UK: Draft Charities Bill - Charities Act 2005 in the Making

Last Updated: 1 September 2004
Article by Oenone Wright and Antony Brougham

Originally published June 2004

Following our recent Newsflash with details of the Joint Committee that has been set up to scrutinise the Bill the draft Charities Bill was finally published on 27th May.

In this article we give a brief overview of the Bill (which is not intended to be exhaustive) and more detail on the new Charitable Incorporated Organisations as it is not possible to comment on every provision within the scope of one article.

The new Act will apply only in England and Wales and it will not be a consolidating Act. Earlier Acts, such as the 1992 and 1993 Charities Acts (as amended) will remain in force. The draft Bill follows closely the Government’s response to the Strategy Unit’s "Private Action, Public Benefit" proposals.

Overview of the draft Bill

New statutory definition of Charity

  • "Charity" is now defined by reference to a list of "charitable purposes". To be charitable, a purpose must BOTH fall within one of the 12 listed purposes AND be for the public benefit. All current areas of charity fall within these purposes, some of which have been extended.
  • To retain flexibility the 12th purpose is the catchall "other purposes beneficial to the community" and there will be no statutory definition of "public benefit", which means that this test can evolve over time.
  • No presumption of public benefit - the big change is that there is no presumption of public benefit in the case of charities set up for the relief of poverty or the advancement of religion or education. Such charities will now have to demonstrate that they do provide a public benefit. The exact checks to establish this are the subject of further consideration by the Charity Commission.


  • The threshold for compulsory registration is raised from £1,000 to £5,000 but voluntary registration will still be available. Current "excepted" charities with an income of £100,000 or more will have to register and no new excepted charities will be created.
  • Some current "exempt" charities will lose their exempt status and will therefore have to register. The rationale for this is that there is no suitable alternative regulator. Initially the threshold for registration of formerly "exempt" charities will be £100,000 annual income.
  • Where a currently registered charity falls below the new threshold of £5,000 it will remain on the Register unless it asks to be removed.
  • There will no longer be any necessity for a charity that falls below the threshold but has permanent

Greater flexibility for charities

  • The cy-près principle, which allows a change of purposes where the original purposes are no longer practicable, is extended so that social and economic circumstances can be considered as well as the original spirit of the gift.
  • Money raised on appeal where the purposes fail in the future will now be able to be applied cy-près unless the donor opted out by making a declaration at the time of the gift.
  • There are relaxations in publicity requirements relating to Charity Commission Schemes which should save time and cost.
  • There is an extension of the power of the Charity Commission to give advice and guidance so that any officer, employee or agent can seek guidance, not just charity trustees.
  • Audit requirements are being relaxed so that the threshold for professional audit of accounts will only be reached where income in the relevant financial year is £500,000 or more or, where the income is below this threshold but above £100,000, if the asset value exceeds £2.8m. In assessing the threshold it will no longer be necessary to take expenditure into account or to look at income in the previous two financial years.
  • The need for Charity Commission consent for changes to charitable companies’ Memoranda and Articles of Association is reduced.
  • There are relaxations on provisions relating to the remuneration of trustees so that trustees who provide a service to a charity (other than purely trustee services) will be able to be paid subject to certain safeguards.
  • The power to spend permanent endowment is extended where it will achieve a more effective means of fulfilling the charity’s purposes and, subject to certain safeguards, this power will extend to larger charities, not just those whose gross annual income is £1,000 or less.


In order to facilitate mergers a Public Register of Mergers is being set up. Registration will be voluntary and will have the following important effects:

  • A gift to the transferor charity will take effect on or after the registered termination date of that charity as a gift to the transferee.
  • A declaration by deed by the trustees of the transferor charity made in contemplation of a merger will have the effect that all of its property is vested in the transferee without the need for any further documentation.


The Home Secretary will have power to introduce statutory regulation of fundraising if self regulation fails (the Buse Report on Self Regulation was published in January this year and consultation on that report closed in April).

Licensing for Public Collections

A new licensing system is being introduced which should ensure greater consistency and which will be operated by local authorities who will issue "Certificates of Fitness" for a maximum of 5 years at a time. Where a collection is conducted in a public place (which will include any area within a station, airport or shopping precinct or other similar public area) it will also be necessary to have a permit from the appropriate local authority.

There are relaxations of these provisions for local, short term collections and door-to-door collections of goods but notification to the relevant local authority will still be required before such collections take place.

