Railway Organisational Structures

Following on from a discussion in the WSR thread. @twr12 made a really interesting point.

So some naive questions as I know nothing about how lines are organised:

• How is your line organised?
  
• Do you have a separate organisation doing the day to day running of the railway (the company) and a volunteer organisation (society)?
• What type of company is the company?
• Who owns the company?
• What is the relationship between the company and the society?
• What are the benefits?
• What are the disadvantages?
• Have there been any major problems emerging from the organisational structure?
  
• How much power/control do volunteers have?
• How easy or difficult has it been to correct problems that have emerged?
  
• Have the organisational structures changed in recent years and if so why? Were the changes a success?
• How do volunteers as individuals or smaller groups (ie engine or project groups fit)?

As I say, I know nothing about the topic and am happy to reformulate my questions but it would be interesting to hear about how different lines organise themselves and overcome problems.

 

So here goes.

On the Isle of Wight we have two legal entities:-

1 A company limited by guarantee (i.e. a membership organisation) that is the owner and operator of the railway including all the land, all the locomotives and all the rolling stock. It is the holder of the Light Railway Order and registered as a charity, it holds museum accreditation;

2 A small trading company mainly operating the shop and catering arms of the organisation. This is a company with shares all of which are owned by the guarantee company.

The boards of the two companies are identical. At the guarantee company AGM 1/3 of the trustees/directors retire by rotation and may offer themselves for re-election. If there are not more candidates than vacancies then the membership can vote for or against each individually and only this who obtain more "for" votes than "against" votes are elected. Paid employees of the railway may not serve as trustees/directors.

We adopted this format on 1st January 1990 when the activities and membership of the unincorporated Wight Locomotive Society were merged into the guarantee company and all members were transferred. We recognised then that having two membership organisations was counterproductive.

There are so many benefits that I struggle to list them all. Effective decision making and co-ordination of efforts is the main one. There is a strong feeling of pride and ownership within the railway as a whole. There are, of course, differing views within the organisation but we resolve them internally.

Disadvantages. Probably the main one would be lack of easy access to external capital that might be provided by a share issue or by individual owners funding their own purchases and maintenance costs. Set against this our appeals have a track record of being successful and the railway is able to fund maintenance from general earnings.

Perhaps surprisingly, we don't require volunteers to be members. This is a historical feature that we are unlikely to change in the near future although we much prefer volunteers to be members. Formally, those volunteers who are members have full control of the organisation through elections and discussions at the AGM. Informally, all the trustees are volunteers and are spread over many departments so the mood of the volunteers is represented at board meetings.

We are happy with our structure and would commend it to others but recognise that this is a structure that can be difficult to move to if you have a different starting point.

 

Having worked within this structure I would happily commend it to others. The simplicity of the structure gives very little in the way of competing factions within the Railway.
As the head of C&W I had full responsibility for all maintenance and for capital projects. The capital projects were new grounded body restorations and heritage goods wagons. The priorities for capital projects was clearly laid out in the strategic vision, which I followed as my bible.
As Nicks says everyone, volunteers and staff feel a sense of ownership with everything including the kitchen sink being owned by the Railway.

 

Thanks for your detailed description.
Just wondering what the advantages are in having the trading company if it only deals with the shop and catering? Could those functions not be handled by the guarantee company?

Keith

 

I presume that the guarantee company is a registered charity? Registered charitable companies can only trade to promote their objects (in this case offering entrance to the railway and trips on the line) and the shop and catering would not likely fit in to this requirement, so it is common practice to set up a subsidiary company to do that work and then gift its surplus to the parent company.

These days there are other models available which achieve something similar within one legal entity, but they wouldn't have been available when the IOWSR set up it's current structure, and indeed this remains a very common arrangement across the charitable world.

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I believe this is the case for the GCR.
The (present) Great Central started with the Main Line Preservation Group in 1969. This changed to the Main Line Steam Trust in 1973 - in order to benefit from charity etc. funding. Then the Great Central Railway (1976) Ltd was set up to raise capital to buy the line. Later, the structure was changed so that the David Clarke Railway Trust became the charitable fund raising arm, The Great Central Railway PLC the operating arm and the Friends of the Great Central Main Line, co-ordinates the volunteer activities. This is the current organisation. There is some overlap of Directors and (mostly) there appears to be very good co-ordination and co-operation between the three.

 

I understand there are certain financial advantages to the IOWSR model, in addition to the political vertical integration:-

So long as operating passenger trains is one of the charitable objectives, the charity can claim gift aid on fares, so long as the passenger make a gift aid declaration.
This happens at the Royal Yacht Britannia, for example.

Charities are eligible for 100% business rates relief.

I don’t know if IOWSR do either of these.

 

V.A.T. rebate as well.

 

That’s a given.VAT registration is compulsory for any business with a turnover of more than £85,000.

