The Regulator for Charities in England and Wales
Notes
(i) Affected sections of 1993 Act: In the items listed above, the 2006 Act has either amended existing provisions or inserted new provisions into the Charities Act 1993 (“the 1993 Act”). The relevant sections of the 1993 Act are shown in brackets in the main headings of the summary.
(ii) Registration threshold: The last item in the summary highlights the imminent increase in the registration threshold. It is included for information, although the Order sanctioning the increase will not be made until April.
1.Powers of the Commission to relax publicity requirements for Schemes and Trustee Orders (s.20)
Relevant to: Trustees who have applied to us for a Scheme; charities where the Commission appoints, discharges or removes trustees.
What is this provision about? Trustees no longer have to publicise the Commission’s proposals to make a Scheme or Trustee Order according to certain statutory requirements. We may now decide when this notice is given, or decide because of the nature or urgency of the measures contained in the Scheme to proceed without the normal publicity.
What does it change? The new legislation relaxes the requirements for publicity relating to Schemes and Trustee Orders in that:
Action for trustees: None.
Further information: OG1 Orders and Schemes is being revised.
Technical information: This is a revision of the existing provisions in the 1993 Act, replacing s.20 with new ss.20 and 20 A.2. Participation of Scottish and Northern Irish charities in common investment funds (CIFs) (ss.24 - 25)
Relevant to: All charities based in Scotland or Northern Ireland who wish to participate in a CIF previously available to English and Welsh charities only.
What are the provisions about? The scope of CIFs is widened in order to allow the participation of Scottish and Northern Irish charities. This will allow greater flexibility for trustees of common investment funds, which have before now only been open to charities in England and Wales.
What do they change? A definition of “appropriate body” is introduced to permit the inclusion of Scottish and northern Irish charities.
Action for trustees: they should familiarise themselves with the new provisions, either as potential investors in the funds, or as a managing trustee of a CIF.
Further information: OG 49 Pooling schemes and pool charities has been revised. Web guidance on CIFs.
Technical information: New clauses 3A and 3B are inserted after s.24(3) of the 1993 Act. Section 25 of the 1993 Act is amended, and a new s.25A has been inserted.
3. Power to determine membership of a charity (s.29)
Relevant to: All trustees and members of membership charities.
What is the provision about?
This power allows the Commission to determine who a charity’s members are. This will be done on application from the charity or by the Commission itself within the course of a s.8 inquiry. The Commission may appoint someone to make this determination and this may also be a person who is appointed to undertake the s.8 inquiry.What does it change? It is important to understand that this power cannot be used to resolve doctrinal disputes, moral matters or personality clashes. It may also be difficult to have access to this power where there are no trustees to make an application or where there is a dispute about who the trustees might be. Our preference is to work with a charity to bring about resolutions to membership issues rather than taking action to determine membership.
Action for trustees: Trustees should be aware of these new powers. They have the potential to affect charities being investigated as part of a section 8 inquiry.
Technical information: Section 25 of the 2006 Act inserts new s.29A into the 1993 Act.4. Power to enter premises and seize documents etc (s.31)
Relevant to: All trustees and all charities.
What is the provision about? This power allows a named Commission officer, under protection of a warrant from a Justice of the Peace to:
Conditions to be in place before the issue of a warrant are:
Conditions in relation to the execution of the warrant are:
What does it change? This is a new area of work and its use will be monitored closely.
Action for trustees: Trustees should be aware that these powers may be used as part of a s.8 inquiry.
Technical information: Section 26 of the 2006 Act is an addition to s.31 of the 1993 Act and will appear as the new s.31A.
5. Restrictions on disposals of charity land (s.36)
Relevant to: Any charity proposing to dispose of some or all of its charity land.
What are the provisions about? The changes are primarily of interest to conveyancers and those who advise charities on the law relating to disposals of property. In summary, it has always been clear that an order of the Charity Commission is required to authorise a disposal of charity land, unless the charity trustees follow certain “self certification” procedures, such as obtaining a surveyor’s report and marketing the property in accordance with such advice. What has been unclear is whether it is possible for charity trustees to enter into a valid contract to dispose if for some reason they have been unable to follow these self certification procedures, and even if they have obtained an order from the Commission authorising the disposal.
What does it change? The Act removes this uncertainty. It confirms that, although trustees will need to obtain an order from the Commission authorising the disposal, trustees will be able to enter into a valid contract to dispose of land where they have been unable to follow the self certification procedure.