Charity Commission

The Charity Commission will become a Government Department in its own right and there will be an independent Charity Appeal Tribunal to which appeal may be made against certain decisions of the Charity Commission.

New Legal Form – The Charitable Incorporated Organisation (CIO)

  • The new CIO is designed as an alternative to incorporation under the Companies Acts where a charity is to have its own legal personality. This will avoid the need to register with both the Charity Commission and Companies House and to provide Accounts and Returns to both.
  • The CIO will be a body corporate with a Constitution and a principal office in England or Wales and with one or more members. Members do not have to be liable to contribute to the assets of the CIO on a winding-up, although they may be so liable (and, in the case of a company limited by guarantee converting to a CIO, members will have to remain liable to at least the same extent as they were previously).
  • Basic provisions that must be contained in the Constitution are the CIO’s name, its purposes, the address of its principal office and whether or not the members are liable to contribute to the assets on a winding-up and (if they are) up to what amount.
  • Other provisions must also be contained in the Constitution regarding eligibility for membership and the method of application, the appointment of trustees (who will be responsible for the CIO’s general control and management) and any conditions of eligibility for trusteeship, and directions about the application of property of the CIO on its dissolution. There is no requirement for trustees to be members or vice versa.
  • While the basic structure of the CIO is included in the draft Bill detailed provisions will be dealt with in secondary legislation and the Government will review the need for other forms of incorporation for charities once CIOs have been in existence for 5 years.
  • There are provisions for the conversion of charitable companies and registered friendly societies to CIO status. Conversion will take place by special resolution or unanimous written resolution. If the Charity Commission accepts the application for conversion it will notify the relevant registrar who will then cancel the registration of the company or registered friendly society.
  • Provision is made for the amalgamation of CIOs (also by special resolution or unanimous written resolution) and, on registration of a new CIO as successor to the amalgamated CIOs, all property, rights and liabilities of each of the old CIOs will automatically become the property, rights and liabilities of the new CIO and the old CIOs will be dissolved.
  • There is provision for the transfer of a CIO’s undertaking to another CIO by way of special resolution or unanimous written resolution and, in such circumstances, the Charity Commission can require the CIO to give public notice of the relevant Resolution, which will not take effect until confirmed by the Charity Commission.
  • Provision is made regarding the winding-up, insolvency or dissolution of a CIO, the detail of which will be set out in secondary legislation.
  • Provision is made for the transfer of the property of an unincorporated charity to one or more CIOs.
  • CIOs will be deemed to have power to do anything which is calculated to further their purposes or ABC is conducive or is incidental to so doing, subject to anything to the contrary in the relevant Constitution.
  • Third parties dealing with a CIO who give full consideration in money or money’s worth are protected against any lack of constitutional capacity or excess of the trustees’ constitutional powers provided that they were not aware of such lack or excess and had dealt with the CIO in good faith. This extends to a person who acquires an interest in property.
  • Unlike the members of a charitable company limited by guarantee, the members of a CIO have a duty to act in good faith in a way most likely to further the purposes of the CIO.
  • The charity trustees of a CIO must exercise such care and skill as is reasonable in the circumstances and any special knowledge or experience they have will be taken into account. In the case of a charity trustee acting in the course of a business or profession any special knowledge or experience that it is reasonable to expect him to have will also be taken into account.
  • Charity trustees must disclose any material interest in any arrangement or transaction with the CIO before it is entered into to avoid conflicts of interest.
  • CIOs may, subject to Regulations still to be issued, decide on their own internal procedures provided that there is, at least, a requirement to hold a general meeting of the members.
  • The Constitution of a CIO can be amended by special resolution or by unanimous written resolution, subject to the requirement for Charity Commission prior consent in certain specified circumstances (similar to those for which a charitable company limited by guarantee would require consent). Where a Resolution is passed amending the Constitution of a CIO this must be sent to the Charity Commission within 15 days and, except in the case of a change of address (which takes effect immediately) it will not take effect until it has been registered by the Charity Commission.

The Charitable Incorporated Organisation is not to be confused with the new Community Interest Company, which is a new type of company designed for social enterprises that wish to use their profits and assets for the public good. Draft regulations relating to CICs have been prepared by the DTI and are not referred to in the draft Charities Bill.

© RadcliffesLeBrasseur

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.