Lawbite: Trust me, a charity you are not!

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11-02-2020

Derby Technology Hospitals NHS Foundation Trust and others v Derby City Council and others [2019] EWHC 3436 (Ch)

The High Court has held that NHS Foundation Trusts are not charities for business rates’ purposes and are therefore not entitled to the 80% reduction in business rates’ liability automatically afforded to them.

The business rates regime in England and Wales is governed by the Local Government Finance Act 1988 (“the Act”).

Under the Act, charities are entitled to an automatic 80% reduction in their business rates’ liability where both (1) the ratepayer is a charity; and (2) the relevant property is wholly or mainly used for charitable purposes (whether of that charity or of that and other charities) (s.43(5) and s.43(6)).  It is important to note that both limbs need to be made out for the automatic reduction to apply.

A charity is defined under the Act as “an institution or other organisation established for charitable purposes only or any person administering a trust established for charitable purposes only” (s.67(10)) (emphasis added). Whilst an organisation which is formally registered as a charity (under charities law) is conclusively presumed to be a charity under the Act (s.37), an unregistered organisation will be regarded as a ‘charity’ for business rates’ purposes if it can show that it is “established for charitable purposes only”.

The relevant NHS Foundation Trusts were not registered charities. The High Court therefore had to consider whether they were nonetheless “established for charitable purposes only” (emphasis added).

The High Court carried out a detailed review of the NHS Foundation Trust’s ‘purposes’ under the National Health Service Act 2006 (the instrument which created the Trust) and determined that they were not exclusively charitable due to the wide terms in which they were framed - by reference to “any purposes”, “related to” and “in connection with”.

Sadly for the NHS Foundation Trusts, the word “only” in s.67 is “of the essence” – an institution established for charitable purposes and other purposes is not a charity (even if, in practice, it only pursues its charitable purposes).

Key points

• Whilst helpful in confirming that organisations not formally registered as charities (under charities law) can still show that they are ‘charities’ for the purposes of business rates, this decision highlights the narrow window within which such organisations need to fall to do so;
• Such an organisation must be established for charitable purposes only – it cannot have other, non-charitable, purposes;
• To benefit from the automatic business rates’ reduction, the organisation must then show that the relevant property is “wholly or mainly used for charitable purposes” – just because a charity uses a property does not necessarily mean that such use is “for charitable purposes”; and
• We should not be surprised if we see the VOA taking a closer look at non-registered charities claiming ‘charitable relief’ to assess whether their purposes are only charitable.