Loss of busi­ness rates re­lief will hit pupils

The Courier & Advertiser (Dundee Edition) - - EDUCATION -

In­de­pen­dent schools have faced a steady in­crease of pres­sure on their char­i­ta­ble sta­tus over the past decade, says Ken­neth Pinker­ton, senior as­so­ciate with Tur­can Con­nell.

Be­tween 2009 and 2014, the Of­fice of the Scot­tish Char­ity Reg­u­la­tor (OSCR) car­ried out a com­plete re­view of the char­i­ta­ble sta­tus of the in­de­pen­dent school sec­tor.

A small num­ber of schools failed the char­ity test be­cause OSCR de­ter­mined they did not pro­vide suf­fi­cient pub­lic ben­e­fit. All of them took cor­rec­tive ac­tion, in­clud­ing ex­pand­ing bur­sary pro­grammes, and later passed.

More re­cently, the Scot­tish Gov­ern­ment has con­firmed that it in­tends to press ahead with the rec­om­men­da­tion of the Bar­clay Re­view of busi­ness rates to end char­ity re­lief for in­de­pen­dent schools.

The out­come of that re­view was that it was un­fair and un­equal for in­de­pen­dent schools to re­ceive rates re­lief at 80% when state schools do not qual­ify, and rec­om­mended that in­de­pen­dent schools should no longer re­ceive the re­liefs.

The Scot­tish Gov­ern­ment’s Pro­gramme for Gov­ern­ment 2018-19 stated that a Non-Do­mes­tic Rates Bill would be in­tro­duced to fur­ther im­ple­ment rec­om­men­da­tions of the Bar­clay Re­view.

In par­tic­u­lar, it will “...de­liver mea­sures to in­crease fair­ness and en­sure a level play­ing field by re­form­ing a num­ber of re­liefs...”.

It is un­der­stood that the Bill will be in­tro­duced in the early new year, sub­ject of course to on­go­ing de­mands on civil ser­vants due to Brexit.

Will the out­come of the Bar­clay Re­view be a push too far? The re­moval of busi­ness rates re­lief will no doubt lead in­de­pen­dent schools to re-ex­am­ine their busi­ness model. That will likely in­clude in­creas­ing fees and per­haps de­creas­ing bur­sary pro­vi­sion.

It has been sug­gested that de­creas­ing bur­saries would be a dan­ger­ous move for in­de­pen­dent schools. This is one of the el­e­ments of their work OSCR con­sid­ers a pub­lic ben­e­fit and qual­i­fies them for char­i­ta­ble sta­tus.

What then if the in­de­pen­dent schools con­sider aban­don­ing char­i­ta­ble sta­tus and thus the re­quire­ment to pro­vide pub­lic ben­e­fit? In an ar­ti­cle in Civil So­ci­ety in May 2018, it was re­ported that in­de­pen­dent schools south of the bor­der are in­creas­ingly find­ing ways to aban­don char­ity sta­tus, ac­cord­ing to re­cent re­ports.

The in­de­pen­dent schools coun­cil re­ported in its an­nual cen­sus that only 75% of schools have char­i­ta­ble sta­tus and its fig­ures show this per­cent­age has been fall­ing grad­u­ally but steadily for a decade.

Aban­don­ing char­i­ta­ble sta­tus will re­quire con­sid­er­a­tion of the op­tions and risks of re­moval from the Scot­tish Char­ity Reg­is­ter, crit­i­cal for char­i­ta­ble sta­tus. That said, there is pro­vi­sion within the Char­i­ties and Trustee In­vest­ment (Scot­land) Act 2005 (2005 Act) for a char­ity to ask to be re­moved from the Scot­tish Char­ity Reg­is­ter.

Mat­ters are not nec­es­sar­ily as straight­for­ward as one may think. Un­der the 2005 Act, OSCR has mon­i­tor­ing obli­ga­tions over for­mer char­i­ties.

Those obli­ga­tions re­late to the as­sets of a char­ity at the time of re­moval from the Scot­tish Char­ity Reg­is­ter. OSCR has a duty to en­sure that such as­sets are used for the pur­poses of the char­ity set out in the reg­is­ter im­me­di­ately be­fore its re­moval.

For ex­am­ple, even although no longer a char­ity, any “per­ma­nent as­sets”, for ex­am­ple the school build­ings, must still be used to ad­vance ed­u­ca­tion. How­ever, it would not be nec­es­sary to pro­vide pub­lic ben­e­fit.

In ad­di­tion, there will be the loss of tax priv­i­leges to con­sider. The key ones for the in­de­pen­dent schools to con­sider, in ad­di­tion to the loss of busi­ness rates re­lief, are di­rect tax, VAT, Land and Build­ings Trans­ac­tion Tax for land trans­ac­tions in Scot­land and Stamp Duty Land Tax for land trans­ac­tions in Eng­land and Wales.

In tak­ing the de­ci­sion to ask to be re­moved from the Scot­tish Char­ity Reg­is­ter, the char­ity trustees would have to ap­ply their gen­eral du­ties un­der sec­tion 66 of the 2005 Act.

In par­tic­u­lar, the char­ity trustees must act in the in­ter­ests of the char­ity and act with the care and dili­gence that is rea­son­able to ex­pect of a per­son who is manag­ing the af­fairs of an­other per­son.

That is taken to be a higher stan­dard than a per­son look­ing af­ter his or her own af­fairs. Given the on­go­ing mon­i­tor­ing obli­ga­tions and the loss of tax priv­i­leges, it would be chal­leng­ing for char­ity trustees to con­clude that re­moval from the Scot­tish Char­ity Reg­is­ter is in the best in­ter­ests of the school.

As men­tioned ear­lier, the re­moval of busi­ness rates re­lief will prompt the re-ex­am­i­na­tion of the busi­ness model. There will likely be plan­ning op­por­tu­ni­ties to en­sure that any tax re­liefs avail­able are se­cured.

Any re-ex­am­i­na­tion should con­sider the en­tire “busi­ness” and in­clude, for ex­am­ple, the use of as­so­ci­ated foun­da­tions and the like.

In all of this, who might suf­fer the most? It has been re­ported that, fol­low­ing the re­view of in­de­pen­dent schools, in ad­di­tion to the con­sis­tent shar­ing of fa­cil­i­ties and re­sources with lo­cal com­mu­nity, means-tested bur­saries pro­vided by in­de­pen­dent schools in Scot­land have tripled.

Were in­de­pen­dent schools to aban­don char­i­ta­ble sta­tus and, as a con­se­quence, re­solve to re­duce bur­sary pro­vi­sion then surely it will be those ben­e­fit­ing the most from bur­sary and schol­ar­ship pro­vi­sion who will suf­fer the most, namely our chil­dren and young peo­ple.

If that is an out­come of the Bar­clay Re­view, how will it ful­fil the aim of the Scot­tish Gov­ern­ment’s ed­u­ca­tion pol­icy – “…to en­sure that we achieve ex­cel­lence and eq­uity for all of our chil­dren and young peo­ple in a highly per­form­ing ed­u­ca­tion sys­tem”?

Top: Ken­neth Pinker­ton, senior as­so­ciate with Tur­can Con­nell; above: pupils lis­ten­ing in the class­room and, left, car­ry­ing out sci­ence ex­per­i­ments.

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