Casework Guidance

B1 What are connected institutions?

Some charities are exempt because they are closely linked to an exempt charity. These are called connected institutions. Schedule 3 to the Charities Act, paragraph 28, defines what a connected institution is.

 

Under paragraph 28(1), to be a connected institution a charity must be:

• administered by or on behalf of an exempt charity

and

• established for the general purposes of, or any special purpose of or in connection with, that charity

 

To be certain that a charity is a connected institution of an exempt charity, we must be satisfied that both criteria are true. For a more detailed explanation of how to evaluate whether the criteria are met in a particular case, see section E.

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B2 Why is there special provision for connected institutions of voluntary and foundation schools?

Paragraph 28(3) deals with connected institutions of:

• the governing bodies of foundation, voluntary and foundation special schools, and
• foundation bodies established under the School Standards and Framework Act 1998 (SSFA).

 

Special provision was made for these charities because of the way they are structured under the SSFA; they are often structured in groups. For further information see case study D1.

 

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B3 Why are some charities excluded from Paragraph 28?

The colleges and halls within Oxford, Cambridge and Durham universities, and student unions, used to be exempt charities because of their links to exempt universities. But actually they are independent; their universities do not control them. These charities now have to register with the Commission.

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B4 What if we discover that a registered charity is a connected institution?

We should contact the charity and explain that we think it is a connected institution and therefore exempt. Unless the charity can show that we are incorrect, we must remove it from the register.

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Case Studies

D1 Girls' High School and its associated charities

D1.1 Constitution of the governing body

High School is a voluntary aided High School for Girls. Its governing body is an exempt charity under paragraph 9 of Schedule 3. 

 

Paragraph 14(1) of Schedule 9 of the Schools Standards and Framework Act 1988 provides that the composition of the governing body for a voluntary aided school shall include:

• the head teacher unless he or she chooses not to be a governor
• governors of each of the following categories
  • parent governors
  • LEA governors
  • teacher governors
  • staff governors
• co-opted governors
• foundation governors who should be greater in number than the above three categories

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D1.2 The School Foundation 

The School Foundation is a separate charity that owns the land and buildings occupied by Girls' High School

 

Governing Document		Board of Education Scheme of 30 January 1910 (replacing an earlier trust deed)
Objects		To advance education by the provision of the site for a school to be conducted in accordance with the tenets of the Church of England. The income of the charity is to be applied:
	(a)	in the maintenance, insurance and improvement of the school buildings
	(b)	in the promotion of religious instruction in accordance with the doctrines of the Church of England, by means of a Sunday School or otherwise, for children living in the parish
Trustees:		Ex-officio - the Rector of the Parish
		Nominated - two appointed by the Parish Council
		Co-opted - three trustees appointed by the trustees for the time being
Accountability		The Foundation is mentioned in the school's Instrument of Government, but only to say that the Foundation shall appoint a majority of the members of the Governing Body. The Foundation is not accountable to the School; the two charities need to collaborate to achieve a common aim.
Application of criteria		Administered by or on behalf of Girls' High School?
		The Foundation appoints the majority of the School's governors; the governors do not control the Foundation of direct its administration. Therefore, the necessary administrative connection is not present.
		Established for the purposes (or any special purpose) of a Girls' High School?
		The aims of the Foundation are not limited to supporting Girls' High School; the Foundation mainly fulfils its aims by supporting Girls' High School, but it could support a different school on the same site.
Conclusion		So the Foundation is a separate charity, not a connected institution and not exempt.
		In this case, the Foundation is an excepted charity (not required to register) created as a trust in the 1800s. But if it was a foundation or foundation body created under the powers in the SSFA 1997, it would be an exempt charity in its own right. Any charities administered by such a Foundation for the benefit of the school or the governing body charity could be connected institutions under paragraph 28(3) of Schedule 3. (These provisions are designed to work across a group of interconnected charities.)

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D1.3 The Memorial Fund

 

Governing Document		The governing document of the Fund is a Scheme of 20 December 1977
Objects		Its objects are:
	(i)	making interest free loans for such terms as the trustees think fit to pupils or former pupils of the High School for Girls who are aged 16 years or over and who are in need of financial assistance, to advance them in life;
	(ii)	if and in so far as the clear income of the charity is not required as above, making grants to such pupils or former pupils to advance them in life.
Trustees		The Scheme provides that the Fund's trustees shall be:
	(a)	ex-officio, the head teacher of the school;
	(b)	three nominative trustees appointed by the Committee of the High School for Girls' Old Girls' Union;
	(c)	two nominative trustees appointed by the Committee of the High School for Girls' Parents' Guild;
	(d)	two nominative trustees appointed by staff of the School; and
	(e)	one nominative trustee appointed by the Board of Governors of the school
Accountability		The Fund is not provided for in the constitution of the primary charity. It is not funded by the primary charity. It is not accountable to the primary charity.
Application of criteria		Administered by or on behalf of Girls' High School?
		Of the nine trustees, only one, the head teacher, is representative of the administrative body of the primary charity. The two nominative trustees appointed by staff of the school and the nominative trustees appointed by the Board of Governors of the school need not necessarily be the same as the teacher or staff governors who form part of the governing body of the school.
		There is no other mechanism in the governing document of either charity to require the Fund to be accountable to the governors of Girls' High School.
		Established for the purposes (or any special purpose) of Girls' High School?
		The objects of the Fund are substantially wider than those of a voluntary aided school.
		Therefore, the purposes of the two charities are not sufficiently compatible.
Conclusion		The Memorial Fund cannot be regarded as a connected institution within the meaning of paragraph 28(3) of Schedule 3, so is not exempt.
		Neither could it have been regarded as a connected institution within the meaning of paragraph 28(3) if just one of the conditions were satisfied.

