UK: Charity Law Update

Last Updated: 4 April 2012
Article by Adrian Wild

What are the charity law changes which will impact your organisation?

Certain aspects of charity law apply to all RPs having charitable status, while RPs which are registered with the Charity Commission must comply with the entirety of charity law.1 Therefore, the recent and potential changes outlined here will be of interest to the majority of RPs.

The Charities Act 2006 (the Act), which applies in England and Wales, received Royal Assent on 8 November 2006. Since that date there have been 17 related Statutory Instruments either enacting various parts of the Act or amending the Act. Yet despite this storm of change, the Act has yet to be fully enacted, with sections relating to charitable incorporated organisations (CIOs) and the licensing regime for charitable fundraising yet to come into effect. Some smaller RPs are constituted as charitable trusts and might – in the future – find CIO an attractive legal form. For other RPs, CIOs may represent an alternative to a company limited by guarantee or an industrial and provident society.

The Act has been criticised. It created the Charity Tribunal, with the aim of simplifying the process for appealing against Charity Commission rulings or having Charity Commission decisions reviewed. While this is a wholly laudable aim, there is concern that the Tribunal's scope of work is too narrow and that this limits its effectiveness. The Register of Charity Mergers was created so that there was a record of those charities which cease to exist simply through merging with another. The idea was that legacies due to a merged charity would be able to be received by the successor charity; however, due to the way in which most wills are written, this has proved less effective than expected.

The Charity Commission guidance on public benefit, written in accordance with the dictates of the Act, has also been subject to review by the courts. As a consequence, the Commission was asked to review and revise some of its guidance. However, ultimately some of the guidance was quashed by the courts. We do not expect these changes to impact on RPs; whether the changes will have any practical effect in the wider charitable sector remains to be seen.

Uniquely, the Act also contained a requirement that the operation of the Act should be reviewed, the condition being that within five years of receiving Royal Assent a reviewer be appointed for this purpose. The Government has appointed Lord Hodgson to lead the review. Lord Hodgson is president of the National Council for Voluntary Organisations and also led the Big Society Deregulation Taskforce (the Government-commissioned review of red tape in the voluntary sector). The key questions that the review is tasked with answering are:

  • what is a charity and what are the roles of charities?
  • what do charities need to have/be able to do in order to be able to deliver those roles?
  • what should the legal framework for charities look like in order to meet those needs (as far as possible)?

These questions are supplemented by a number of other matters. The review has called for evidence on a range of issues,2 including the following which are relevant to RPs.

  • Exempt charities – currently charitable I&P RPs are exempt registration with the Charity Commission, but no final decision has been made as to whether another regulator will be appointed or whether such RPs will need to register with the Commission. RPs might wish to make comment as to whether they consider it desirable for a lead regulator to be appointed or not.
  • Social investment – significant sums of money are available for social investment, but there are perceived barriers which reduce the sums available. The review is interested in learning how the legislative framework impacts on social investment and how any issues might be addressed.
  • Trustees – there is a perception that the recruitment and retention of trustees is problematic. Some RPs now pay some or all of their board members and the impact of this on recruitment and retention, and an assessment of the cost/benefits would be of interest to the review.

The closing date for responses is 16 April 2012.

The review is scheduled to be delivered to the Minister in the summer of this year and then laid before Parliament in the form of a report. Quite what the next steps are will depend on the recommendations. However, based on past form, we should not expect new legislation any time soon.

Ironically, while Lord Hodgson was starting his review of the 2006 Act, the Charities Act 2011 was wending its way through the House of Lords and the House of Commons. The Act received Royal Assent on 14 December 2011 and will be enacted on 14 March 2012. The 2011 Act consolidates most of the extant English and Welsh charity law into one coherent Act. Given that there have been over 120 changes to the 1993 Act (the primary legislation), this Act is much needed. (However, it should be noted that elements of the Charities Acts 1992 and 2006 will remain in force.)

Finally, further parts of the Charities Act (Northern Ireland) 2008 have been enacted in the year. All Northern Ireland charities registered with HMRC will be automatically registered with the Charity Commission for Northern Ireland, and other charities will have to register themselves if they meet the criteria. However, the requirements for Scottish and English/Welsh charities which operate in Northern Ireland to register have yet to come into force. Interestingly, as part of his review, Lord Hodgson is charged with reviewing the idea of having a UK-wide definition of charity and ways in which the burdens of dual (or even triple) registration can be eased.

Our advice is for each association to summarise the financial instruments it has in place and then assess which may fall into the 'other' category. You will then need to consider carefully what the accounting treatment will be and whether this is potentially damaging to the association.

We will be writing further articles on this subject in the future but professional advice is almost certainly going to be wise, even if you think your financial instruments only fall into the 'basic' category.

Footnotes

1. While most RPs have charitable status, those which are industrial and provident societies do not need to register with the Charity Commission. However, aspects of charity law apply to such charities.

2 https://update.cabinetoffice.gov.uk/resource-library/charities-act-review-calls-evidence

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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