The new Charities Act 2022 implements the majority of recommendations in the Law Commission’s rather dryly entitled 2017 report, ‘Technical Issues in Charity Law’.
In fairness to the Law Commission, many of the changes do indeed address some fairly technical issues in the previous legislation, but the practical effect is to reduce the administrative burden on charities, saving both time and money. This article summarises some of the more immediately relevant changes likely to have an impact on charities.
The Act received Royal Assent in February 2022 and starts to come into force from the autumn of 2022, with others changes taking effect in the spring and then in the autumn of 2023.
Amending a charity’s governing document
Charities come in many forms: unincorporated trusts, charitable companies, CIOs (charitable incorporated organisations) to name just three. Each will have very different types of governing documents. Often, older trust deeds establishing unincorporated charities lack any, or any clear provisions for making amendments. From the autumn of 2023 the new Act will give trustees general powers to make changes so their governing documents can reflect the changing circumstances in which their charities operate.
Exceptions will remain for amendment to the legal objects of a charity, trustee benefit provisions and dissolution clauses, which will still require the approval of the Charity Commission or a Court. However, ‘minor’ changes to a charity’s Objects clause will not require approval if the trustees consider that they do not affect the substantive meaning of the clause.
Where consent is required to amend the Objects, the 2022 Act aims to standardise the criteria that the Commission will apply for all types of charity, and it will now consider:
the purposes of the charity when it was established, if and so far as they are reasonably ascertainable;
the desirability of ensuring that any changes continue to reflect these original purposes; and
the need for the charity to have purposes which are suitable and effective in the light of current social and economic circumstances.
In other words, does it make practical sense to allow a charity to evolve over time and to what extent must its purposes remain recognisably the same as they were originally. Previously, unincorporated charities had just to make a rational argument to make such a change, but they now have to tailor any change to reflect both the charity’s original purposes and the Commission’s new test for allowing amendments.
Applying unallocated charity funds
The advent of crowdfunding, matched funding and online appeals has compounded the issue of focussed fundraising campaigns either not meeting a target or exceeding it. This can have the effect of funds collected not being sufficient to implement a project, or there being surplus fund which might be applied to a different purpose. Either way, funds deemed restricted to a particular purpose would have to be returned to donors if they can’t be applied to that purpose.
In a slight easing of the rules, the 2022 Act now allows charities, without Charity Commission approval, to keep individual donations of up to £120 and apply them to their other charitable purposes, and to resolve to do the same for a fund of up to £1,000 which can no longer be applied as originally intended.
Far better, however, is to avoid restricting funds raised for a particular purpose, or making it clear when fundraising that unused funds may be applied more generally to the charity’s purposes.
Easier transfer of assets to merged or successor charities
Many charities are recognising the benefits of reconstituting themselves to adopt an incorporated structure, such as a CIO, but then have the problem of how to protect gifts or legacies left to the old charity. Often the original charity is retained as a ‘shell’, so that gifts conditional on that charity being in existence don’t fail, but this comes at an administrative and financial cost. From autumn 2023 the new Act will enable gifts to a charity which has restructured (or merged) to take effect as a gift to the new charity, even if the original charity technically no longer exists.
Appointment and payment of Trustees
New powers in the Act, expected to come into force in the autumn of 2023, will allow the Charity Commission to approve retrospectively the appointment of trustees where that appointment was procedurally flawed. This is likely particularly to benefit membership-based charities where the re-running of the appointment process would be expensive and time-consuming.
Another provision will allow trustees, from autumn 2022, to be paid for goods that they have supplied to a charity, rather than, as under the 2011 Act, just services, or goods and services together. The general rule that trustees cannot be paid or benefit from their position as a trustee remains; but it can sometimes be in a charity’s best interests to obtain goods or services from a trustee provided certain safeguards are in place to ensure that the charity pays no more than the market rate and the trustee isn’t part of the decision-making process.
More flexibility to make ‘ex gratia’ payments
Previously the general rule was that payments made under a perceived moral obligation, but no legal obligation, had to be approved by the Charity Commission. This might include where a charity receives a legacy or other gift that causes hardship to the donor’s dependents. There were some exceptions for relatively small payments, but the new Act is proposed to allow ex gratia payments to be made without Charity Commission approval where the trustees reasonably consider that they have a moral obligation to make a payment and the amount is small in proportion to the charity’s gross income in the previous financial year, as follows:
Gross Income | Permissible ex-gratia payment |
Up to £25,000 | £1,000 |
£25,000 to £250,000 | £2,500 |
£250,000 to £1 million | £10,000 |
Over £1 million | £20,000 |
Other changes
Other provisions in the 2022 Act relate to simplifying the sale of land by easing the requirement for a ‘qualified surveyor’ to advise the trustees on certain types of sale. The rules around permanent endowments (assets that have to be kept in perpetuity) have also been eased, and the Charity Commission will have greater powers in relation to charity names and preventing the use of confusingly similar names and ‘trading’ names.
If any of these issues are of interest or concern to your charity, or if you have any questions about governance, regulatory compliance or your charity’s policies, please be in touch.