The Charities Act 2022 - What Are The Key Changes?
On the 31st of October of this year, the first tranche of provisions introduced by the Charities Act 2022 came into force. These changes to current legislation came out of Lord Hodgson’s review of the Charities Act 2006 in 2012, and the subsequent report by the Law Commission in 2017 on certain technical issues within the Act. They are intended to reduce onerous regulation and clarify areas of Charity Law, so as to make it easier for trustees to govern effectively. Some of the provisions which were due to be included in the October 2022 batch were delayed and could be brought in together with further provisions which are due to be brought into Law in the Spring of 2023. The final draft of provisions comes into force in Autumn 2023.
Some of the key Provisions of the Act which came into force on the 31st of October 2022 are; the power to amend Royal Charters, cy-près powers (French for ‘as near as’), the power of the court and the Commission to make schemes, remuneration of charity trustees providing goods or services to charity, relaxation of the rules where a trustee is a corporation, changes to the processes to costs incurred in relation to Tribunal proceedings. This article will explore some of these in more detail.
Fundraising appeals that do not raise enough or raise too much
Charities may make appeals to raise funds for a specific item or project. This often results in the charity either raising too many funds (surplus cases) or at the other extreme, not raising sufficient funds to use the donations as intended (initial failure).
Whilst best practice is that appeals are not restricted to particular causes and that fundraising literature makes it clear that donations can be used elsewhere, in practice, this doesn’t always happen. In such a case, under the ‘old rules' where there was an initial failure, the default position was that the funds belonged to the donor and needed to be returned. In order to be able to use the funds, the trustees had to apply to the Charity Commission to make a cy-près scheme to change the purposes for which the funds could be used. However, they could only do this after the trustees had contacted donors, either directly or by placing adverts in the press and those donors agreed that the charity did not need to return their donation. To further complicate matters, even where the Charity Commission had made a scheme, donors still had six months from the date of the scheme to ask for their donation back.
A way of preventing this issue was to have donors complete a disclaimer form allowing the charity to use the donation for other purposes. However, in the modern world where donations are often made by text message or other means, this was rarely used.
When there are surplus funds, the rules were simpler for small funds but otherwise, it was necessary to ask the Charity Commission to make a scheme to change the purposes for which the surplus funds can be used.
Under the new legislation, if the surplus fund is £1,000 or below, Charity Commission consent is not required.
In the case of initial failures, before the trustees can use this new power, there are some additional requirements to be met. These include – that the donations are small (up to £120 a year), the donations are raised through a cash collection or from a lottery, competition or similar and the Charity Commission decides that the cost and effort required to contact donors is unreasonable.
The trustees can agree with the Charity Commission on reasonable steps to contact donors to offer to return their donation instead of needing to sign formal disclaimers, and donors no longer have the six-month period to reclaim their donation.
Paying trustees for providing goods to a charity
The general rule is that charity trustees may not be paid for the work they do on behalf of a charity. Suppose charities need to pay trustees for services which are beyond their usual duties. In that case, existing statutory powers allow them, in certain circumstances, to be paid for those services, or goods connected to those services. However, under the earlier provisions, trustees could only be reimbursed for goods provided as part of the service but not if they didn’t provide the service. For example, if a trustee did a repair for the charity, he could charge for the repair and the materials, but if someone else was doing the repair, the trustee could not be repaid for the materials.
The changes to the Act remove this irregularity and allow trustees and connected persons to be paid for providing goods and/or services, so long as the statutory conditions are met.
Under the changes, which are expected to be introduced in Autumn 2023, the rules governing payments to trustees are to be further relaxed so that the Charity Commission will be able to authorise a charity to pay a trustee for work already done where there was not a permitted benefit, but where it is considered inequitable for the trustee not to be paid, and to allow trustees, subject to certain considerations, to retain a benefit which they have already received for work done for the charity.
A trustee of a charitable trust which is a corporation
In cases where a charitable trust incorporates, it may need to keep the unincorporated charity open (for example if it holds an endowment or in order to receive future legacies) and to have the incorporated charity as the only trustee of the unincorporated charity. The corporate trustee had the powers amongst other things to deal with land owned by the unincorporated charity and therefore this appointment needed to be made under a scheme by the Charities Commission or by application to the Ministry of Justice.
From October 2022, trust corporation status will be granted automatically where the trustee is a company and the trustee of a charitable trust. The old rules will still apply where the corporate trustee is not a charitable company.
Authorised costs orders
Where trustees of a charity wish to challenge a decision made by the Charities Commission, they can take the case to Tribunal. Whilst in principle the trustees can be indemnified for the costs incurred in the process, there is a risk that trustees could be held personally liable for costs and expenses which arise. Under the new legislation, the Charity Tribunal will have the power to authorise payments in relation to proposed or ongoing Tribunal proceedings out of the funds of the charity.
Changes not coming into force
It had been intended that the rules around ex gratia payments would be relaxed. These are payments made by the charity because the trustees are of the opinion that the charity has a moral obligation to do so. As these payments are not a legal obligation of the charity, the trustees had to apply to the Charity Commission for permission to do so. This has been delayed as it is politically sensitive, particularly for charities such as museums which may have items in their collections where there is a case for these to be returned.
Changes to look out for
Provisions of the Act which are expected to come into force in Spring 2023 include changes to laws governing permanent endowments, charity land, charity names and connected persons. Provisions of the Act which are expected to come into force in Autumn 2023 include changes to rules around charity constitutions, powers relating to appointments of trustees, remuneration of charity trustees and charity mergers. Watch this space!