After much anticipation, the first tranches of the Charities Act 2022 have come into force this morning. The sections which are now in force are:
a) Section 4: Power to amend Royal Charters
Royal charter charities will have a new power (where their constitution does not permit) to amend any provision of their constitution by resolution, subject to Privy Council consent. This will avoid the need for the time-consuming process of petitioning the Privy Council for a supplemental charter.
b) Section 5: Orders under section 73 of the Charities Act 2011
Currently, charities established by statute can amend their governing document by parliamentary scheme. Now all such schemes will be subject to a lighter touch parliamentary procedure known as the negative procedure.
c) Sections 6 and 7: Cy-près powers
Sometimes charities raise too much or too little money for an appeal, or circumstances change and the donations cannot be used as intended. The Charities Act 2022 simplifies and streamlines the rules in this area:
• Charities used to need to wait 6 months before spending the money in case donors ask for a refund – that requirement is being removed.
• Rather than the need for Charity Commission scheme there will be a simpler process for obtaining Commission authority.
• if the donations that can be spent on new purposes (different to the purposes for which they were raised) are less than £1000, trustees can act without the Commission’s involvement if they comply with the new legal requirements.
d) Section 8: Power of the court and the Commission to make schemes
The Charity Commission and the courts can make "schemes" in respect of charities. Schemes are legal arrangements that modify the provisions or rules of a charity or a gift to charity. In response to doubts as to whether the scheme-making power extends to corporate charities, section 8 confirms that any power to make schemes in respect of a charitable trust extends to charitable companies, CIOs or any other charity.
e) Section 30: Remuneration of charity trustees etc providing goods or services to charity
It is a fundamental rule that charity trustees are not permitted to make any gain from their position as trustees.
Under Charities Act 2011 there is a limited exception this this rule which allows trustees (or people connected to them) to be paid for services they provide to the charity if certain conditions are met. Trustees can never be paid for the provision of services as a trustee.
The new law will permit charities to pay trustees for goods provided to the charity. For example charities will be able to pay a trustee, for example (1) to decorate the charity’s premises, (2) to supply paint that can be used to decorate the charity’s premises, or (3) to do both. Charities will no longer be required to seek Charity Commission authorisation for such payments.
f) Section 32: Trustee of charitable trust: status as trust corporation
If any property is to be held on charitable trust by a sole trustee, that sole trustee must have "trust corporation status" in order for (a) the outgoing trustees to be discharged from their responsibilities as trustees, and (b) the sole trustee to be able to deal with the land by giving a valid receipt to a purchaser. This structure is often used where an unincorporated charity becomes a company limited by guarantee or CIO and the new charity wishes to be sole trustee of the old unincorporated charity in order to receive legacies in the future.
Currently to obtain trust corporation status a charity must go through an arduous procedure by applying to the Charity Commission for a scheme or by applying to the Lord Chancellor.
The new rules confer automatic trust corporation status on any trustee of a charitable trust that is a body corporate and itself a charity. The following are bodies corporate that are charities; charitable companies, CIOs, charities established by statute or Royal Charter, and certain community benefit societies.
g) Section 36: Costs incurred in relation to Tribunal proceedings etc
Currently a trustee of a charity that is challenging a Charity Commission decision in the Charity Tribunal runs a small risk that they may be held personally liable for costs of the proceedings. It has been very expensive and time consuming to obtain reassurance that the charity’s funds could be used for costs via the courts using a ‘Beddoes order’. The Charities Act gives the Charity Tribunal new powers to grant an ‘authorised costs order’ to approve a charity’s tribunal expenses as a valid use of charitable funds. Those expenses will therefore be payable from the charity’s funds.
h) Part of Section 37: Public notice as regards Commission orders etc.
The Charity Commission has a discretionary power to give public notice of orders it grants. The new law extends this power to include applications for orders as well. So if a charity applies for an order to change its objects the Charity Commission can give public notice of the application in addition to giving notice when it grants an order permitting the change.
g) Ex gratia payments
Where charity trustees are under no legal obligation to give up an asset or make a payment but feel a moral obligation to do so, the ex gratia rules apply. Trustees were obliged to seek Charity Commission consent to all ex gratia payments, regardless of the value of the payment. This could seem disproportionate as it often involved legal advice.
Under the new rules of the Charities Act 2022 trustees will not need to seek Commission consent provided the payment is under a threshold of £10,000 for charities with an income of up to £25,000 and £20,000 for charities with income over £1 million, provided there is a moral obligation to make the payment.
However these changes have been delayed by the government. There is concern that the new rules will enable national museums for the first time to restitute items from their collections, based on moral grounds. This was not the intention of the changes. The government is keen to understand fully the implications for museums before bringing the rules into force.