Purpose: This guidance is intended to help caseworkers identify branches, to explain the SORP definition of "branch" and to highlight where it may and may not accord with other usages of that term, and to advise them on how branches should be treated for registration and accounting purposes. For detailed guidance on distinct charities see OG 34 B1, and for linked charities see OG 34 B2.

Divisional responsibility

For action:

Charity Support Division
Registration Division

For information:

All operational divisions

Contents

1. Introduction
2. SORP definition of a branch
3. Registration Options
4. Identifying branches for registration and accounting purposes
5. Other relationships
6. Governance matters

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

1. Introduction

The Charities SORP 2000 includes a definition of "branch" (see section 2 below). This definition is designed to ensure that the accounts of all "branches" are included in the accounts of the related main association, in accordance with the rules discussed earlier in this OG. Any body which, in accordance with those rules, prepares its own accounts is outside the SORP definition of a "branch". However, this does not always accord with the way the charitable sector uses the term "branch", or how we have, on occasion, historically used it, and this can create difficulties of interpretation.

The aim of this guidance is therefore to highlight to caseworkers these differences of usage, and to guide them to the correct decision regarding registration.

It is also intended to highlight those relationships, which are not covered by the definition of "special trust" or "restricted fund". For instance, where there are indications of close operating connections between two charities, they may in fact be reporting charities, and therefore should be separately registered under their own numbers.

2. SORP definition of a branch

The Charities SORP 2000 carries a definition of "branch" in order to clarify the status of organisations for accounting purposes. The definition is designed to ensure that all funds that are either legally part of a reporting charity or are legally part of a charity that is linked to a reporting charity, are covered by the accounts of the reporting charity. The SORP is trying to distinguish these funds from funds which are part of entities which are reporting charities in their own right, even though they may be known as "branches". The exact status of "branches" in the SORP sense, and their relationship with the reporting charity, determines whether or not they are treated as separate organisations for registration.

The SORP gives the following definition of "branch":

A branch in terms of the SORP definition will be therefore be one of the following:

(a) part of the administrative machinery of the reporting charity;

(b) a special trust or restricted fund of the reporting charity;

(c) a distinct charity not falling within (b) which we have united by a direction under section 96(5) or section 96(6) of the 1993 Act providing for it to be treated as linked to the reporting charity for accounting purposes.

These are fairly limited definitions, but the SORP goes on to list some characteristics which may indicate that the entity is a branch for accounting purposes. It may:

use the name of the reporting charity within its title;

exclusively raise funds for the reporting charity and/or for its own local activities;

use the reporting charity's registration number to receive tax relief on its activities;

be perceived by the public to be the reporting charity's local representative or its representative for a particular purpose;

receive support from the reporting charity through advice, publicity materials, etc.

If the branch exists to carry out the primary objects of the reporting charity, typically it will receive funds from it to carry out its work, and may be staffed by employees of the reporting charity.

If the branch is not a separate legal entity, all funds held by the branch will be the legal property of the reporting charity, whether or not the branch has a separate bank account. This would be the case where the local group is run by committees who are wholly answerable to the parent body's trustees, and do not have any independence or accountability separately from their responsibility to these parent trustees. An example of this situation is the Leonard Cheshire Foundation (registered charity no. 218186) - see section 4.3 below.

The SORP definition is useful in terms of establishing the trustees' accounting responsibility. It does, however, cover a wide range of situations, some of which involve distinct charities, and some of which do not. Staff are therefore cautioned against assuming that a particular legal and constitutional relationship applies simply because the term "branch" is used by trustees (either formally or informally) to describe a local organisation, in circumstances which the SORP definition does not cover.

To avoid confusion, we should not use the term "branch" internally unless it clearly equates with the SORP definition. Caseworkers will need to use their judgement as to whether the term should continue be used in correspondence with trustees (where they routinely use it) on the basis of continuity and a common understanding of how the term is being applied. If there is any doubt in a given case, we should make clear our view of the relationship between the charities concerned.

3. Registration Options

Where a body is a "branch", the registration options normally are:

(i) The body is not a distinct charity but is part of the administrative machinery of a charity. For example, local committees or groups may be answerable to the charity trustees for administering a discretionary fund of the reporting charity locally. Such a body does not form a distinct charity and must not be registered.

(ii) The body is a distinct charity which should be linked for registration and accounting purposes to the reporting charity.

