KKopic

Kristina Kopic

Head of Charity and Voluntary Sector, Institute of Chartered Accountants in England and Wales (ICAEW)

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The Charities Act 2022: the practical implications for your charity

18 October 2022

In February, the Charities Bill received Royal Assent and passed into law as the Charities Act 2022. The recommendations from the Law Commission formed the basis for the provisions of the new legislation and the Act aims to give trustees more flexibility to manage charities effectively. They will not have a big impact on charities’ daily operations but simplify certain areas of regulation.

The Charity Commission now enters a process of implementing the legislative changes. It describes this as one of its business priorities for 2022. The implementation process is expected to last until autumn 2023 and involves updating Charity Commission guidance, both for trustees and for their own staff. The Commission’s implementation plan sets out when the provisions of the Act are expected to come into force.

Here are the top 10 changes and what they will mean for your charity:

1. Fundraising and cy-près powers

If a fundraising appeal raises too much or too little for the intended purpose, charities will have more flexibility under the new provisions. In certain circumstances, charities can use funds from failed appeals for a similar charitable purpose rather than returning the donations.  This will usually apply where:

  • the donations are small (£120 or less)
  • the charity would incur an unreasonable expense to return the donation
  • where it would be unreasonable for donors to expect the return of the donation
  • or where donors cannot be found or identified

This is expected to be implemented in autumn 2022.

2. More flexibility to make ‘ex gratia’ payments

‘Ex gratia’ payments are currently subject to strict rules which will be relaxed so that certain small ‘ex gratia’ payments, where a moral obligation can be demonstrated, will no longer require Charity Commission approval. All such payments will still need to be reported as required under the Charities Statement of Recommended Practice (Charities SORP). This should come into force in autumn 2022.

3. Paying their trustees for goods in certain circumstances

Trustees will be able to be paid for goods provided to a charity in certain circumstances, even if not expressly stated in the charity’s governing document (currently trustees can only be paid for supply of services). This should come into force in autumn 2022.

4. Using a permanent endowment more flexibly

Most legal restrictions on how charities can use permanent endowments stay in place, but there will be more flexibility in some areas. There will be a new statutory power for trustees to borrow from their permanent endowment. However, borrowings will be limited to 25% of the endowment fund value and any expenditure must be recouped within 20 years. This should come into force in spring 2023.

5. Access a wider range of professional advisers on the sale of land

Charities will have access to a much wider pool of professional advisors on land disposal, and to more straightforward rules on what advice they must receive. This should come into force in spring 2023.

6. New powers of the Charity Commission on Charity Names

The Charity Commission will be able to direct a charity to change its working and legal name and delay registration of a charity or a change in name where it is the same as or too similar to the name of another charity. This should come into force in spring 2023.

7. Amending the charity’s governing document more easily

Most charities will be able to amend their governing documents or Royal Charters more easily. This remains subject to the Commission and the Privy Council’s approval in certain circumstances, such as where changes to the charity’s objects are proposed. This will give most charities greater flexibility to respond to changes in their environment and organisational needs and will clarify the steps that charities must take to amend their governing documents. This should come into force in autumn 2023.

8. Increased consistency in tests applied for changing a charity’s purposes

The new Act introduces more consistency to what the Charity Commission will consider when a charity wants to change its purposes. Regardless of whether the charity is a charitable incorporated organisation (CIO), charitable company or unincorporated charity, the Charity Commission will consider:

  • the original purposes of the charity
  • the desirability of the proposed changed purposes to be similar to the original ones
  • the need for the purposes to be suitable and effective in the light of current social and economic circumstances

This should come into forcein autumn 2023.

9. New powers relating to the appointments of trustees

The Charity Commission will have a new power to make an order to ratify the appointment or election of a trustee where there is a defect in the process or uncertainty as to the validity of such an appointment. This should come into force in autumn 2023.

10. Changes to facilitate charity incorporations or mergers

The new Act will make it easier to transfer charity assets via a vesting declaration and can remove the need for ‘shell charities’ to catch any legacies after a merger. This should come into force in autumn 2023.

For more information, see the Charity Commission’s update Charities Bill: the next steps and the full Charities Act 2022.

Charities should consult Charity Commission guidance and consider seeking professional advice before they take advantage of the Act’s provisions. 

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