Brexit, Charity & Social Enterprise - Structures & Funding

This section will look at charities and social enterprises generally – their structure and funding – and how that might be impacted by Brexit. In particular, it explores the impact of Brexit on:

• charities and social enterprises establishing in England & Wales;
• EU charity and social enterprise vehicles;
• charities and social enterprises which work in the EU;
• cross-border giving to charities within the EU;
• Accessing European funding.

What is changing and what is not?

Charities and social enterprises establishing in England & Wales

Unlike in some jurisdictions, charities established in England & Wales are able to work (providing services and spending money) all over the world and are not limited to spending money only within these borders; this may, of course, be subject to local requirements around setting up branches and employment. This is a legal principle here and will not change as a result of Brexit. 

Some charities specifically have reference to the EU within their objects or primary activities (a brief search of the Charity Commission website revealed over 3,000). These organisations will need to adjust that, unless the term can omit the United Kingdom in the activities they carry out.

For the wider social enterprise market, we are not aware of anything specific which would impact on their ability to establish themselves in the UK as a result of Brexit, although clearly there may be a difference to their operating model (see other sections of this Brexit briefing).

Independent of Brexit, we are aware that at the time of writing the Government has declared its intention to cut its international aid budget but although this might impact on Government funding projects internationally, England & Wales remains a popular home for many new international charities. In our recent (and anecdotal) experience, many third-party country applicants are still choosing to set up in England & Wales, despite Brexit, predominantly because of its:

• tight and thorough regulation which sees favour with some donors (and relative predictability for registration);
• ability to fund abroad (not a given in every country);
• the fact that not all trustees must be based here;
• favourable tax treatment;
• and long and established history of charity law.

EU Charity & Social Enterprise vehicles

There have been previous recommendations to create cross-EU charity and social enterprise vehicles, for instance in July 2018 the European Parliament proposed to the Commission the creation of an EU-wide legal status for social enterprises. This never really took off and the UK will most likely now not be invited to be a part of any such project.

Charities and social enterprises working into Europe (e.g. providing services)

We are not going to explore this issue in any detail here. For organisations which work into the EU at the moment (for instance providing goods or services), organisations would be prudent to assume the legalities will be similar to working in any other third-party country and will need to be checked.

Some charities may need to consider changing their charity’s objects – see above.

Charities – cross border giving

Brexit will likely mean the opportunity for cross-border tax efficient giving from within the EU into the UK and vice versa will cease, but actually in our experience the opportunity has not been widely used to date.

Before the Finance Act 2010, HMRC did not allow reliefs for any charitable organisations that were established outside the UK, even if such organisations were charitable according to the laws of the UK (I say UK in this context because taxation is not devolved unlike the rest of charity law). Predominantly as a result of the Persche case in 2009 (Hein Persche v Finanzamt Lüdenscheid, Case C-318/07), the Finance Act 2010 extended charitable tax reliefs in the UK to organisations in the EU, Norway and Iceland that are equivalent to UK charities. To qualify, the organisations need to meet the definition of a charity under the laws of England and Wales and be registered with the charity regulator in their home country (as required), as well as be managed by ‘fit and proper persons’.

These rulings are complicated because the charity must be recognised as a charity in the member state in which the relevant tax relief is being sought.  It is not always straightforward to register such charities with HMRC.

The ability to utilise these reliefs is likely to cease as a result of Brexit because the UK will no longer be bound by the relevant caselaw, but this is not definite.  

As well as the potential impact for charities in the UK, if the wider relief is withdrawn, then UK donors will also not be able to make donations to charities in other member states. Individuals can still, however, donate to a charity based in England & Wales, which could (if conditions are met) make a grant abroad, including within the EU. For donors that wish to do that, there may be an opportunity for certain donor advised funds to assist.

Accessing European funding

In terms of current funding commitments, the Government website says “Although the UK has left the EU you’ll continue to get any EU funding you’ve already been awarded. This includes funding you’re due to get after 31 December 2020”, although the basis on which they have confirmed that is not clear.

In terms of future funding commitments, the Government has stated that organisations in the UK can still apply to some EU funds under the current spending framework, e.g. the Rural Development (European Agricultural Fund for Rural Development) and the EU Aid Volunteers Initiative. This could change, however.  Further, it has not yet been decided what funding UK organisations will be able to apply for after the spending framework ends.

What action do you need to consider now?

Organisations to which this section is relevant should:

• Check their organisation’s objects (particularly if charitable) and consider if amendments might be needed.
• If they are in receipt of tax efficient donations from within the EU, potentially consider alternative structures and certainly communicate with any key donors to whom this might be applicable.
• Definitely keep in communication with EU contacts regarding any funding.
• Depending on what precisely the organisation does, read the remaining sections of this Brexit briefing to see what other preparation is needed.