The Charities Act 2022 is approximately 2/3 in force already, with a final tranche expected in March this year.
One sticking point has proved to be the new provisions allowing charities to make ex gratia payments without Charity Commission consent.
An ex gratia payment is a payment that a charity wishes to make, but there are no powers available to permit the payment. The ex gratia payment cannot be justified as being in the best interests of the charity. To make an ex gratia payment currently requires Charity Commission consent. The Commission will grant permission only where “it can be fairly said that if the charity were an individual it would be morally wrong of him to refuse to make the payment” (Re Snowden 1970). Examples of ex gratia payments include a bonus for a staff member on retirement, returning a donation and restitution of an item to its country of origin.
New powers in the Charities Act 2022 allow charities to make ex gratia payments up to a certain level without Commission consent.
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Gross income of charity in last financial year
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Size of ex gratia payment permitted without Commission authorisation
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£25,000 or less
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£1,000
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Over £25,000 but not over £250,000
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£2,500
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Over £250,001 but not over £1 million
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£10,000
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Over £1 million
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£20,000
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These upper limits apply per payment, rather than per year. So a charity with an income over £1 million would be free to make as many £20,000 ex gratia payments as the trustees deem morally appropriate.
The implementation of these powers has been delayed because of concerns that national museums would be able to return items to their country of origin without Commission involvement (“restitution”). According to DCMS “Charity Commission oversight of these cases provides an important assurance that the charity’s trustees have undertaken proper due process in reaching their decision”.
Charity law blog | Arts Council Guidance on Restitution and Repatriation | Mills & Reeve (mills-reeve.com)
Last week DCMS and the Charity Commission announced modifications to the new provisions:
- National museums and galleries (not listed or defined at this stage) will always require Charity Commission consent to make an ex gratia payment or transfer.
- All ex gratia payments or transfers from a UK charity to a recipient overseas will also require Charity Commission consent. This will ensure that all cases of restitution will be overseen by the Commission.
These modified powers are due to come into force ‘later in 2024’. We are expecting updates to the Charity Commission guidance on ex gratia payments (CC7). New guidance for charities on refusing and returning donations is also expected shortly.
It is worth making it clear that charities should approach ex gratia payments with caution, as they apply charitable funds to non-charitable purposes. Explanatory notes to the Charities Act say that final responsibility for making ex gratia payments (as with any other decision made by a charity) rests with the charity trustees.
Statutory charities (incorporated or governed by a specific Act of Parliament) may have extreme difficulty making any ex gratia payments. This is because:
- The payment would be in breach of a statutory provision; and
- Any power to approve an ex gratia payment (exercised here by the Charity Commission) cannot override a statutory restriction.
Mills & Reeve’s team of experienced charity lawyers often advise charities on ex gratia payments. If you have any questions do get in touch with Neil Burton [email protected]
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