The Charities Act 2022 will make some useful but largely technical changes to charity law. These changes will not have a big impact on most charities day-to-day, but are intended to simplify the regulation of charities.
The legislation is being implemented in stages, with the following changes due to be implemented first this autumn (the exact date has not yet been announced):
Ex gratia payments
An ex gratia payment arises where a charity’s trustees feel under a moral obligation to make a payment, but there is no legal basis for making it and the payment cannot be justified as being in the best interests of the charity. Ex gratia payments are most often considered in the context of legacies.
Currently Charity Commission consent is required to make an ex gratia payment (although the Commission has issued guidance that it will not challenge ex gratia payments under £1,000). Under the new law charities with gross income of up to £25,000 will be able to make individual ex gratia payments of up to £1,000, charities with a gross income of more than £25,000 will be able to make ex gratia payments of up to £2,500 and charities with income over £1 million will be able to make individual payments of £20,000 – in all cases without Charity Commission consent. However, in all cases an ex gratia payment will only be able to be made if the charity trustees could reasonably be regarded as being under a moral obligation to make it.
It will also become possible for charity trustees to delegate the decision to make an ex gratia payment.
Cy-près schemes and proceeds of fundraising appeals
More relaxed rules will be introduced to enable donations given in response to an appeal that cannot be carried out to be applied cy-près rather than returned to donors. The circumstances in which a charity will be able to take this approach are:
- Where the Charity Commission decides it would be unreasonable to incur expense in taking steps to return the donation, or it would be unreasonable for the donors to expect the donation to be returned;
- Where the charity trustees reasonably believe that a donor has given £120 or less in a financial year (whether by a single donation or cumulatively over the year), they do not need to contact the donor (unless the donor made a written declaration at the time the donation was made that it must be returned should the appeal fail);
- Where a charity has agreed with the Commission on reasonable steps to contact donors to offer the return of their donations and, having followed those steps, has not identified or found a donor; and
- 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 individual donors.
Trustees will also be able to resolve that proceeds from a failed funding appeal can be applied to different charitable purposes, without the need to obtain a cy-près scheme. The power will be available where:
- an initial failure of an appeal (usually where a charity cannot achieve the purpose of the appeal because it raised insufficient funds); or
- a subsequent failure of an appeal (where there is a surplus after the charity has achieved the purpose of the appeal).
Other changes
Other changes that will come into effect in autumn 2022 include:
- a new power to enable charities governed by a Royal Charter without a power of amendment to change sections in their Royal Charter which they cannot currently change without the need for a supplemental charter, if that change is approved by the Privy Council; and
- conferring trust corporation status automatically on existing and future corporate charities in respect of any charitable trust of which the corporation is (or, in the future, becomes) a trustee.
For further information or advice, please contact Chris Rowse or Alison Cross or any member of our charity team.