(iii) The body is itself a reporting charity, despite its connection with the main association of which it is a "branch", and with other "branches" of the association. It should not be the subject of a uniting direction, nor is it a special trust, because of the degree of autonomy that it maintains from the main association.

Identifying whether or not a "branch", if a distinct charity, should or should not be registered separately from its related main association may turn on the degree of control or influence exercised by the association on the administration of the "branch". Caseworkers will need to consider both the powers and duties set out in the governing document, allied with the existence or otherwise of any of the characteristics listed in section 2 above.

4. Identifying branches for registration and accounting purposes

4.1 General approach for registration purposes
4.2 Identifying a distinct and autonomous charity
4.3 Funds which are part of a regional or national charity

4.4 Clarifying the status of branches

4.1 General approach for registration and accounting purposes

Our prime consideration is to ensure that the correct relationship is identified for accounting and registration alignment, whatever description is used. In order to determine this, we should look firstly at the powers, obligations and duties set out in the charity's governing document.

The powers and duties set out in the governing document, allied to the characteristics mentioned in section 2 above, will go most of the way to determining the relationship of the "branch" with the main association. The constitutional arrangements may, for instance, indicate that the main association has ultimate power to wind up the local body and transfer its assets. Such a case would seem to demonstrate that the local body had insufficient autonomy for it to be considered a reporting charity.

For registration purposes, the issue is normally:

whether the "branch" is a distinct charity at all; and

if it is, whether or not it should be registered as a reporting charity under its own number (ie it is outside the SORP definition of "branch") or as a linked charity under the number if its related main association, which will be its reporting charity.

Where we link charities by uniting direction, our policy is generally to do this both for registration and accounting purposes. But there is no legal reason why charities cannot be united for only registration or only accounting purposes. A special trust will be linked to the reporting charity for accounting purposes but not registration purposes, unless a uniting direction is made.

As described below, it will not always be clear whether a charity should be registered as a reporting charity, particularly where it is administratively interdependent with another charity.

But there will be situations where a charity operates through local committees, groups or "branches" which are not distinct charities. There is no distinct charity here and, therefore, nothing for us to register. The property of the branch in effect consists of funds belonging to the main association, which are administered by individuals who are not the charity trustees and are responsible to the charity trustees for their funds. Such entities must not be registered and will simply be accounted for within the reporting charity's unrestricted or designated funds. However, it may be in the interests of local supporters and beneficiaries for additional accounts to be prepared covering only the local branch.

Other organisations that are not "branches" for the purpose of registration and/or accounting are discussed in section B1 of this guidance.

If a "branch" is a distinct charity, then it should be registered either as a reporting charity (if outside the SORP definition of "branch") or as a linked charity of its related main association. Some charities choose to "affiliate" to other bodies, but this does not remove the requirement to register, if the necessary registration criteria are met.

In initially considering whether registration as a reporting charity is required, there are a number of factors to take into account.

The characteristics of a reporting charity are:

The charity trustees are not, by virtue of its trusts, answerable to any national or "headquarters" body for its committee appointments;

The charity has its own governing document;

The trustees are able to conduct its activities without referral to another body (including another charity);

The charity raises its own funds, and the trustees have complete discretion to apply them for its own purposes;

The trustees are solely responsible for the charity's own employees;

The trustees are responsible for the charity's own debts and other legal and financial obligations.

The charity may be distinct, and registerable as a reporting charity under its own number, even though it may be affiliated to a regional or national organisation, share similar objectives and, by agreement, follow policies and procedures laid down by it. Again, by agreement, it may also receive funds from it, and even use its name and logo. In many cases, such arrangements could involve the adoption of a standard governing document.

In effect, there will often be a federation of registered (or in some cases, excepted) reporting charities with a federation "headquarters charity" providing a national focus, but without the management responsibility for the individual units of the charity.

For our purposes, such units should be separately registered as reporting charities, and prepare their own accounts and returns separately from the "head office" or parent body. No uniting direction can be made under s.96 of the 1993 Act in the case of this type of charity.

An example of such a structure would be the National Confederation of Parent Teacher Associations (registered number 1072833) where many local Parent Teacher Associations exist and use a standard governing document, but are completely independent of the national organisation

Although the NCPTA "branches" are subject to a centralised set of rules, they have autonomy to raise and administer funds locally, independently of any funding by the national body.

It should be noted that in this case such arrangements do not create branches in the legal or accounting sense as defined by the Charities SORP. This is one of the areas of potential confusion if the term "branch" is used indiscriminately.

