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Education briefing - Important changes to charity law – first provisions of the Charities Act 2022 in force

  • United Kingdom
  • Education - Briefings

22-11-2022

The Charities Act 2022 (“ChA 2022”) was passed earlier this year and is set to make a number of amendments to the Charities Act 2011 (“ChA 2011”); these changes will be made in tranches over the next year. The first set of changes came into force on 31 October 2022; further changes are expected to come into force in Spring 2023 and Autumn 2023. This briefing deals with the amendments that came into force on 31 October.

The extent to which they will impact upon your institution depends on its legal form as to whether it is a registered or exempt charity. As some of the changes are specific to particular types of charity, and others are of general application to charities

Power to amend Royal Charters

Royal Charter charities now have a statutory power to amend any section in their Royal Charter, so long as the change is approved by the Privy Council. This introduces a degree of flexibility with the aim of reducing the limitations for certain Royal Carter charities which do not have an express power in their governing document allowing amendments. Such charities have, up until now, had to go through the costly and timely process of petitioning for a Supplemental Charter.

The statutory power to amend the Royal Charter will need to be exercised by passing a resolution, subject to approval of the Privy Council. Once approved, the resolution itself modifies the Royal Charter. This power is not available, on the basis that it is not necessary, where the Royal Charter already contains a suitable express power of amendment.

It is recommended that Royal Charter charities wishing to use this power to communicate with the Privy Council at an early stage in the process, allowing approval to be obtained to the proposed amendment before it is put to a vote.

Charities governed by an Act of Parliament

The ChA 2022 amends section 73 of ChA 2011, which relates to the Charity Commission’s power to issue schemes altering Acts of Parliament regulating a charity. The changes under ChA 2022 mean that all schemes made under this section will be subject to the ‘negative resolution procedure’ in Parliament regardless of whether the charity’s governing document is contained in a private or public Act of Parliament. The intention is to allow the smoother progression of such schemes through the Parliamentary process.

Failed fundraising appeals

In some circumstances, fundraising appeals may fail to raise the amount needed to deliver the intended goal or, alternatively, the appeal may raise a surplus of funds. The ChA 2022 has implemented new rules relating to the treatment of such fundraising appeals, replacing the current regime in the ChA 2011.

The new rules allow such donations given in a response to an appeal which cannot be carried out, to be applied cy-près rather than be returned to the donors, in the following circumstances:

1. where it would be unreasonable to incur expenses in returning the donations, or unreasonable for the donors to expect the donation to be returned;

2. where the charity trustees reasonably believe that a donor has given £120 or less in a financial year, they do not need to contact the donor unless the donor made a written declaration at the time of donation saying it must be returned if the appeal fails;

3. where a charity has agreed with the Commission reasonable steps to contact donors to offer the return of their donations, and when following the steps, have not identified or found a donor; or

4. where donations comprise the proceeds of a cash collection made by collection boxes, lottery, competition or similar method where it is not possible to identify the donors.

Under the amended rules, a charity no longer has to wait for six months for donors to ask for a refund.

Additionally, trustees do not need to obtain a cy-près scheme from the Charity Commission, and the trustees will be able to resolve that proceeds from a failed funding appeal are applied to different charitable purposes.

When passing such a resolution, trustees must have regard to the desirability of securing that the new purposes are similar to the specific charitable purposes for which the money was given, and the need for the purposes to be suitable and effective in light of current social and economic circumstances.

The resolution must be passed by a majority of the trustees. Where proceeds of the appeal exceed £1,000, the Charity Commission must give its written consent to the resolution before it can take effect.

Paying trustees for supplying goods to the charity

Under the ChA 2011, charities have had a statutory power, in certain circumstances, to pay trustees for providing services or goods connected with services to the charity, beyond their usual trustee duties.

This section has been amended by the ChA 2022 to extend the power so that trustees may now be renumerated for providing goods only to their charity. There is no longer a requirement for the goods to be supplied in connection with services.

As with the existing statutory power, this section applies in addition to any other power the charity might have to make those payments pursuant to its governing document.

Corporate trustees of charitable trusts given trust corporation status

The ChA 2022 confers “trust corporation” status automatically to existing and future corporate charities in respect of any charitable trust of which the corporation is a trustee. This removes a considerable area of uncertainty for sole corporate trustees of charitable land.

Costs incurred in relation to Tribunal proceeding

The ChA 2022 gives the First-tier Tribunal (Charity) and Upper Tribunal (Tax and Chancery Chamber) power to make orders authorising charity trustees to incur legal costs in relation to legal proceedings and confirms that such costs are a proper use of the charity's funds.

Charity Commission orders and directions – public notices

The ChA 2022 extends the Charity Commission’s power to the giving of prior notice of proposed orders, and to give both prior and subsequent notice of the giving by the Charity Commission of written consent.

Power to make schemes

The ChA 2022 has confirmed that the power of the court and the Charity Commission to make a scheme in respect of a charitable trust also applies to a charitable company, CIO or any other type of charity. This clarifying change is to be treated as having always had effect.

Deferred section - Making moral or ‘ex gratia’ payments from charity funds

The government has deferred the implementation of the provisions relating to making moral or ‘ex gratia’ payments, until there is a fuller understanding of the impact for national museums and other charities as the provisions may allow the return of items on moral grounds (an aspect that was not considered when the Bill was considered by Parliament).

If enacted, the ChA 2022 will insert a new provision allowing charity trustees the power to make small ex gratia payments without prior authorisation from the Charity Commission. The maximum individual payment amount allowed without permission will depend on the charity’s gross income in the most recent financial year, in accordance with the table below:

Charity’s gross income in the last financial year                                     Maximum individual payment amount allowed without Commission authority
£0 to £25,000 £1,000
£25,001 to £250,000 £2,500
£250,001 to £1m £10,000
Over £1m £20,000

These amendments will provide charities with greater flexibility in making ex gratia payments and reduce the administrative burden of requiring Charity Commission consent when only small financial payments are being made.

Trustees will be able, under the new amendments, to delegate the decision making for ex gratia payments to other individuals or groups within the charity. These powers will also be available for Royal Charter bodies and statutory charities.

If you have any questions regarding the changes and their relevance to your charity, feel free to get in touch with the contacts below: