Supplementary memorandum from Nuffield
Hospitals (DCH 333)
Thank you for your letter of 7 July addressed
to Jack Jones, Finance Director, Nuffield Hospitals. As you will
appreciate I was away on leave when the Committee requested that
I attend to give evidence and Jack Jones went in my stead. As
result I am responding to the Committee on behalf of Nuffield
Hospitals.
TAX LAW
REVIEW
Attached as an annex to this response is our
analysis of the tax advantages accruing to Nuffield by dint of
its charitable status. The sum is significant £18.5 million,
representing 4.5% of Nuffield's income of £409,517,000; all
of this is of course used only for our charitable purposes as
an institution for the relief sickness and the advancment of health.
CHARITY LAW
REVIEW AND
POSSIBLE ALTERNATIVE
LEGAL FORMS
FOR NUFFIELD
We undertook to do further research to determine
whether there are alternative legal forms that Nuffield could
adopt, which we have now done. However, before coming to that
we would like to revert to an earlier part of our evidence in
order to provide the context for our response.
The Committee began by asking why an organisation
such as Nuffield should enjoy charitable status and the Committee
asked particularly why "charitable" status. The Committee
expressed the view that the purpose of charitable status was to
confer some sort of benefit to the public.
We have now had the opportunity to reflect on
this with colleagues and advisers, and would respectfully submit
that the questions are not quite correctly framed. If we may say
so, the Committee's line of questions reflects widely accepted
assumptions about charity that we think are not correct in a subtle
but crucial way. This misconception is a major factor in the difficulty
which some have in seeing how schools, hospitals, and other charities
that charge fit into the whole picture of charities in Britain.
The key point is that organisations do not seek
charitable status: on the contrary the law insists that certain
organisations are treated as charities for reasons that we will
come to.
The fundamental point about charitable status,
which is frequently overlooked, is that it protects property that
has been allocated to the public good. Charity law has evolved
to say, in effect, if someone is alleged to be holding property
for the public good first let us see that it really is a public
good and second let us ensure that it is properly used for that
purpose. Trustees are under a legal obligation to register their
charity to ensure that it is visible as such to the Commission
and to the public. Trustees crucially do not apply for charitable
status. Charitable status is often spoken of as though it were
optional and that it can be applied for it as some kind of add
on. This is not correct: trustees do not ask for anything: the
Charities Act orders them to register. (It strikes us therefore
that the statement currently being used that new "voluntary"
organisations will be able to choose whether to register as a
charity of a Community interest Company (when that legal form
becomes available) is incorrect.)
Whether an organisation is registered as a charity
does not affect its charitable status. Nor does it affect the
power of the Charity Commission or the Court to intervene to protect
the property. Parliament requires registration to facilitate protection.
To understand the present law it is vital to see charitable status
as fundamentally a protective mechanism. It is not something that
begins with individuals or organisations seeking that status.
It begins with the law saying that the public are entitled to
have property given for a recognized good public purpose protected
and applied only for that good purpose.
A number of points flow from this:
— First, the presumption of public
benefit for many charities, (which the current Bill as drafted
would remove) can be seen as working in favour of the public good
because it tilts the playing field in favour of charitable status.
What it says is that if someone has property which appears to
be allocated for the public good, then within broad headings the
Courts and the Charity Commission should presume (until otherwise
shown) that it is indeed for the public good: the protective process
of Charity Law is then automatically engaged.
— Second—and this is important
for our answer to the Committee— the protective regime of
Charity Law does not depend on a charity being organised in any
particular form. It is all about purpose. If an organisation is
to hold property for a recognised public good the organisation
must submit to the protective regime of Charity Law. The Courts
and the Charity Commission must be free to go into any organisation
as appropriate to say: "that property is supposed to be being
applied for the public benefit; it is being misapplied and we
will intervene to see that it is applied properly".
— Third, if Parliament, as the custodian
of the public good, through the Courts and the Charity Commission
recognises certain property as being applied exclusively for a
specific public good it is logical to refrain from taxing temporary
surpluses in that property if the alternative is only to apply
the tax to some other version of public good. Since charity property
can only ever be applied for its charitable purposes it must ultimately
be applied for the public good and therefore any surplus is merely
a temporary state of affairs until all the property is ultimately
so applied.
