When Is an Organisation a Charity? Three Recent Challenges and What They Reveal About Public Benefit

When Is an Organisation a Charity? Three Recent Challenges and What They Reveal About Public Benefit

The Charities Act 2006 defines a charity as an organisation established for a charitable purpose that benefits the public. Although case law interprets public benefit, Lord McNaghten's 1891 classification still guides the courts today.

This article examines three recent controversies that tested the boundaries of charitable status and explores what these cases reveal about how public benefit is applied in practice.

What Constitutes a Charity?

Under the Charities Act 2006, an organisation must pursue a charitable purpose and provide public benefit. Lord McNaghten's 1891 four categories remain influential: the relief of poverty, the advancement of religion, the advancement of education and other purposes beneficial to the public. Charities may support political causes, but their core purpose cannot be political.

Determining whether an organisation's purpose is dominant or ancillary, and assessing public benefit, can be challenging. The following three cases illustrate how these issues arise in practice.

Nuffield Health

The London Borough of Merton challenged Nuffield Health's charitable status, a charity established to advance health and healthcare for the public benefit. Nuffield Health operates 112 fitness and wellbeing centres, including the Merton Abbey gym, which is primarily accessible to fee-paying members. The Council argued that membership fees excluded people of modest means, meaning the site was not being used wholly or mainly for charitable purposes.

In Nuffield Health v London Borough of Merton (Supreme Court, 2023), the Court rejected this argument. It held that public benefit must be assessed by reference to the charity's overall purpose, not by examining each site. Under the Local Government Finance Act 1988, the question is whether the organisation fulfils its charitable purpose overall. The Court found that promoting health through exercise at Merton Abbey directly furthered Nuffield's charitable aims. As a result, Nuffield Health remained entitled to charitable relief.

LGB Alliance

Mermaids, a transgender charity, brought a challenge against LGB Alliance, marking the first attempt by one charity to remove another's legal status. Mermaids argued that LGB Alliance's purpose was hostile anti‑trans activism rather than the protection of lesbian, gay and bisexual rights. They relied on social media output that allegedly crossed the line from civil debate.

The tribunal rejected the challenge, viewing it as politically motivated. It emphasised the importance of allowing competing views to be debated publicly and ruled in favour of LGB Alliance. Had Mermaids succeeded, it would have set a concerning precedent, allowing charities to be deregistered on ideological grounds. The tribunal noted that both organisations advocate for vulnerable communities and operate in politically contentious environments. The decision therefore preserved space for legitimate disagreement within the charitable sector.

Private Schools

The charitable status of independent schools has long been controversial, and debate has intensified following proposals to remove their VAT exemption. To satisfy the public benefit requirement, charities must benefit people experiencing poverty. Private schools primarily serve wealthy families, with only 7 per cent of students attending such schools. Critics argue that private schools undermine social equality by offering superior education only to those who can pay.

However, removing charitable status may create unintended consequences. First, schools must currently demonstrate outreach to disadvantaged students to retain charitable status. Initiatives such as bursaries and academic workshops, although limited in reach, benefit students who would otherwise be excluded. The tax incentive encourages schools to maintain these programmes.

Second, removing charitable status would impose VAT, increasing fees. This could make private schools even more exclusive, reducing access for middle‑income families and limiting social mobility. It may also force some schools to close, which could harm vulnerable students, including neurodivergent children whose needs are better met in specialist independent settings. In this sense, charitable status may provide broader public benefit than appears at first glance.

What Is the Overlap Between These Cases?

Although the motivations behind the three challenges differ, each attempt ultimately failed. The law tends to favour allowing organisations to register as charities, and the threshold for establishing public benefit is relatively low. This means some organisations may register primarily for tax advantages. However, charitable action often matters more than charitable intention. Even if an organisation is not motivated solely by altruism, the obligations attached to charitable status can produce meaningful benefits, such as improved access to education or health services.

Setting an excessively high bar for public benefit could discourage the formation of new charities, harming the very communities the sector aims to support. Removing charitable status from organisations that provide some level of benefit may ultimately do more harm than good. Retaining charitable status for Nuffield Health, LGB Alliance and private schools is therefore broadly positive, though each organisation could expand its reach among disadvantaged groups who remain excluded.