DCH 308 University of Cambridge
16 Mill Lane
Cambridge
CB2 1SB
Telephone: 01223 760336
Fax: 01223 332988
E-mail: david.parsons@rsd.cam.ac.uk
|
Memo
DAVID PARSONS
Solicitor
To The Joint Committee
on the draft Charities Bill
From David Parsons
Date 15 July 2004
Subject Written evidence
on behalf of the University of Cambridge
Introduction
1. The University of Cambridge is a common law
corporation which exists as a place of education, religion, learning
and research. It is authorised by the Lord Chancellor to act in
relation to charitable, ecclesiastical and public trusts as a
trust corporation. It is an exempt charity pursuant to the Charities
Act 1993, sections 3 and 96, Schedule 2, paragraph (b).
Compliance objective
2. The University notes that, in its report 'Private
Action, Public Benefit' (September 2002), the Prime Minister's
Strategy Unit proposed that the 'main regulators' of exempt charities,
such as universities, should "assess compliance with charity
law as part of their usual monitoring processes". The Strategy
Unit stated that the aim would be to introduce the requirement
to abide by charity law principles "with a light touch, using
existing forms and reporting mechanisms, so as to minimise any
additional regulatory burden". Moreover, in its response,
'Charities and Not-for-Profits: A Modern Legal Framework' (July
2003), the Government recognised that universities are already
highly regulated, referring to the conclusion of The Better Regulation
Task Force in 2002 that higher education institutions were in
some respects overburdened with bureaucracy.
3. The University contends that the proposed
objective of principal regulators to "increase" compliance
by trustees of exempt charities (clause 11(3) of the draft Charities
Bill) is at odds with the stated aim of the Strategy Unit. The
use of the word "increase" implies that current state
of compliance on the part of exempt charities is generally inadequate,
when there is no evidence to support this. In addition, it would
impose a constant and unwelcome duty on the part of principal
regulators to obtain progressively greater compliance. It would
necessarily oblige a principal regulator continuously to disturb
the existing level of compliance on the part of an exempt charity,
whether or not that level is regarded at any one time as adequate.
4. The University proposes that the word "increase"
in clause 11(3) of the draft Charities Bill be replaced with the
word "assess" (adopting the specific wording of the
proposal of the Strategy Unit report, paragraph 7.94). Alternatively,
the word "promote" (cf. section 1 of the Charities Act
1993) would seem better to reflect the intentions of the Strategy
Unit, as well as to address the concerns of the Government and
of higher education institutions themselves with regard to increased
regulatory burden.
Charitable purpose
5. The University welcomes the proposed inclusion
of the "advancement of education" within the statutory
definition of "charitable purpose".
6. In this context, the University notes the
reference in the Charity Commission's 'Commentary on the Descriptions
of Charitable Purposes' (16 June 2004) to the "advancement
of education" as covering "education, training and research
in specific areas of study and expertise, and broader education
in the development of individual capabilities, competencies, skills
and understanding".
7. The University draws attention to the introduction
in 1999 of a specific stream of Government funding to support
knowledge transfer in the university sector, as a complement to
the traditional priorities of teaching and research. The Government
has more recently announced that it will consolidate this funding
as a permanent third stream of financial support for universities
and the Lambert Review of Business-University Collaboration (Final
Report, December 2003) recommended the continuation of this investment.
Third stream activities encompass a broad range of interaction
between universities and business - from collaborations with SMEs
through to contract research, licensing and spinouts.
8. In light of the official recognition and
encouragement of third stream activities as a legitimate and proper
endeavour within the higher education sector, the University
proposes that knowledge transfer in its widest sense be expressly
recognised as falling within the "advancement of education"
as a charitable purpose or that it be specified as a charitable
purpose in its own right.
Trading activity
9. The University regrets that the Strategy Unit's
recommendation to enable charities to undertake trading activity
(beyond that which is in pursuit of its charitable objectives
and subject to a specific statutory duty of care and appropriate
amendments to tax legislation) has not been adopted in the draft
Charities Bill. Allowing trading within charitable entities would
have removed a significant administrative burden placed by the
requirement to establish trading subsidiaries. The University
believes that a provision to the effect of the Strategy Unit's
recommendation would provide it and other charities with a welcome
degree of flexibility as to their arrangement for income-generating
activity and would facilitate the diversification of revenue streams.
The University notes that the recommendation was supported by
the overwhelming majority of respondents to the Government's public
consultation process.
10. The University believes that the Government's
concerns with regard to unfair competition, arising from the tax
advantages enjoyed by charities, are misplaced. The Strategy
Unit's recommendation would do no more than give direct effect
to what the vast majority of charities already in practice achieve
through the cumbersome structures of trading subsidiaries donating
their profits. The University accordingly proposes that the
Strategy Unit's recommendation (4.47) with regard to trading companies
be adopted in full.
11. If tax-free trading within a charity is not
acceptable, an alternative would be to allow non primary purpose
trading within a charity to take place, subject to the normal
tax regime applying above the existing tax exempt threshold, or
preferably a higher threshold (in the region of a profit level
of, say, £100,000). The purpose of this would be to allow
charities to undertake activities which are either small in scale
or do not generate significant profits, such that any tax liability
will be less than the administrative costs of undertaking the
activity through a subsidiary company.
12. This is particularly germane to the university
sector where, because of the breadth of expertise within each
institution, it is commonplace to find a wide range of small scale
trading activity, none of which generates a significant profit,
but which would incur disproportionate expense, if they were all
to be transferred to a subsidiary. In many cases, the additional
expense of the subsidiary, along with the requirement on the charity
under transfer pricing rules to identify and recharge (at cost
recovery level) those costs incurred in the charity, would consume
the small profits derived from each individual activity. Individual
charitable institutions should therefore be free at least to decide
whether it is more cost effective to trade within the charity
and incur a small tax charge or to incur the administrative costs
of transferring activity to a subsidiary.
15 July 2004
© University of Cambridge
| 