In contrast to the situations described in 4.2, there will be a number of situations where a "parent" charity (such as a national charity) operates locally through committees which may have a local set of rules or constitution based on a national version delegated by the parent body, but who are not, in fact, independent trustees. These committees would have no discretion over policies to be adopted, and must account fully to the parent charity, which in turn will fulfil its obligations in law to account for its entire property, including all its local funds.

If necessary, we can additionally query whether the local management acknowledges it is simply part of a parent organisation and actively considers its purpose is to raise funds for that body. The degree of authorisation needed for expenditure or for particular activities may also be relevant, as will the extent to which these are monitored.

The constitution of the parent charity might also specifically make clear that the work carried out at local level is undertaken by committees who are, in effect, sub-committees of the main body of trustees: legally there is only one institution, and the trustees will be responsible for accounting for the funds of the charity as a whole, including the funds which have been applied at a local level. This is within the strict SORP definition of a branch.

An example would be the practice commonly adopted in the Roman Catholic church to have one general purpose charity administered by the Diocesan trustees. There are no individual charities at parish level, but there are a number of designated (not "restricted" - therefore not distinct) funds associated with the individual parishes within the diocese. Individual parish priests have certain delegated powers to apply these designated funds for the purposes of the charity within their parishes.

The Leonard Cheshire Foundation (registered no. 218186) works on similar lines: there is only one charity, and its constitution makes provision for the administration of the individual Cheshire Homes by separate committees, which are effectively sub-committees of the charity trustees. Therefore only the parent charity needs to be registered.

NOTE: Although this paragraph reflects our current policy regarding funds which are part of a regional or national charity, it is accepted that there have been some historical anomalies in the way we have dealt with these situations. Staff, particularly in Charity Support Division, if they come across an anomalous situation, are asked to encourage charities to move to the correct registration position.

4.4 Clarifying the Status of Branches

Where the status of branches is unclear, charities should be encouraged to clarify the situation, as uncertainties can give rise to disputes and governance problems, as well as to difficulties over the location of accounting responsibilities. Where the branch is a separate legal entity, lack of clarity often turns on the degree of autonomy afforded to it, for on this may depend whether the trustees of the branch or the trustees of the main association are responsible for accounting for the branch.

Those involved with the management of multicellular charities should be encouraged to adopt constitutional arrangements which make it quite clear into which of the following categories the structure falls:-

• the branches are legally part of the main association so that they are not distinct charities; or

• the branches, though distinct charities, are under the control of the main association to the extent that they should be linked to the main association as reporting charity; or

• the "branches" are distinct charities that have sufficient autonomy from the main association that they should be regarded as reporting charities in their own right.

From a practical point of view, the choice is likely to be influenced by the primary legal consequence, which, of course, is the identity of the people who are responsible for preparing the accounts for the branches. In cases 1 and 2, the trustees of the main association are responsible for preparing accounts both for the association and for all of the branches. In case 3, the trustees of the branches are responsible for preparing their own accounts. We should be prepared to make it clear that there is no option which permits the trustees of the main association to prepare the association's own accounts, with no-one having any obligation to account for the branch funds.

It is possible to have a federation of separate charities (registered or excepted) with a federation headquarters charity providing a national focus but without the management responsibility for the individual units of the charity.

5. Other relationships

5.1 Local charities with constituent groups
5.2 Fundraising Groups
5.3 Church Groups
5.4 Groups using Charity Premises
5.5 "Friends of" Groups
5.6 UK "Branches" of International Organisations
5.7 "Subsidiaries"

5.1 Local charities with constituent groups

"Branch"- type situations might arise in a local charity with various constituent parts (eg a local community centre where a number of user groups organised by the community centre operate). In this type of case there is only the one charity to be registered.

5.2 Fundraising Groups

Other examples of organisations which are not truly branches in the sense of the SORP definition include groups who occasionally gather together to raise funds for one or a number of different charities, and special interest groups or clubs who are affiliated to a particular charity, but do not themselves undertake charitable activities (including fund-raising for the charity). If these bodies are charitable (and this must be established) then they would be distinct charities.

5.3 Church Groups

Many churches, for instance, run children or youth-orientated activities that are in themselves "affiliated" to national charities, but which are funded and run as an activity within the objects and under the control of the church concerned. These activities are not distinct charities in their own right, as they are essentially projects of the church, which are funded by it, and operate to a large extent, if not entirely, under its direction. They could not therefore have any separate registration.