The other point which is clarified is that trustees must complete a period of publicity inviting comments and objections before contracts are exchanged where the charity is disposing of land which has to be used for the charity’s purposes (“specie” land).
Action for trustees: Trustees should still ensure they comply with the requirements of section 36(3) or (5) before entering into an agreement to dispose if they possibly can – failure to do so will risk delay to the completion of the disposal because an Order will be needed from the Commission to complete the disposal validly. Similarly, in the case of specie land, trustees have to comply with section 36(6) before entering an agreement to dispose.
Further information: OG 54 Disposals of charity interests in property and also CC28 Disposing of charity land.
Technical information: Paragraph 128 of Schedule 8 of the 2006 Act makes amendments to technical terms in subsections of s.36 of the 1993 Act, and inserts a new subsection 6A after subsection 6.
6. Meaning of 'connected person' (s.36)
Relevant to: Any charity proposing to dispose of some or all of its charity land to a 'connected person'.
What is the provision about? The 2006 Act inserts wording near the start of Schedule 5 of the 1993 Act that notes when the person or institution is recognised as a 'connected person'; that is, at the time of the disposition or contract for the disposition. In addition, two new definitions are added to the list of who is considered a 'connected person'.
What does it change? The effect of an addition to Paragraph 1 of Schedule 5 clarifies that where a person is connected, according to the definitions, they are considered to be so at the time of the disposition or at the time of any contract for the disposition. The reason for this change is that, currently where charity trustees comply with section 36(3) or (5) of the 1993 Act, they can enter into a valid contract to dispose of land to a connected person. If the connected person then resigns before completion of the contract, no order from the Commission is required under section 36(1). This is clearly a situation which requires change and has arisen because of the Bayoumi decision.
Also, further definitions are added to the list in Schedule 5. These are:
Action for trustees: Disposal to a connected person will still need an Order from us as before. If they know the person to whom they are disposing of the land is a connected person, trustees will need to be sure they take the usual actions to avoid conflict of interest. They can find guidance and forms to apply for our consent to such a disposal by going to the Apply For It page on our website.
Further information: OG 54 Disposals of charity interests in property; CC28 Disposing of charity land
Technical information: Paragraph 178 of Schedule 8 of the 2006 Act amends Schedule 5 of the 1993 Act. In Paragraph 1: An extra qualification of “connected person” is inserted by new sub-paragraph (1); A category of “persons carrying on business in partnership” is inserted by (ea) of new sub-paragraph (2). In Paragraph 2: A definition in relation to same-sex civil partners is added by new sub-paragraph (3).
7. Restrictions on mortgaging (s.38)
Relevant to: Trustees mortgaging their property for a loan or grant. An example may be where the charity is to receive a grant from the Big Lottery Fund and its property is required as security that the purpose for which the grant is made is carried through. Alternatively, the charity may take out a loan for a particular purpose and there may be a condition that the land or property owned by the charity is put up as a security for repayment of the loan.
What is the provision about? The new clause extends the types of arrangement when a charity does not require the formal authority of the court or the Commission to allow land belonging to a charity to be used as security as long as the trustees comply with certain requirements.
What does it change? The new clause extends the types of arrangements when a charity does not require the formal authority to allow land belonging to a charity to be used as security to include:
as long as the trustees comply with the similar requirements to those previously required for a mortgage to secure a loan.
So, for example, if Lottery funding was granted with the proviso that the work is carried out as set out in the proposal for the grant and the land is required as security that this is carried out, this will now not need our consent as long as the trustees obtain and consider proper advice on whether:
In addition, where a mortgage has been executed for the purpose of securing repayments of sums which are to be paid at a later date or the discharge of other obligations to be entered into at a later date, then, before the trustees repay any sums or undertake any obligations in connection with such a mortgage, they must not do so unless they have obtained and considered proper advice given to them in writing on the same matters listed in the new sub sections.
Action for trustees: Whilst the requirements are similar to those previously in place, trustees need to be aware that they apply to mortgages to secure grants and obligations of the charity as well as mortgages to secure a loan. Trustees should ensure they obtain the proper advice in writing in order to undertake these transactions without the need to come to us for consent.
Further information: OG 22 Borrowing and mortgages and CC28 Disposing of Charity Land have been updated.
Technical information: Subsections (2) and (3) of s.38 of the 1993 Act have been replaced with new subsections. Subsections (3A), (3B), (3C) and (3D) have been inserted.
Relevant to: Trustees of charities, and independent examiners, reporting accountants, and auditors who examine charity accounts. (Applies to accounting periods beginning on or after 27 February 2007.)
