Much has been written in the press regarding the consequences of the Charities Act 2006 (‘the Act’) for independent schools. This article will briefly examine the current status quo and speculate on the future role of company secretaries within the independent education sector.
Prior to the enforcement of the Act it was generally, and legally, taken as a given that independent schools provided public benefit. This has meant that these institutions enjoyed a number of tax exemptions and reliefs due to their charitable status. With the introduction of the Act, however, independent schools will now have to prove that they are for the public benefit, with scrutiny and enforcement coming courtesy of the Charity Commission.
A core criticism elucidated by the Independent Schools Council (ISC) both throughout the formulating and the implementation of the Act has been the lack of clear parameters defining how to pass the ‘public benefit test’. For example, out of the twelve ‘guinea pig’ charities selected for initial assessment by the Charity Commission, two fee paying schools failed. The Commission’s reasoning for this failure was that they were deemed to not offer an adequate amount in bursaries for those who could not afford fees, and thus were not offering sufficiently to the ‘public benefit’. The ISC’s core point of contention with the Charity Commission is that the Commission is focusing on the provision of means-tested bursaries and downplaying the significance of partnerships with local schools and communities. Because the guidelines are both narrow and vague in nature,-i.e indeterminately bursary-centric, fee increases will be inevitable which will hit many financially struggling middle class families hard.
Issues of contention
As the Chief Executive of the ISC explicated in a recent interview, ‘the implications of the Commission’s findings appear to be that many schools must now aim to provide a significant, but still unspecified, proportion of their turnover in full bursaries. This will inevitably lead to fee increases’.
On balance, the ISC has a justified case to challenge the new system, especially when one considers that the collective tax benefit of the independent school sector saves the tax payer upwards of £3bn per year. One can speculate that parliament, which formulated the Act in a time of unprecedented economic growth may have to do some serious policy ‘back treading’ as it may price many out of the private sector in to the public, thus stretching the already tight purse of state education funds. Hence, if a school can present a good case to the Charity Commission and demonstrate ‘public benefit’ through good governance and accountability it should be able to comply with the new Act.
The role of company secretaries
With these implementations of the Charities Act 2006, there is now even greater need for independent schools to show they are working for the public benefit. This will mean that schools will be under increasing pressure to demonstrate how well they are governed if they wish to preserve their charitable status, and thus their tax benefits.
With the next year seeing all independent schools having to comply with the ‘public benefit test’, many schools will need to review their governance and compliance structures to prepare for the new rules. Many of these institutions will employ the use of a third party company secretary to assist them with this additional burden.
London Registrars are experienced in providing company secretarial services for independent schools, typically managing governors and committee meetings and providing advice on the governance structures needed to demonstrate compliance and good practice.