5.4 Groups using Charity Premises

Conversely, this would not apply to independent playgroups, or to clubs that simply have an arrangement to use church premises. Although they may be outwardly identifiable with the church, they are (if charitable) likely to be established as distinct charities, with their own clear channels of accountability.

5.5 "Friends of" Groups

A further example of organisations whose establishment and operation needs to be carefully considered are "Friends of"-type organisations, perhaps of a school, hospital or museum. Typically, these are established to raise money for special projects of the charity they support. "Friends of" organisations are normally sufficiently independent of the charity which they support for them to be distinct reporting charities. If substantial control is exerted by the supported charity over the "friends of" body, the latter may be a linked charity.

5.6 English/Welsh "Branches" of International Organisations

Another scenario is where an organisation exists which is an English or Welsh branch of a main association which is established otherwise than in England and Wales. Unless the branch is established as a distinct charity under the law of England and Wales it has no accounting obligations under Part VI of the 1993 Act and cannot be registered. Such a "branch", if it is a charity at all, must be a reporting charity.

5.7 "Subsidiaries"

In company law, a company that is controlled by another company is known as a "subsidiary".

A company is deemed to be a subsidiary of another if:

• the parent is a member of it and controls the composition of its board or directors; or

• the parent holds more than half of the nominal value of its equity share capital; or

• it is a subsidiary of any company that is another's subsidiary.

If company A is a special trust of company B, or has been directed to form company B for accounting purposes, then a single annual report and return is prepared..

However, the accounting obligations of the two companies under company law are not affected. Company law always requires each company to prepare its own accounts, and a parent company may have to prepare consolidated accounts as well.

In terms of registration, the same principles of governance and administrative interdependence apply as for any other charity. Whether or not a charitable company which is described as a subsidiary company should be registered in its own right will turn largely on the degree of control the parent is able to exert, and how much freedom its own directors or trustees have to act.

This means that our usual policy that co-registration should reflect unity of accounting is inevitably compromised to this extent, if we make a registration uniting direction for two charitable companies.

The statutory accounts (and accounts scrutiny reports, if any) of both companies should be attached to the single annual report.

Caseworkers are advised to seek legal advice on any such organisation seeking charitable registration.

NOTE: This usage of "subsidiary" should not be confused with our own former use of the term "subsidiary charity", which has been used to cover a number of situations, from special trusts of a charity to charities grouped under an umbrella charity for administrative convenience. These, as described at length in B2 of this series, are now to be known as linked charities.

6. Governance issues

If all parties were content with existing structural arrangements, we would not normally wish to object to them continuing.

However, we are most likely to become involved in problems or disputes;

• where the structural relationship between a local charity and a major charity is unclear;

• where the precise extent of autonomy cannot be agreed on; or

• where a parent body decides to restructure its branches in the face of local opposition.

Typical issues that have arisen include:

• powers to donate or transfer funds and property as between national and local bodies;

• local restrictions imposed by "headquarters" bodies;

• autonomous excepted charities using on letterheads registration numbers of a charity they are affiliated to;

• apportioning of liability for locally incurred debts;

• demands by a branch for separation from a parent body.

There is also potential for breach of trust if a branch gives an impression when raising funds that those funds will be used for the objects of the parent body, but then uses them for local projects that are not within those objects.

Generally, our approach in all such cases should always be to establish clearly the relationship between the organisations concerned in terms of the powers, discretions, and liabilities set out in their respective rules or governing documents. Factors such as those mentioned in the SORP definition, and in section 2 above, will need to be taken into account. Where there is doubt as to the proper legal relationship, or as to the financial and accounting responsibilities of the parties, appropriate professional advice should be sought.

For example, there have been cases where a parent body has sought to absorb legally autonomous local units into its own entity. This is usually possible where the local unit consents to dissolve and transfer its assets under its own constitutional powers. While it is not possible for the parent body to enforce such action where the local unit does not wish to comply, and where the governing document does not oblige them to do so, there will be cases where the parent body has control of funding to the local unit and so can effectively force ultimate dissolution by cutting this off

In any case where the degree of control, influence, or autonomy is unclear, trustees of the parent charity should be encouraged to clarify the position, so as to avoid potential for disputes.

We should press them to either bring the units within the scope of the parent charity for registration and accounting purposes, or to leave them to seek registration in their own right.

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

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1993 Act
accounts
charitable company
designated fund
excepted charity
restricted fund
SORP
trustees
uniting direction

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