 

Severn Valley Railway

Currently three organisations:

PLC (formed 1972) with 10,000+ private shareholders who hold around 80% of the £10m+ subscribed capital. It periodically raises money through share sales. It owns the line/stations and is the trading company: running the trains, pubs and the like. It owns 3 steam locos and some carriages.
The ‘Guarantee’ company (since 1967) with memberships. It owns 17% of the PLC (with aspirations for 25%). Volunteers are required to be members. It has 3 of the 13 PLC directors.
The Charitable Trust (from 2001) which raises funds (around £2m to date). It’s a minor shareholder in the PLC but is not the owner/sponsor. It has a low membership. It owns several coaches and a couple of locos too. It has directors both from the PLC and ‘Guarantee’ company.

There are around 40 organisations associated with the SVR from Barry Railway Carriage Trust (one vehicle) to Class 50 Alliance Limited (six 50s in their care) and the 813 Fund (50+ vehicles). Of those 40 organisations around 11 themselves have charitable status and around 15 have minor shareholdings. Most of the locos (something like 26 of 30 steam locos) and stock are owned by these groups.

There are running agreements between the PLC and loco/stock owners. Some are mileage/usage based. Some are ‘use and repair’ contracts similar to those discussed on another thread.

In practice the ‘Guarantee’ company’s surpluses go to the PLC in new share purchases. The Charitable Trust donates/sponsors projects (such as apprenticeships, civils repairs etc.) according to its own Charitable purposes. The three groups meet on a tripartite basis to agree priorities and projects.

What are the benefits?/What are the disadvantages?
It works. The PLC is independent of both the charity and members’ organisation but practically is reliant on their goodwill. Money raised in shares, membership and fares is not tax deductible. There’s undoubtedly an admin cost with three bodies with overlapping but potentially discrete memberships. There are 25 directors/trustees across the 3.

Have there been any major problems emerging from the organisational structure?
Back in the 1970s when the PLC was set up (the ‘Nabarro crisis’) and a chairman seeking to take the railway in a different direction from its embers and volunteers

How much power/control do volunteers have?
Interesting question. There’s the nuclear option of withdrawing labour but otherwise it’s influencing and soft power. A number of Guarantee (and some PLC) directors are volunteers and trustees.

How easy or difficult has it been to correct problems that have emerged?
In the 1970s (see above). The last real kerfuffle was around 2012 and development proposals for Bridgnorth, where the volume of noise was such the plans were withdrawn and replaced.

Have the organisational structures changed in recent years and if so why? Were the changes a success?
(A previous 4th, the SVRA, was the working members’ organisation. It merged with the Guarantee company in 2015 to reduce the numbers). Otherwise it has been evolution rather than revolution. There’s been no recent proposals from the SVR to change the structure.

Patrick

 

Thank you for that explanation - makes sense!

Keith

 

When I joined FoGCML about 15 years ago, it was newly formed and I'd missed the transition away from MLST. There must have been strong reasons to go through a structural change given the costs - professional and in time/distraction for the management. What did the new structure provide that the previous did not?

 

That pair of clarifications are appreciated - I'd often wondered what the special circumstances were that allow a small number of railways to benefit from Gift Aid. It raises the question of why the structure of the IoWSR is not considered elsewhere - have the regulations changed to limit what a newly formed charity or newly drafted charitable objectives can do?

 

I don’t know for definite if IOWSR do gift aid train fares and get 100% business rate relief.

 

Actually there are several with a similar structure. As @cav1975 has said it makes raising capital somewhat difficult but in the era of the National Lottery this problem has been reduced somewhat. It does not seem to be a structure to use for establishing a longer line but you are well aware of my opinion on longer lines!

 

As for Gift Aid, definitely yes, as for business rate rebate unsure.

 

Are IoWSR fares zero rated? I’ve never understood being able to have both zero rated fares and reclaim gift aid - is it possible to have both simultaneously?

Tom

 

I think the rules are such that the two categories operate interdependently. If the operation is within the charitable objects that deals with Gift Aid; if it is a journey that deals with VAT. The bit that puzzles me is specifically around Gift Aid, where the IoWSR appears neither to charge extra for a “donation” fare, nor give additional benefits for so doing. I am however but a mere Planned Giving Secretary, not a tax lawyer.

I can equally well imagine that HMRC and the Charity Commission might between them make it very hard to recreate the IoW setup for fear of it being used as a tax avoidance measure.


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Rail travel is 0%vat. Paragraph 4.1
https://www.gov.uk/guidance/the-vat-treatment-of-passenger-transport-notice-744a#sect4

Gift Aid
https://www.gov.uk/donating-to-charity/gift-aid

Hundreds, if not thousands, of Charities claim Gift Aid on “donations”. If that donation results in a complimentary train journey, rail travel is zero rated for vat.

Dining Trains (yes them) have special treatment in that the travel part of the fare is 0% vat, while the food & service is 20% vat. Every preserved railway finance manager has a formula agreed with their auditors/ accountants to ensure compliance with HMRC rules.
It may be too much faff to separate the travel and food elements of dining train fares for Gift Aid.

 

Keith

There are some trading activities that are not considered charitable and so can't be undertaken by the charity. These are operated by the trading company which then donates its profits to the charity. This is common practise for many charities.

Nick