Charitable status is like a ‘badge of credibility’ that tells the public and those your organisation wishes to work with (such as renewable energy businesses) something important about your organisation’s purpose and how its work is regulated. It provides a degree of assurance that the organisation is focused on delivering public benefit rather than private gain. It is not a legal structure in itself, but can be applied to various legal structures (see section 3).

There are also financial advantages should the organisation receiving and holding the funds be a registered charity, including relief or exemption from some taxes, such as corporate gains tax and tax on interest on sums held on account. For this reason, most organisations set up to govern community benefits have charitable status.

Common concerns associated with charitable status are:

  • Limitations on the type of things your organisation can do or fund; if the entity that receives and holds the community benefit fund on behalf of the community is a registered charity, the money becomes charitable in nature and can only be used to support activities that are charitable in nature, as defined by the ‘The Charities and Trustee Investment (Scotland) Act 2005’
  • Additional legal responsibilities including compliance with statutory duties for charity Trustees and annual reporting to The Office of the Scottish Charity Regulator (OSCR) on your organisation’s activities.

Charitable status – and therefore ability to call your organisation a charity – can only be gained by successful registration with OSCR. To be eligible, the organisation’s core objectives (‘purposes’) must be regarded as charitable, and its activities as providing public benefit. It must also have some form of ‘asset lock’. You can find out more about charitable status, including definitions of ‘charitable purposes’, how to register as a charity and the key considerations involved from OSCR and the Scottish Council for Voluntary Organisations (SCVO).

OSCR is also responsible for ensuring that registered charities continue to comply with aspects of the legislation that regulates charities in Scotland. Charities must submit an annual return and accounts to OSCR every year and seek its permission to make certain changes to the organisation. You can find out more about the practical and legal implications of running a charity by visiting SCVO’s website.

When identifying appropriate decision making arrangements for the community benefits (and when developing the fund strategy) it is essential to establish whether the community benefits package is to be charitable in nature. Some owners of renewable energy projects make their community benefit payments as charitable donations. This means that they may receive tax relief on the donations. If this is the case, then the community benefits must only be used for charitable purposes. Whether or not this is the case, it is a good idea to consider whether the organisation that governs the community benefits should be registered as a charity, weighing up the associated advantages and disadvantages carefully and in light of the particular circumstances of your organisation, local needs and aspirations, and the terms of the Agreement held with the renewable energy business.

If the community benefits are to be charitable, those involved in making funding decisions will need to develop a good understanding of what is and isn’t charitable under Scottish charity law, and ensure funds are only disbursed for activities that are in line with that. This doesn’t mean the community benefits can only support registered charities, but it does mean that the people involved in governing the community benefits are responsible for ensuring funds are used charitably.