When is a charity not a charity? The Derby decision

In the recent case of Derby Teaching Hospitals NHS Foundation Trust and others v Derby City Council and others, 2019 EWHC 3436 Ch, Morgan J ruled against the NHS Trusts and found they were not charities for the purposes of the Charities Act 2011 (“the 2011 Act”) and the Local Government Finance Act 1988 (“the 1988 Act”). Aside from saving local authorities an estimated £1.5 billion in business rate reductions, the implications are widespread.

The claim of Derby Teaching Hospitals NHS Trust Foundation Trust (“Derby FT”) alone was worth more than £17 million. To claim the mandatory rate reduction, and subsequent repayment of business rates paid over the previous six years, Derby FT needed to be a charity, whose property is wholly or mainly used for charitable purposes. Section 67(10) of the 1988 Act defines a charity, for the purposes of business rates, as either:

• an institution or other organisation established for charitable purposes only; or
• any persons administering a trust established for charitable purposes only.

The primary purpose of all Foundation Trusts is the provision of goods and services for the purposes of the health service in England, under the National Health Service Act 2006. Whilst this is a charitable purpose, falling under ‘the advancement of health and saving lives’, the Foundation Trusts also had two additional purposes. Under section 43(2) of the National Health Service Act 2006, these related to:

• the provision of services provided to individuals for or in connection with the prevention, diagnosis or treatment of illness; and
• The promotion and protection of public health.

As such, Foundation Trusts may pursue other purposes as long as they are connected with the purposes in section 43(2), with no requirement that those purposes had to advance public health. However, the additional purposes could fall outside of the 2011 Act, thus would not necessarily be charitable.

The Court held that the purposes of Foundation Trusts, as prescribed by the National Health Service Act 2006, were not limited to only charitable purposes. Therefore, Foundation Trusts could not be considered charities for the purposes of the 1988 Act or benefit from business rates relief.

We will be exploring the impact this decision has on charities and local authorities in a series of short articles.

For more information

Please contact Emma Watt.

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