Charities Act 2006 – Opportunities for Charities
The enactment of the Charities Act 2006 and the publication of the First Commencement Order were given scant coverage outside the Charity Publications. By contrast, the start of the Charity Commission’s Public Benefit consultation received considerable coverage.
Whilst it is easy to see why there has been such a commotion over the “public benefit test”, the Act also introduces a number of useful deregulatory measures for charities which may not prove as controversial as the public benefit test, but are likely to have more impact on a daily basis:
Already in Force
- Increase in Registration Threshold
| Old Law |
New Law |
| Previously, small charities which had an annual income of £1,000 or less did not have to register unless they had a permanent endowment or the use, or occupation, of land. |
The Act gets rid of the permanent endowment and land requirement and raises the registration threshold so that only charities with an income of over £5,000 will be required to register with the Commission. There are over 30,000 charities already on the register with income below this threshold. They will be able to request removal from the register but will not be forced to deregister. |
- Increase in Audit Threshold
| Old Law |
New Law |
| Previously, charities were required to have an audit either if their income was over £250,000 or theyhad assets of over £1.4m. |
Both of these thresholds have doubled in a move which should reduce costs for thousands of charities. The new thresholds apply to financial years beginning on or after 27 February 2007. |
- Unincorporated Charities
| Old Law |
New Law |
| Previously, only the smallest of unincorporated charities were permitted to amend their constitutions without the Charity Commission’s consent. |
The Charities Act has introduced a number of new measures to reduce the red tape surrounding unincorporated charities. If they do not currently have a constitutional power of amendment, they can now rely on a power to alter their powers and procedures without the need for Charity Commission consent. Furthermore, in cases where the Commission exercises its Scheme making powers, the Commission has discretion about whether public notice is required, thus reducing the length of the Scheme making process. The Commission estimates that public notice will be needed in less than ten per cent of cases. |
- Trustee Indemnity Insurance
| Old Law |
New Law |
| Previously, only the smallest of unincorporated charities were permitted to amend their constitutions without the Charity Commission’s consent. |
The Charities Act has introduced a number of new measures to reduce the red tape surrounding unincorporated charities. If they do not currently have a constitutional power of amendment, they can now rely on a power to alter their powers and procedures without the need for Charity Commission consent. Furthermore, in cases where the Commission exercises its Scheme making powers, the Commission has discretion about whether public notice is required, thus reducing the length of the Scheme making process. The Commission estimates that public notice will be needed in less than ten per cent of cases. |
- Mortgages of Charity Land
| Old Law |
New Law |
S.38 of the Charities Act 1993 has been reformed. Previously, charities could only follow a selfcertification route when granting a mortgage over charity land in order to secure a loan.
Previously, the Commission could only give advice to trustees on “any matter affecting the performance of his duties as such”. |
That regime is now extended to security for grants and other transactions. This removes the need to apply to the Charity Commission for consent in these situations.
Further, The power for the Commission to give formal advice to trustees is extended to cover “any matter relating to the proper administration” of the charity. |
- S.36 Definition of connected persons
| Old Law |
New Law |
| Previously, charities did not need to obtain an Order from the Charities Commission if it wished to dispose of a property to business partners or trustees or other connected persons. Formally, a person was not treated as a connected person if the charity disposed of a property to a trustee who resigned as a trustee between exchange and completion. |
The definition of connected persons has been extended to include business partners of trustees and other connected persons. This means that a charity will need to obtain an Order from the Commission if it wishes to dispose of a property to this category of person.
Further, the Act also clarifies that a person is treated as connected if they are connected at the date of any contract, agreement for lease etc, regardless of whether they are still connected at the date of disposition. This means that, for example, a charity could not dispose of a property to a trustee without a Charity Commission Order, even if he or she resigned between exchange and completion. |
Due to Come in to Force in October 2007
- Charity Mergers
| Old Law |
New Law |
| One of the obstacles to charity mergers can be uncertainty about what will happen to the legacies and donations which were left to those charities which ‘disappear’ as the result of the merger. |
The Charity Commission will set up a Register of Mergers. In future, merging charities will be able to register the merger with the Commission and thereby save legacy income accruing to the merging charities. Mergers which have already happened will also be eligible to register, provided the premerger charities are still in existence. This will allow charities to tidy up their structures and wind up dormant premerger charities. |
Due to Come in to Force in early 2008
- Remuneration of Trustees
| Old Law |
New Law |
| Voluntary trusteeship was seen as the key principle of charity and did not allow trustees to be paid for being trustees. |
The Act upholds this principle. However, there will now be a statutory power to pay trustees for providing services to their charity (but not for acting as a trustee). In order to exercise this power only a minority of trustees can be paid at any one time The charity must have a written agreement in place with the trustee and the trustees must be satisfied that it is in the best interests of the charity for the trustee to provide the services. Only a reasonable amount can be paid.
The power is also subject to any contrary intention in the charity’s governing document. As most charities’ governing documents include a clause stating that no trustee may benefit from the charity, they are likely to have to change the wording of this clause to incorporate the statutory power which will require Charity Commission consent. This may impact on the effectiveness of the power, at least in the short term. |
- Power to Change Objects
| Old Law |
New Law |
| Previously, charities could only make changes to their purposes through resolutions agreed with the Charities Commission. |
The new law liberalises and extends these powers: small unincorporated charities with income of under £10,000 will be able to change their objects by passing a resolution. They then have to send this to the Charity Commission but do not have to give public notice unless the Commission orders them to. The Commission has to concur with the resolution before it becomes effective. Larger unincorporated charities will still be required to apply to the Charity Commission for a scheme to amend their objects. However when deciding whether and how to amend the objects the Commission will be able to take into account both the spirit of the gift and also the prevailing social and economic circumstances. The intention behind the changes is to give such charities greater flexibility to evolve. |
- Permanent Endowment
| Old Law |
New Law |
| A permanent endowment is a capital asset (land, investments or money) where the terms on which it is held do not allow a charity to spend the capital as if it were income. |
Trustees of permanent endowment funds will now, in some circumstances, be able to resolve to spend their permanent endowment without the Commission’s involvement and without having to give notice. This power can be used by the trustees of any permanent endowment fund in relation to any permanent endowment (unless the fund has a total income of over £1,000 and a market value of over £10,000, when the new s.75A applies). S.75A allows the trustees of larger unincorporated charities to pass a resolution to spend their permanent endowment, something which they have never before had the power to do. The trustees must submit the resolution to the Charity Commission and if it concurs, the permanent endowment can be spent. The charity trustees must be satisfied that the charity’s purposes would be carried out more effectively if the permanent endowment could be spent. When deciding whether to allow the expenditure of permanent endowment, the Commission will, under the new provisions in the 2006 Act, be able to take into account both the spirit of the gift at the time it was made, and the prevailing social and economic circumstances |
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