Changes to dissolution clause under Model Rules

Following discussions with HM Revenue and Customs (HMRC), the NHF has agreed to update its Model Rules for charitable Registered Providers established under the Co-operative and Community Benefit Societies Act 2014.

For any organisation to qualify as a charity for tax purposes, it must be established for charitable purposes only. This means that its governing document must restrict the organisation’s activities to ‘charitable purposes’, as defined in Charities Act 2011, and the organisation must be required to use its income and assets for those charitable purposes only.

The NHF’s Model Rules for charitable registered societies established under the Co-operative and Community Benefit Societies Act 2014, provided that, on dissolution, any remaining property may be given or transferred to another charitable body with similar objects to that of the association being dissolved.

HMRC has taken the view that the term ‘charitable body’ is not sufficiently restrictive and could, in theory, allow assets to be passed to an entity which is not deemed to be a charity in law. In HMRC’s view, the Model Rules would not restrict a Registered Provider’s use of its income and assets to charitable purposes, and hence a Registered Provider that adopted those rules could not be regarded as a charity for tax purposes.

To address this issue, and to remove any ambiguity, it has been agreed with HMRC that the dissolution clause in the Model Rules would be amended so that, rather than requiring any property remaining on dissolution to be transferred to another ‘charitable body’ with similar objects, they must instead be transferred to another ‘charity in law’ with similar objects.

HMRC accepts that requiring housing associations, which have previously been accepted as charities for tax purposes, to change their governing documents would be a very time-consuming process. HMRC has therefore agreed that any housing association that has previously been registered as a charity for tax purposes, based on the 2015 version of the Model Rules, will not be required to amend its dissolution clause.

However, any future applications from housing associations to register with HMRC as a charity for tax purposes will be required to have a governing document that reflects the above agreed terminology. If a charitable registered society is amending its rules for any other purpose, for example, as a result of a merger or to reflect a change of name, it should consider changing the dissolution clause in its rules at the same time.

The NHF will be formally updating the dissolution clause in its Model Rules to reflect the changes that have been agreed with HMRC, and is currently highlighting that alternative wording to the model should be used in the dissolution clause for any conversations or new registrations.


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Who to speak to

Adam Gravely, Finance Policy Officer