Guidance Notes - Institute of Fundraising

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Guidance Notes - Institute of FundraisingGuid





    Institute of Fundraising Bates, Wells & Braithwaite

    Central Office Cheapside House

    Park Place 138 Cheapside

    12 Lawn Lane London

    London, SW8 !UD Tel: 020 7551 7777

    Tel: 020 7840 1000 Fax: 020 7551 7800

    Fax: 020 7840 1001 Web:


     VAT No. 547 8930 96 Registered Charity No. 1079573 Company Limited by Guarantee No. 3870883




    These Guidance Notes and the Standard Forms of Agreement between a charity and a commercial participator and/or another charity, its trading company and a commercial participator have been produced to help safeguard the interests of all parties, and comply with the Charities Act 1992 and the Charitable Institutions (Fundraising) Regulations 1994 (SI No. 3024).


1.1 What is a Commercial Participator?

    The Government White Paper 1989 „Charities; A Framework for the Future‟ referred to

    the commercial partner of a charity as a „co-venturer‟. When drafting the 1992 Charities

    Act, the Government invented a new term to add to the vocabulary of the voluntary sector

    “the commercial participator”. In essence, a commercial participator is someone who

    encourages the purchase of goods or services on the grounds that some of the proceeds

    will go to a charitable institution.

    Section 58(1) of the Charities Act 1992 defines a commercial participator as:

     “In relation to any charitable institution…..any person who:

    (a) carries on for gain a business other than a fundraising business, but:

    (b) in the course of that business, engages in any promotional venture in the

    course of which it is represented that the charitable contributions are to be

    given to or applied for the benefit of the institution".

    A charitable institution is defined as:

    “A charity or an institution (other than a charity) which is established for

    charitable, benevolent or philanthropic purposes”.

     A promotional venture is defined as:

    “Any advertising or sales campaign or any other venture undertaken for

    promotional purposes”.

    Venture has not been defined in any statute or, remarkably enough, considered in any

    legal judgement. However the Oxford English Dictionary defines “Venture” as “That

    which is ventured or risked in a commercial enterprise or speculation”.

; Institute of Fundraising 2 478453056.doc

    “To represent” is defined extraordinarily widely by Section 58(6) as meaning to represent:

    “In any manner whatever, whether expressly or implied, whether done by

    speaking directly……or means by a statement published in any newspaper, film or

    radio or television programme or otherwise”.

     “Charitable contributions” are defined by Section 58 (1):

    “In relation to any representation made by any commercial participator or other

    person, means:

    (a) the whole or part of:

    (i) the consideration given for goods or services sold or supplied by him,


    (ii) any proceeds (other than such consideration) of a promotional

    venture undertaken by him,


    (b) sums given by him by way of donation in connection with the sale or supply

    of any such goods or services (whether the amount of such sums is

    determined by reference to the value of any such goods or services or


    “Services” is defined by Section 58(9) as including facilities and in particular:

    (a) access to any premises or events

    (b) the membership of any organisation

    (c) the provision of any advertising space

    (d the provision of any financial facilities”.

    1.2 Examples of Commercial Participators

a) Affinity Card Companies

    Banks or financial institutions who issue credit cards in conjunction with a

    charitable institution and donate an agreed percentage of the customers’ total

    expenditure on the card to the charitable institution are commercial participators

    and subject to the Act.

b) Catalogues

    Some commercial organisations distribute catalogues of merchandising coupled

    with the inducement that part of the profits from the activity or part of the price per

    item will be passed to a named charity. In this case, the catalogue company is

    running a commercial business (selling goods by mail order), and in the course of

    ; Institute of Fundraising 3 478453056.doc

    that business is representing that part of the profits or part of the price paid for each

    good (the situation will vary) will be given to a named charity.

c) Promotional Sales of Goods

    Many leading retailers now agree to “give” a fixed price per product in return for

    the use of the charity’s logo on their products.

    1.3 Charities’ Trading Companies

    A trading company owned by a charitable institution is not a commercial participator, although the Home Office has requested that such trading companies should abide by the Act as if they were subject to it.