— Fourth, it does not matter that similar
benefits are available in other ways so long as what is offered
is genuinely available to the public. In Nuffield's sector choice
is a major element of this: individuals can choose to have an
operation in the NHS or they can choose to have it with us. People
can choose whether to spend their money on an operation with us
or, for example, on a holiday. It is a benefit to the public that
they can choose. And charity law operates to ensure that that
benefit continues by requiring all our property and surpluses
to be kept only for the stated charity purposes.
We are now ready to come to the answer to the
Committee's question.
Nuffield does not particularly seek charitable
status as such. We set out to benefit the public by providing
a hospital service. A privately run commercial hospital could
say the same. However, we also say that we will not distribute
surpluses in dividends or any other private profit and this is
fixed in our constitution. At that point, as the law stands, Parliament
insists that our property be protected by registration as a charity.
This is the common denominator of Nuffield and Oxfam, and all
other charities. The money we collect through the charges we make
is the same for this purpose as Oxfam money in a collecting tin.
It would not matter what legal form we adopted. Whether we were
a company limited by guarantee (which we are), or, an unincorporated
association, an industrial and provident society, incorporated
by a special Act of Parliament or Royal Charter it would make
no difference because our purposes would be unchanged and it is
our purposes that define us as a charity. It is possible for an
organisation in any of these forms to be constituted without being
a charity but only if the purposes are not charitable.
A new possibility would appear to be to become
a Community Interest Company (CIC) when that form becomes available,
on the basis that the assets of the company would continue to
be "ring fenced" for the public good. As things stand
in the draft legislation for the CIC it will not be possible to
be a CIC and a charity. So if Nuffield lost charitable status
it would be something to consider. However because, as we understand
it, CICs will be structured to allow the distribution of some
profits they will not to be afforded any of the tax advantages
available to charities. Nuffield would obviously not choose to
lose the tax advantages that are enjoyed by the public through
our present structure and status.
In the light of these reflections we have reached
the conclusion that the greatest harm from Nuffield losing its
charitable status would be to the public because the protective
regime of charity law would have been taken away. For Nuffield
as an organisation the principal damage would be the loss of the
tax reliefs: that would effectively reduce the surpluses that
we have for investment. No one benefits from those surpluses except
the public; there is no one behind Nuffield benefiting from surpluses:
Nuffield exists only to benefit the public so the only effect
of taxing our surpluses would be to damage our capacity to serve
the public.
It seems to us that there are two options going
forward. One is to ensure that the Bill is drafted in such a way
as to ensure that the existing law is retained, and that bodies
such as Nuffield; with purposes defined to benefit the public—advancing
health—should not be treated as failing to be for the public
benefit because they charge. This is naturally the outcome that
we would prefer.
However if the Bill goes forward as drafted
it seems that the degree of uncertainty in the present law may
be increased. There appears to be a desire to ensure that fee
charging charities offer the widest degree of public access, and
that the regulator be given sufficient powers to enforce compliance
on those not deemed to be doing enough. It has also been said
that the new checks will focus on private schools and hospitals.
Charities in a number of other sectors, eg those engaged in care
for the elderly, also charge for their services, including some
of the very largest (the Anchor Trust makes the vast majority
of its income from charging, whilst the British Council acknowledges
on its website that is expects to earn £145 million in 2004-05
from the selling of services). It seems to us that all such charities
should be subject to the same disciplines, and if a new regime
were to be enforced as currently mooted Nuffield would be probably
be obliged in the interest of the public it serves to test firmly
any adverse or inconsistent application of the regime.
However we believe that one of the underlying
motivations behind the draft Bill, and apparent concerns of the
Joint Committee, is to bring the concept of charity in English
law into line with the public perception, which centres around
the giving away of value rather than the provision of services
using property ring fenced for the public good. We acknowledge
that Nuffield might well not be labeled as a charity under such
a regime. We think it would be very difficult to draw the line
between organisations such as Nuffield which charges for the great
majority of the services it provides and charities that charge
for only some of theirs services.
