The Charities Act 2022 has just been passed and makes some technical changes to charity law. These changes won’t have a big impact on most charities day-to-day, but are intended to simplify the regulation of charities and make it easier for charities to do things like amend their governing document, spend permanent endowment and sell property.
The Act will be implemented over the next year and a half. We will keep you updated on when the most important provisions come into force, and will also be sharing more detailed guides on the changes that are most relevant to you.
The main changes the Act will introduce include:
If a fundraising appeal fails, charities will be able to spend small donations on another project
Sometimes charities raise too much or too little money for a fundraising appeal, which can mean that they aren’t able to use all (or any) of the money for the purpose it was raised for. Charities will be able to repurpose donations from donors who have given no more than £120 in a financial year, provided the funds are used for similar charitable purposes.
Unincorporated charities (eg. trusts) will be able to amend their constitution more easily
Unincorporated charities will have a general power to amend their governing documents without having to go to the Charity Commission. This will make it easier, quicker and cheaper for trustees to keep their governing document up to date. If you haven’t amended your governing document in recent years, this would be a good opportunity to carry out a review to ensure it is in line with the latest law and best practice.
Charity Commission consent will still be needed for some changes, for example changes to the objects, dissolution clause, trustee or member benefit rules and restrictions on permanent endowment.
Changes to the tests for charitable companies to amend their objects
At the moment, the Charity Commission will approve even a major change to a charitable company’s objects provided the trustees give a convincing explanation as to why this in the charity's best interests. Under the new rules the Charity Commission will have to take into account specific factors, which may mean that charitable companies find it more difficult in some circumstances to get consent to change their objects. Minor changes to the objects that do not affect their meaning will no longer need Charity Commission consent.
If you are a charitable company and are thinking of making material changes to your objects, we suggest you consider doing so now before the new rules come in.
Charities will have more flexibility when getting advice on the sale of land
Under existing law, charities have to obtain a detailed report from a RICS-qualified surveyor before disposing of land. The new rules will allow charities to take advice from a wider pool of advisers. If there is a suitably qualified trustee, officer or employee who can give the advice then you won’t need to take external advice at all. The rules about what advice you must get will also be more straightforward, and proportionate to the size of the transaction.
If you want to know more about how the Charities Act 2022 will affect charities when dealing with property, you can sign up to our webinar on 22 March 2022.
Charities will be able to borrow from permanent endowment and invest it more freely
There are legal restrictions on how permanent endowment can be used and invested. These will mostly stay in place, but the new rules will give charities more flexibility in some areas.
- You will be able to borrow up to 25% of the value of your permanent endowment funds, without needing approval from the Charity Commission, as long as it is paid back within 20 years. This may be useful to charities who are struggling to maintain their reserves following a very difficult period for the sector.
- The current rules say that permanent endowment funds can only be invested for a financial return. This will be relaxed, so that you can use permanent endowment funds to make ‘social investments’ that have a negative or uncertain financial return. The Charity Commission is expected to make regulations about how this will work, which will probably tie in with its proposed new guidance on responsible investment.
Charities will be able to make small ‘ex gratia’ payments without getting consent from the Charity Commission
The current law has strict rules about ‘ex gratia’ payments, where a charity feels obliged to make a payment that doesn’t further its objects. This will be relaxed so that smaller ex gratia payments (potentially up to £20,000, depending on the charity’s income) can be made without needing to get authority from the Charity Commission. This doesn’t mean that charities are free to make any payment below this value – the payment must fall within the scope of being ex gratia which has specific requirements.
Legacies will be less likely to get lost after incorporations and mergers
When charities merge with another organisation or ‘incorporate’ into a limited liability structure, there’s a risk that legacies to the old charity could be lost because it no longer exists. For this reason, some charities are kept open as a shell to receive legacies, which creates administrative burden and cost. The new rules are intended to fix this issue so that (as long as the transaction is recorded in the register of mergers) a gift will go to the new charity even if it specifies that it will only take effect if the charity still exists. This change will be of particular interest if you are currently maintaining a shell charity following an incorporation or merger.
There will be an easier solution if trustee appointments have not been made correctly
It’s not unusual for there to be uncertainty around trustee appointments, for example if the process in a charity’s constitution has not been properly followed, and this often leaves charities in a difficult position when the mistake comes to light. The Charity Commission will be given a useful new power to ratify the appointment or election of a charity trustee where there is either uncertainty as to whether they were properly appointed or elected, or any defect in their appointment or election. However, this should be a last resort – trustees still have a duty to comply with the rules in their governing document.
If you have any questions about the new rules, we would be more than happy to discuss this with you.