    2.1 Section 59 (2) Statements

    Section 59 (2) of the Charities Act 1992, provides that it shall be unlawful for the commercial participator to represent that charitable contributions are to be given to or applied for the benefit of a charitable institution unless is does so in accordance with an agreement with the institution, satisfying the prescribed requirements. The prescribed requirements are laid down in a statutory instrument, the Charitable Institutions (Fundraising) Regulations 1994, which states the prescribed requirements. In particular:

    (i) the agreement has to be in writing and signed by or on behalf of the charitable

    institution and the commercial participator

    (ii) the agreement has to specify certain key provisions, all of which are set out in the

    attached standard contracts.

    It is worth noting that by regulation 5 a commercial participator must:

    “On request, and at all reasonable times, make available to any charitable institution which is a party to that agreement any books, documents or other records (howsoever kept) which relate to that institution and are kept for the purposes of the agreement”.

By regulation 5 (2) those records have to be kept in a legible form.

    Breach of regulation 5 is a criminal offence, giving rise to a maximum fine of ?500.

    ; Institute of Fundraising 4 478453056.doc

    By regulation 6, any money or other property acquired by a commercial participator for the benefit of a charitable institution must be paid to the charitable institution as soon as is reasonably practicable after its receipt and, in any event, not later than the expiration of 28 days from that receipt, or:

    “Such other period that may be agreed with the institution”.

    The monies concerned have to be paid to the person or persons having the general control and management of the administration of the charitable institution, or paid into an account held by a bank or building society in the name of, or on behalf of, the charitable institution which is under the control and management of the administration of the institution. A commercial participator is under an obligation to hold all property of the charitable institution securely. Breach of regulation 6 (2) is a criminal offence, giving rise to a potential maximum fine of ?500.

    2.2 Section 60 (3) Statements

    Section 60 (3) of the Charities Act 1992 provides that, where any representation is made by a commercial participator to the effect that charitable contributions are to be given to, or applied for, the benefit of one or more particular charitable institutions, the representation shall be accompanied by a statement clearly indicating:

“(a) the name or names of the institution or institutions concerned

     (b) if there is more than one institution, the proportions in which the institutions are

    respectively to benefit

    (c) (in general terms) the method by which it is to be determined:

    (i) what proportion of the consideration given for goods or services sold or

    supplied by him, or of any other proceeds of a promotional venture

    undertaken by him, is to be given to or applied for the benefit of the

    institution or institutions concerned


    (ii) what sums, by way of donations by him in connection with the sale or supply

    of any such goods or services are to be so given or applied as the case may


     The following particular points should be noted:

    (a) Any representation made by a commercial participator has to be accompanied by

    the required statement.

    (b) A representation can be made expressly or implied. In the case of an oral

    representation, this means the statement has to be made at the same time or is

    clearly visible at the same time. In shops it should be sufficient that the statement

    is made clear by a legible sign, provided it is readily visible when the representation

    ; Institute of Fundraising 5 478453056.doc

    is made e.g. near the point of sale. In the case of a newspaper advertisement, the

    advertisement must contain the statement.

(c) As can be seen there are two different ways in which the statement can be made “as

    the case may require” and this will depend on the particular circumstances of the

    arrangements with the commercial participator.

    (d) Breach of Section 60 (3) is a criminal offence, giving rise to a potential maximum

    fine of ?500 per offence.


    3.1 There are Three Forms of Agreement Attached

(a) an agreement between a charity and a commercial participator

    (b) version A is between a charity, its trading company and a commercial participator,

    where the agreement will last for more than one year

    (c) version B is between a charity, its trading company and a commercial participator,

    where the agreement will last for less than one year

    The reason for having the three types of agreement is that the Charities Act 1992 throws up problems relating to direct taxation. As has been seen, the Charities Act 1992 requires that an agreement should be in place between the commercial participator and the charity.

    However, the activity of regularly licensing a charity’s name may constitute trading and consequently such activities have traditionally been undertaken not by charities but, where they amount to trading, by the charity’s trading company. However, the 1992 Act makes no provision for an agreement between a commercial participator and a charity’s

    trading company. Hence, depending upon the type of agreement that is reached, it may be necessary to enter into a simple agreement (between the charity and the commercial participator) of either version A or B of the tripartite agreement (involving the charity’s

    trading company).