Note: Since the publication of this guide the external scrutiny thresholds have been amended by Order. For details of thresholds applying in particular years you should refer to oue CC15 series of publications - Charity Reporting and Accounting: The essentials - for the relevant financial year.
What is the provision about? The provision simplifies the rules about when a professional audit is required, and reduces the differences in the thresholds for company and non-company charities. (A non-company charity is a trust or association which has not been incorporated under the Companies Acts. A company charity is a charity which is incorporated under the Companies Acts and is registered with Companies House.)
What does it change? This is a revision of existing provisions in the 1993 Act. The thresholds are now based on income or assets only.
A non-company charity’s accounts will have to be professionally audited if it has:
Below this threshold, for non-company charities, an independent examiner can be used instead of an auditor. An independent examination is not required if the charity’s gross income is £10,000 or less. If the gross income is above £250,000, then the independent examiner must be a member of an approved body under section 43(3A) of the 1993 Act as amended.
The named bodies are:
Institute of Chartered Accountants in England and Wales
Institute of Chartered Accountants of Scotland
Institute of Chartered Accountants in Ireland
Association of Chartered Certified Accountants
Association of Authorised Public Accountants
Association of Accounting Technicians
Association of International Accountants
Chartered Institute of Management Accountants
Institute of Chartered Secretaries and Administrators
Chartered Institute of Public Finance and Accountancy
A Fellow of the Association of Charity Independent Examiners.
For charities which are companies, accounts will have to be professionally audited if the charity has:
Company charities with an income between £90,000 and £500,000 and assets of £2.8m or less are not required to have their accounts audited if they provide an accountant’s report. For a company charity with income of £90,000 or less, neither a professional audit nor an accountant’s report is required unless its assets are over £2.8m.
Action for trustees: Trustees of charities which have to be professionally audited must appoint someone with membership of a body recognised under section 249d(3) of the Companies Act 1985 unless a dispensation has been given by the Charity Commission.
Further information: CC15a Charity Reporting and Accounting: The essentials April 2008 and CC63(a) Independent Examination of Charity Accounts have been updated.
Technical information: Section 28 of the 2006 Act amends s.43 of the 1993 Act relating to non-company charities, while s.32 of the 2006 Act relates to company charities and cites s.249A of the Companies Act 1985.
9. Waiver of trustee disqualification (s.72(4))
Relevant to: Disqualified trustees and charity trustees wishing to appoint a trustee to their charity who has been disqualified from acting as such by the Commission.
What is the provision about? The new clause enables trustees who were removed from office because of misconduct or mismanagement more than five years earlier, to have their disqualification for acting as trustee waived.
What does it change? This is a revision of existing provisions in the Charities Act 1993. Section 72(4) of the 1993 Act empowers us, on the application of a disqualified person to waive the disqualification either generally, or in relation to a particular charity or class of charities. Our position is that any trustee who is disqualified should normally stay disqualified until the particular circumstances under which s/he was disqualified no longer prevail. The onus is entirely on the applicant to convince us that it is in the best interests of the charity (and will not undermine public confidence in charity) for us to grant a waiver.
The new procedure requires us to grant a waiver of disqualification to trustees who have been removed from office on the grounds of misconduct or mismanagement in the administration of the charity, either under English and Welsh or Scottish law, unless they are:
if the disqualification took place over five years before and if the Commission is satisfied that there is no good reason not to grant the application.
Therefore, the Commission retains the discretion to refuse to give such a waiver. This discretion must be applied in accordance with administrative law principles, ie we must act in a way which is fair, reasonable and proportionate.
Action for trustees: Trustees wishing to appoint a disqualified person and disqualified trustees who wish to become trustees again, still have to apply to us for a waiver.
Further information: OG 41 Disqualification for acting as a charity trustee and OG 42 Waiver of disqualification for acting as a charity trustee have been updated.
Technical information: Section 35 of the 2006 Act inserted a new sub-section (4A) after s.72(4) of the 1993 Act.
10. Relief of trustees and others from liability for breach of trust or duty (s.73)
Relevant to: Charity trustees (including holding and custodian trustees), auditors, independent examiners and reporting accountants who have (or might have) incurred a personal liability in the course of their duties.
What is the provision about? The new provision will allow the Commission to excuse individuals from a personal liability they have incurred as a result of a breach of trust or duty. If the Commission takes the view that, although in breach of trust or duty, the person in question has acted reasonably and honestly and ought fairly to be excused, it will make an order stating that the individual is relieved from their personal liability.