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D1.4 The Prize Fund

 

Governing document		The governing document of the Fund is a trust deed dated 9 September 1957.
Objects		Its objects are:
		to award two prizes. One prize to be awarded to a pupil in any division of the most senior form for a proficiency in Mathematics and the other to a pupil in her third year at the school who has in the past year in the opinion of the headmistress shown the greatest effort and progress in Mathematics without necessarily being the most proficient pupil of the year.
Trustees		The trust deed provides that the headmistress shall apply the income of the Fund in perpetuity for the promotion and encouragement of education at the school in the manner set out in the deed.
Application of criteria		Administered by or on behalf of Girls' High School?
		The headmistress is both sole trustee of the Fund and ex-officio a member of the governing body of the primary charity.
		Therefore, there is sufficient administrative connection.
		Established for the purposes (or any special purpose) of Girls' High School?
		The objects of the Fund are compatible with and no wider than those of a voluntary aided school.
		Therefore, the purposes of the two charities are sufficiently compatible.
Conclusion		The Prize Fund can be regarded as a connected institution within the meaning of paragraph 28(3) of Schedule 3, and so it is exempt.

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Legal/Policy/Accountancy Framework

E1 Summary

Schedule 3 of the 2011 Act defines what institutions are exempt charities for the purposes of the Act "so far as they are charities". This is particularly relevant to those parts of the schedule which refer to groups of organisations, some of which will be charities and some of which will not.

 

Only in the cases of paragraph 28(1) and (3) do we have to consider the trusts of the charity to decide whether it is exempt.

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E2 Applying paragraphs 28(1) and 28(3)?

 

E2.1 Basic conditions

For a connected charity to be exempt, both of the conditions laid down in paragraph 28(1)(a) and (b) or paragraph 28(3)(a) and (b) must be satisfied. That is, there must be:

• a sufficiently close administrative connection between the connected charity and its primary institution (see section E2.3)

and

• sufficient compatibility of purpose (see section E2.5)

If a case officer has any doubts as to whether or not a particular charity satisfies these conditions, the case should be considered by a senior officer. 

 

If necessary, Legal Services should be asked for advice.

 

 

E2.2 Administrative connection - criteria to be satisfied

The requirement that the connected charity must be administered by or on behalf of the primary exempt institution is laid down in paragraph 28(1)(a) and paragraph 28(3)(a).

• To be administered by an exempt institution, the connected charity must be administered directly by it as trustee.

If this is the case, the first condition will be satisfied.

• To be administered on behalf of an exempt institution, there must be an administrative connection between the two which makes the affairs of the connected charity a matter of direct concern to the trustees of the primary institution.

 

In these cases, we have to look at the constitutional provisions which connect the administration of the two institutions. Both their nature and extent are relevant.

 

Every trustee body must exercise its discretions itself. Therefore, administration on behalf of an exempt institution cannot be interpreted as meaning "in accordance with the instructions of" or "in a manner which is subject to review by" the trustees of the primary institution.

 

Examples of provisions which are likely to satisfy this condition are:

• The trusts of the subsidiary charity provide that its charity trustees shall consist wholly of, or of a majority of:
  • those responsible for the management and administration of the primary institution
  • some other constitutional body of the primary institution (eg the finance committee)

or

• the officers of the primary institution
• The constitution of the primary institution:
  • provides for the establishment of the subsidiary 

and

• the primary institution wholly or substantially funds the subsidiary

and

• the trusts of the subsidiary charity require it to account for those funds to the primary institution

 

 

E2.3 Potential pitfalls

The necessary connection could not be deduced simply from the fact that:

• the constitution of the connected charity provides for the primary institution to appoint some (or even all) of its trustees, where the appointees may be people who have no connection with the administration of the primary institution
  • the trustees of the connected charity need the consent of the primary institution (or one of its officers) to exercise some aspects of their discretion
  • the constitution of the primary institution provides for the establishment of the connected charity. (This may however provide forcible supporting evidence if there are other factors present which indicate a sufficiently close administrative connection.)

 

Nor is the necessary connection present where:

• only a minority of the trustees represent the primary institution in some way

 

For example:

• The Parent Teacher Association of a voluntary aided school would not normally satisfy the condition even if the headmaster were given some right of veto over applications. Their administration would not, typically, be related to the administration of the school
• Prize and scholarship funds associated with a voluntary aided school will normally satisfy the condition because they are usually administered by the school governors or the headmaster ex officio

 

See the Case Studies tab for worked examples.

 

E2.4 Compatibility of purpose

The second requirement laid down in paragraph 28(1)(b) and paragraph 28(3)(b) is that the institution must be established for the general purposes of or for any special purpose of or in connection with the exempt institution (or, in the case of 28(3)(b), for the general purposes of or for any special purpose of or in connection with any other voluntary or foundation school).

 

We must look at the objects of both the connected charity and the primary institution to ensure that:

• they are compatible

and

• the objects of the connected charity are no wider than those of the primary institution

 

In practice, most primary exempt institutions will have objects which are very wide. Incompatibility will, therefore, rarely be a problem.

 

Where the primary institution acts as trustee of the connected charity there should be no question of incompatibility. It would normally be beyond the powers of a primary institution to undertake directly the administration of a connected charity with incompatible objects.

 

Where the connected charity is administered on behalf of the primary institution by individuals, the situation is slightly different. The trustees would not be acting beyond their powers simply because the objects of the two charities were not compatible. However, compatibility is still demanded by the terms of paragraph 28(1)(b).and 28(3)(b).

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