3. Can a Social Enterprise be a charity in Scotland?
Yes, if it can pass the charity test. The Social Enterprise in Scotland Census 2015 found that there are around 3,500 Social Enterprises registered as charities in Scotland.
The Charity Test
The charity test is set out in the Charities and Trustee Investment (Scotland) Act 2005 (the 2005 Act). To pass the charity test an organisation:
- must have only charitable purposes and
- its activities must provide public benefit in Scotland or elsewhere.
When we look at whether or not an organisation provides public benefit, we need to consider if:
- there is any private benefit from the organisation’s activities
- there is any disbenefit to the public from its activities
- there is any unduly restrictive conditions on accessing the benefit the organisation provides.
Not everything that is ‘beneficial’ in a general sense is necessarily public benefit in terms of the charity test. An activity can only provide public benefit if it is advancing a charitable purpose.
For example:
It may be ‘beneficial’ for a village community to have a grocery or convenience store, but this does not automatically make it charitable to provide one if the shop is run on a commercial basis for private benefit.
To pass the charity test any private benefit must be incidental to the organisation’s activities that advance its purposes:
- incidental means that the private benefit is a necessary result or by-product of the organisation’s activities and is not an end in itself.
In addition, an organisation will fail the charity test if:
- its governing document allows its assets to be distributed or applied for non-charitable purposes
- its governing document expressly permits government Ministers to direct or control its activities
- it is a political party or one of its purposes is to advance a political party.