What does it change? Previously, if a trustee had incurred a personal liability through a breach of trust or duty and was required to restore to the charity property that had been lost to it through his or her actions, only the courts could relieve that person of his or her liability. In the past, the Commission has been able to make an administrative decision not to ask a charity trustee to make restitution to the charity if it thought that the trustee had acted reasonably and in good faith. However, this did not offer the same degree of protection as actual relief, which we are now able to offer in appropriate cases.
Action for trustees: None.
Further information: New operational guidance on this subject will shortly be available on our website (and Connect).
Technical Information: Section 38 of the 2006 Act inserted new sections 73D and E into the 1993 Act.11. Trustee Indemnity Insurance (TII) (s.73)
Relevant to: Trustees wanting to take out TII using the charity’s funds.
What is the provision about? The new power allows charity trustees to use the charity’s funds to buy personal indemnity insurance - unless the governing document specifically prevents it. This means trustees no longer need an explicit power from the Commission or from their governing document before purchasing such a policy.
There are limitations on what such policies can cover - for example, they must exclude:
Trustees must be satisfied the purchase of a TII policy is in the best interests of the charity. They are also subject to the duty of care in the Trustee Act 2000.
What does it change? The purchase of TII out of charity funds confers a personal benefit that previously required specific authorisation under the charity’s governing document or by the Commission.
Charities without a suitable power no longer need our authority to buy TII, or our approval to amend a governing document to introduce a power to buy TII.
A Commission Scheme (or s.64 approval, in the case of a company) is still needed to overturn an express prohibition against TII. But trustees can rely on the default power in any case where there is simply a general prohibition against personal benefit, or a power that is expressed to be conditional upon our approval.
Action for trustees: None.
Further information: Updates have been made to: OG 100 Trustee Indemnity Insurance; CC49 Charities and Insurance; CC3 The Essential Trustee.
Technical information: Section 39 of the 2006 Act inserted new section 73F into the 1993 Act.12. Unincorporated charities: Power to modify powers or procedures (s.74)
Relevant to: Trustees of all unincorporated charities.
What is the provision about? It enables the Trustees of all unincorporated charities to pass a resolution to alter the parts of their charity’s governing document that set out what their powers are and how they administer their charity, for example the number of Trustees needed to form a quorum at meetings.
What does it change? It changes the existing provision in the 1993 Act that enables the Trustees of small unincorporated charities with an annual income of under £5,000 to change the parts of their governing document that set out their powers and say how the charity should be administered. Apart from removing the income threshold, this provision may now be used by ‘exempt’ charities listed in the Second Schedule of the 1993 Act, and the Charity Commission no longer has to approve the resolution.
Action for Trustees: Trustees should consider using this provision if they need to change their Charity’s governing document to enable them to run their charity more efficiently.
Further information: New OG 45 Unincorporated Charities: Amendments to Governing Documents links to revised public guidance CSD 1342A Amending Governing Documents: Unincorporated Charities. OG 1B1 Schemes and Orders will be revised to reflect changes in policy for providing power of amendment using s.26 Orders and Schemes.
Technical information: Section 42 of the 2006 Act inserts new section 74D into the 1993 Act.Also imminent: changes to the registration threshold for small charities (s.3)
Relevant to: Trustees of all registered charities with a gross annual income of not more than £5,000 and those considering whether they should register.
What is the provision about? Power is given to Ministers to make an Order to increase the income threshold above which small charities are required to register with the Charity Commission. An Order sanctioning an increase from £1,000 to £5,000 should take effect from the beginning of April 2007. The Order will also remove the requirements for charities that hold permanent endowment or occupy land to register, regardless of their income.
What does it change? Currently most charities must register with the Commission unless they have an annual income of £1,000 or less and do not have permanent endowment or the use or occupation of land. The new provision reduces the administrative burden for many small charities of having to register with the Commission and maintain their entry on that register.
In future, the Commission will only consider registering a charity below the registration threshold in exceptional circumstances. Applicants will need to provide details of the particular reasons why the charity should be registered voluntarily.
Registered charities with an income below £5,000 will remain on the register unless they ask the Commission to be removed.
Action for trustees: None, unless they want to their charity to be removed from the Commission’s register.
Further information: CC21 Registering as a Charity and the Registration Pack will be amended to reflect change. Plus minor consequential revision to OG 17 Removal of Charities from the Register.
Technical information: Section 10 of the 2006 Act is an interim provision, giving a Ministerial power to make an Order. The Order will amend provisions in s.3 of the 1993 Act.