities"

The Charities Act 1993, the SORP and the Companies Act all cover issues about the treatment of connected charities. The term "subsidiary charity" has a very specific meaning in company law, which is different todoes not match with the way we have used it in the past (see also NOTE below). Caseworkers will then need to familiarise themselves with the meanings of the different terms now used in this guidance order properly to describe the relationship between different charities. "Subsidiary charity" also implies a hierarchical and control relationship between connected charities, which may not always be present.

Although the term "subsidiary charity" still appears in places in our literature, this is being phased out and it should no longer be used by caseworkers., except in very precise circumstances. Therefore caseworkers will need to think carefully about the precise relationship of charities currently described as "subsidiaries".

In terms of registration, "subsidiary charities" are traditionally separately registered with a "subsidiary number" under the main charity's number. Caseworkers will need to think of these as linked charities, and with an identifier number under the reporting charity's registered number.

Special trusts are essentially funds or property administered on separately established trusts by or on behalf of a reporting charity.

NOTE: Caseworkers need to be aware that the term "subsidiary" is used in company law, where it has a very specific meaning (briefly, it is a company controlled by another company). This term may still be used in correspondence with us and should not be confused with our own former use of it. An example of a scenario where the term may be used is given in B3 of this series.

5. Basic Principles of Registration

The first principle to bear in mind when considering whether and how to register a charity, is that only a distinct charity can be registered. It is therefore crucial that distinct charities are identified. See B1 of this series for a more detailed discussion of distinct charities and how to identify them.

Having established the existence of a distinct charity, the next question is, if the charity is registerable, whether it should it be registered under its own distinct number, or should it be registered with its own unique identifier under the number of another registered charity? As indicated above this will normally depend on whether it is a reporting charity or a linked charity..

There are many variables that may need to be taken into account in making this decision, and some of these are discussed in B3 of this series of guidance. However there are certain basic principles which hold good in all cases, and these are set out in the form of a flowchart at C1 for caseworkers to work through.

The following words and phrases are defined in the Glossary of Terms:

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1993 Act
accounts
annual report
distinct charity
NHS Charities
reporting charity
scheme
special trust
trustee
uniting direction

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