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Jonathan Russell, Partner at member firm Rees Russell looks into the increasingly blurred lines between businesses and charity.

I’m writing this following the news that the charity, Kids Company (well Keeping Kids Company to use its full name), is expected to cease this evening having received a special grant advance last week of £3m. Through my practice I carry out audits fora very large number of charities and it has been one of my discussion topics with those running charities and their trustees to include, alongside the usual public benefit issues, the question of ‘public service’ delivery.

David Cameron when talking about budgetary cut backs in local authorities was quoted as saying it would be a good time for charities to step up to the plate. His inference was that he considered many of the services frequently provided to disadvantage individuals by councils might well be considered of a charitable nature. I am not suggesting in anyway who should, or could, provide these services, but it has increasingly become the case with many of the charities I advise, that they are now providing services, which previously might have been included in a local council’s provisions and the charity is often receiving funding from the council to deliver these services. This is simply outsourcing.

My problem is not that the provision of such a service might not be very worthy, but whether it is truly charitable? Let me explain my dilemma with a scenario. A charity might be created with the charitable purpose of assisting, re-training and supporting long-term unemployed people back into work. The Government also has a similar objective so they make money available for this to be done. The money gets distributed to local authorities who then, rather than provide the service in house, put it out to tender. The tender is won by Mega Retraining Limited who then put it out to tender again and award part of the contract to The Extremely Helpful Charity which has the same charitable objective we started out with at the beginning of this paragraph.

The charity considers the money as a grant, which is conditional upon delivering the required service under their contract with Mega Retraining Limited, which accord exactly with their charitable objectives. As they are a charity they have all the tax advantages of charitable status and probably have people working for them at much reduced rates, often because of charitable feelings. All very laudable. However, Micro Retraining Limited also bid for the contract from Mega Retraining, but lost out on price and as their services cost was higher because, as a business, their building was assessed for full business rates and if they made a surplus on delivery they would have to pay tax on it etc.

I would like to stress that I fully support all charitable activity and intentions, but we do have to be careful, there seems to very blurred line evolving between true charitable activity and commercial delivery. This really has nothing to do with Kids Company, except that part of what they did was something which Government wanted someone to do and was pushing money out through various channels, which arrived within the charity. But to what degree was this really just Government outsourcing work? I am sure so long as delivery happened the Government would not have minded if it was a commercial company doing it or a charity.

We have always had charities and associated trading companies, but maybe the line between trading and charitable activities is becoming confused. Just because something which is being done by a charity meets its charitable objectives does not instantly mean it is a charitable activity, does it?


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