It is not uncommon for arts organisations with charitable status to also work through a non-charitable company. This may be to undertake work that is not charitable such as running vocational training or having a bar that is open to all and open most of the time. It is usual for any profits the commercial company makes to be gifted to the charity so the work will effectively be fundraising (and this has the added benefit that the commercial company avoids paying corporation tax on its profit). HMRC finds it easier to deal with Theatre Tax Relief applications where a separate trading company has been contracted to undertake the work that the Relief will apply to since this mirrors the way other sectors with similar tax reliefs work.
The Charity Commission, however, has become increasingly concerned that commercial companies may drive the connected charity in directions that are not charitable. They are paying particular attention to this where new charities are being set up to develop the work of existing (non-charitable) companies, something that does affect some ITC members.
If you are in this situation it is important to be aware that the Charity Commission will want to see evidence that the charity will be:
• Run and governed independently – the two boards should have few, if any, directors in common.
• Able to choose the activities it carries out to achieve its purposes.
• Able to decide how funds will be raised, held, accounted for and spent.
• Free to conduct its own meetings and decision making.
• Free to choose its legal, accountancy and other advisers.
• Able to identify and properly address conflicts of interest.
• Able to comply with this guidance.
If you are already running a charity that is connected to a non-charity the Commission recommend the following as key questions for trustees to consider in managing the connection -
Recognise the risks
• How does the connection with the non-charity benefit our charity?
• What are the risks for our charity?
• Have we assessed and addressed the risks?
• When is the next review of the risk assessment?
Don’t further non-charitable purposes
• Do we understand the scope and limits of our charity’s purposes?
• Is funding from or to the non-charity restricted to furthering our charitable purposes?
• If we invest in a subsidiary - can we justify the investment, do we monitor our investment?
• Are we free to make our own decisions in the best interests of our charity?
• Do we know when we wouldn’t agree funding or other arrangements with the non-charity?
Avoid unauthorised personal benefit and address conflicts of interest
• Have we identified and addressed any conflicts for any of our trustees who:
o are appointed by the non-charity
o are on its Board
o work at the non-charity
o have another link to it?
• Have we got approval for any trustee benefits that come from the connection?
Maintain your charity’s separate identity
• If we share our identity with the non-charity, how is this in our charity’s best interests?
• Have we identified and addressed the risks?
• Do our donors know which organisation is asking for their support?
• How do we help people outside our charity to understand that we are separate from the non-charity?
Protect your charity
• Are we satisfied that our arrangements with the non-charity protect our charity’s assets, beneficiaries and reputation?
• Do we have appropriate written agreements?
• Do we protect our charity’s position when:
o sharing our resources with the non-charity
o sharing the non-charity’s resources
o communicating jointly
The full guidance can be found at www.gov.uk/guidance/guidance-for-charities-with-a-connection-to-a-non-charity