If that genuinely is the ultimate objective
the alternative would be better to say so clearly. One outcome
of this, as mooted by Lord Campbell-Savours, would be to have
certain bodies recognised in a completely separate category .
On the basis that Nuffield's assets would still be ring fenced
for its purposes, surpluses would not be taxed and the organisation
would continue to have benefit of the tax advantages that it currently
does, Nuffield would be willing to consider alternative legislative
and regulatory structures. Whilst feeling this to be unnecessarily
complex Nuffield would be pleased to work with the Government
to take the idea forward.
As note above CICs as it stands are not to be
afforded any of the tax advantages offered charities, so for this
alternative to be acceptable more work would need to be done on
the tax advantages and the degree of asset protection to be taken
forward. Again we would be pleased to work with the Government
on this.
In conclusion we would repeat what Mr Jones
said at the oral hearing, namely that the public benefits enormously
from Nuffield's status as a charity, principally in terms of knowing
that the assets are protected and must only be used in support
of its purposes, and that Nuffield uses the tax advantages gained
properly to invest in improving the standard of healthcare provided.
Whilst acknowledging the duty on the trustees to keep access to
those who might otherwise be excluded by inability to pay fees
as wide as possible, there should be nothing in the draft Bill
that upsets that position.
However, if the intention is to separate out
fee charging service providing charities then this should be honestly
stated, and the work needed to make it happen should begin as
soon as possible, fully engaging the bodies involved. However
full consideration of what might be lost from this in terms of
the protection of assets and the capacity to deliver public services
other than through the state must be fully considered. Overall,
the Committee must understand that at present there is no alternative
form of structure available to Nuffield Hospitals as suggested
by Mr Milburn. Without charitable status there would be no protection
for the public over our assets and no tax advantage to benefit
the public.
If I can be of any further assistance, please
do not hesitate to contact me.
July 2004
TAX RELIEF
AVAILABLE TO
NUFFIELD HOSPITALS
AS A CHARITY
The tax relief available to Nuffield Hospitals
falls within the following three broad categories:
1.
Relief from Corporation Tax on the surplus generated
from the provision of the services that constitute our charitable
objectives viz.
To prevent, relieve and cure sickness and ill
health. . ."
In 2003 the Net Surplus generated by Nuffield
Hospitals was £2,978,000, giving rise to a notional Corporation
Tax saving (assuming that the depreciation charge for the year
is equivalent to the capital allowances relief which could be
claimed) of £893,400 at a CT rate of 30%.
2. Relief from 80% of the Business rate payable
across Nuffield Hospitals properties
Full rate assessment
£3,155,000
80% statutory relief obtained
£2.524.000
3. Relief from VAT under the VAT Act 1994
Group 15—zero rate schedule as follows:
|
| Value of Zero Rate Relief on
|
| Capital
Expenditure
| Revenue
Expenditure
|
|
| VATA 1994, Group 15 Item ~ | £2,770,000
| £9,116,000 |
| Medical Equipment purchase or hire |
| |
| VATA 1994, Group 15, Item 6 & 7 |
| £766,000 |
| Medical equipment repairs |
| £245,000 |
| VATA 1994, Group 15, Item 8 |
| |
| Advertising | |
|
| VATA 1994, Group 15, Item 9 |
| £2,234,000 |
| Medicinal products | |
|
| Total VAT zero rate relief in 2003 | £2,770,000
| £12,361,000 |
|
SUMMARY OF
TAX RELIEF
|
| Tax Relief in 2003
|
|
| Corporation Tax | £893,000
|
| Business rate | £2,524,000
|
| VAT zero rate | £15,131,000
|
| Total Tax Relief | £18,548,400
|
|
Corporation tax on capital gains and Stamp duty/Stamp duty land
tax are not material amounts
|
| Surgical/Medical Episodes
| Outpatient Events |
Total Patient Activity |
|
| Insured patients | 144,601
| 599,628 | 744,229
|
| Self Pay patients | 44,001
| 229,803 | 273,804
|
| NHS patients | 13,882
| 23,169 | 37,051
|
| Total Patient | 202,484
| 852,600 | 1,055,084
|
|
|