    3.2 When to Use the Two Party Agreement

    (a) When the agreement is capable of lasting more than one year, the payment to the

    charity may be constructed as an annual payment (see the draft), and the income

    received by the charity effectively free of tax from the licence fees paid by the

    commercial participator. Charities are advised to take professional advice on the

    question of how the annual payment is to be set up and the recovery of tax deducted

    thereon achieved.

    (b) This will apply only where the charity is licensing its name and/or logo and doing

    nothing else.

    ; Institute of Fundraising 6 478453056.doc

    (c) Note that VAT will have to be charged on the licence fee, (if the charity is

    registered for VAT) even if the services are rendered by the charity, or, as a result

    of the licensing arrangements, will become liable to register for VAT (because its

    taxable turnover exceeds ?46,000 (1995 figure).

    3.3 When to Use the Tripartite Agreement Version A

    The tripartite agreement Version A combines an annual payment to the charity for the use of the charity’s name and logo and a payment to the charity’s trading company for the use of the databases, joint marketing activities etc. This can only be used where the agreement is capable of lasting for more than a year (see 7.1). A good example is an agreement for an affinity card with a financial institution.

    In terms of the Section 60 (3) statement, it is best to have most of the monies paid to the charity rather than to the trading company, although the payment to the trading company for its services must be realistic and at appropriate market rates.

    3.4 When to Use the Tripartite Agreement Version B

    When the agreement is not capable of lasting for more than one year, which will be the case with most agreements with commercial participators, Version B should be used.

    The purpose of using the trading company in these circumstances is that the income from these activities, if received by the charity, will be treated as trading income and any profits thereon will be likely to be taxed. If, on the other hand, the monies are received by the charity’s trading company, if it has tangible profits at the end of the financial year (i.e. these derived from the arrangement with the commercial participator and other sources net of costs, expenses etc.), those profits can be paid to the charity effectively free of tax under gift aid or deed of covenant.

    The problem with this arrangement is that monies will flow to the trading company rather than to the charity and therefore the wording of Section 60 (3) is strained considerably, because the requirement under that Section is that the statement should relate to payments being made to a charitable institution, and a trading company owned by a charity is not a charitable institution as defined. However, it is considered that the tripartite arrangement is the best that can be done in the circumstances in order to enable a charity to receive the profits from the arrangements with the commercial participator in a tax efficient manner and to comply with the requirement of the Act.


    The following practical notes may be of assistance in determining what sort of relationship to enter into with a commercial participator:

    ; Institute of Fundraising 7 478453056.doc

    a) Consult other charities known to you that have engaged recently in the kind of

    operation that you have in mind. Ask what the results of their activities were and

    whether there are any valuable lessons that can be gained from their experience.

    b) Consider the activities of the commercial participator. Do not be content merely

    with discussing the range of products or services with which the charity will be

    involved, but discuss in broader terms the activities of the proposed commercial

    participator and its subsidiaries and associate companies. Many modern day groups

    of companies have a very large number of subsidiaries and the charity should be

    satisfied that it is happy with the activities of the group as a whole. A charity’s

    reputation is precious and could all too easily be damaged by revelations in the

    media that the company with which it is associated through a joint promotion

    activity, is also engaged, via a separate company, in some sort of unsavoury

    dealings. Hence the need for the charity to be able to terminate the agreement

    quickly so that its name or reputation should not be brought into disrepute.

    c) Ask for an estimate of the likely turnover from the particular product line or service

    that is to be the subject matter of the agreement.

    d) Be very clear as to what the precise arrangement is in terms of the activities being

    requested from the charity’s side. Is it the mere licensing of the charity’s name or

    logo (in which case the charity itself can probably participate depending on the

    length of the agreement), or are there other activities to be undertaken e.g. joint


e) What is the period of the agreement?

    f) Go through these draft agreements with the commercial participator and with your

    professional advisers and adapt them as appropriate for the particular needs of the

    charity’s circumstances.

    g) Set up an internal system for monitoring the contract and the payment of monies

    thereunder, to ensure that all the contractual obligations on the part of the commercial

    participator are abided by and the charity/trading company has an effective internal

    method of monitoring the contract.

    h) The contract should be signed by a trustee and if appropriate a director of the

    charity’s trading company.

    ; Institute of Fundraising 8 478453056.doc

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