Late March and early April saw a flurry of activity surrounding the implementation of the Charities Act. Most of the Act is now in force – and draft sub-sector guidance on public benefit has been published for consultation.

The following changes were implemented on 18 March 2008:-

Charity Tribunal

The new independent Charity Tribunal designed to hear appeals from formal legal decisions of the Charity Commission has opened its doors for business. Charities, and other interested parties, will be able to bring cases within 42 days of a “final decision” from the Charity Commission on the issue.

More information – including the Tribunal’s detailed procedural rules - is available on the Tribunal’s website www.charity.tribunals.gov.uk.

The Tribunal is a welcome innovation, but there are concerns that the costs implications may bar charities from taking advantage of the new development. Time will tell how useful the Tribunal is in practice.

Payment of Trustees

The 2006 Act introduces a new statutory power to pay trustees, and those connected to them, for services provided to or on behalf of the charity in certain circumstances.

There are various safeguards which restrict the circumstances where the new power can be used:-

• The new power only applies to payments for services. It does not apply to payments for being a trustee, nor does it allow a trustee to be a paid employee of the charity.

• The charity’s constitution must not contain an express prohibition on the payment. This is a trap for the unwary: it is likely that many charity constitutions will contain a prohibition of this kind. However, it should be possible to remove the prohibition by making a simple amendment to the constitution: the Charity Commission has indicated that in the case of charitable companies this can be done without its prior written consent.

• The payment must be reasonable, and the arrangements must be confirmed in a written agreement.

• The trustees must consult Charity Commission guidance before acting. They must be sure that they are acting in the best interests of the charity, and must have regard to the duty of care contained in the Trustee Act 2000.

• No more than a minority of trustees may receive payment at any one time, whether under this new power or otherwise. Payments to connected persons will be counted as payments to trustees for this purpose.

• The trustee(s) in question should not vote on any decision relating to their remuneration.

• The Charity Commission has also re-published its guidance on the procedures for small charities (with income under £20,000 per year) wishing to pay their trustees, and on the application procedure where charities wish to employ a trustee with a salary of less than £50,000 per year.

Amendments to the Memorandum and Articles of charitable companies

The situations where a charitable company wishing to change its constitution needs to seek prior written Charity Commission consent are clarified. Consent is now required to “regulated alterations”. These are:

• Any alteration of the objects clause;

• Any alteration of any provision directing the application of the property of the company on dissolution;

• Any alteration of any provision which provides authorisation for any benefit to be obtained by the directors/trustees or members or persons connected with them.

Permanent Endowment

The rules on the extent to which charities can spend their permanent endowment (i.e. property which is subject to a restriction that only the income, and not the capital, can be spent) are relaxed considerably. Where the trustees are satisfied that the purposes for which an endowment fund is held could be carried out more effectively if the capital as well as the income could be spent, they may resolve that all or part of the fund should be free from the restriction on spending capital.

Where the charity has a gross income of £1,000 or less, or the endowment fund is worth £10,000 or less, or where the endowment was not entirely given, the trustees can simply give effect to this resolution and inform the Charity Commission afterwards.

In the case of larger charities, the resolution must be sent to the Commission with a statement of the reasons for passing it. The Commission then has three months within which to require public notice or further explanations or information, or to object to or agree with the resolution.

The Charity Commission has issued guidance giving its view that the new rules will not necessarily apply to “functional endowment”, where spending the capital would also involve a change to the purposes for which the fund is held, eg where the permanent endowment property is a historic building or a playing field which the charity has been established to protect.

Small unincorporated charities

Unincorporated charities with a gross income of £10,000 or less are given power to transfer property or change their purposes even if there is no express provision to this effect in their constitution. The trustees must, essentially, resolve that the move would be expedient, and must comply with various other safeguards. They should then notify the Charity Commission of their decision. The Charity Commission has an opportunity to object or ask for further information or action. Subject to the Commission’s intervention, the resolution will take effect once 60 days have passed.

Cy-près

The cy-près rules apply where a charity’s purposes have become out of date and need modernising. Where there is no other way of achieving this, the trustees can apply to the Charity Commission for a cy-près scheme. There are now new rules about when an application can be made, and what considerations the Charity Commission will take into account when deciding what the new purposes of the charity should be. Essentially, the prevailing social and economic circumstances will be a much more relevant consideration.

The Act also includes revised powers which will apply where charitable appeals have failed.

The following changes took effect on 1 April 2008:-

Charitable purposes

The list of purposes which the law regards as charitable, which have been established by case-law over many years, are now laid out in statute. There is now a list of thirteen charitable purposes – rather than the traditional four - including the prevention or relief of poverty, the advancement of human rights, and a general “sweep-up” category of other purposes charitable before this part of the Act came into force – and which become charitable over time as the law evolves. No great change to the law is intended – the list is intended to replicate the law before 1 April – but Parliament has taken the opportunity to clarify some charitable purposes – confirming, for instance, that the advancement of multi-deity and non-deity faiths is charitable.

Public benefit

The new rules on public benefit are now in force. Charity trustees must have regard to the Charity Commission’s guidance on public benefit when exercising any powers or duties to which the guidance is relevant. And for financial years beginning on or after 1 April 2008 charity trustees are obliged to include in their annual reports an explanation of the main activities undertaken by the charity to further its purposes for the public benefit. More detail will be needed in the case of charities which are above the audit threshold.

The Charity Commission has now also published draft sub-sector public benefit guidance in certain areas. The Commission has invited comments on the various guidance by the deadlines given below.

Sub-sector	Date of Publication	End of Consultation Period
Advancement of religion	29 February 2008	30 June 2008
Prevention or relief of poverty	29 February 2008	30 June 2008
Promotion of social inclusion	29 February 2008	30 June 2008
Education	12 March 2008	11 July 2008
Fee-charging	12 March 2008	11 July 2008

Some elements of the draft guidance are controversial. For instance, the draft guidance on prevention or relief of poverty suggests that the purposes of “benevolent” funds set up to help the employees or former employees of a particular company who have fallen on hard times must be restricted to the relief of financial hardship, and cannot extend to relief of need by reason of age, youth, sickness or disability. And the Commission suggests that trusts established for the relief of poverty of members of a particular family (so-called “poor relations trusts”) may no longer be charitable.

We would encourage charities working in any of the areas covered by the draft guidance to respond to the consultation. Our experience of the 2007 consultation on the main public benefit guidance is that the Commission will consider responses seriously.

And charities should watch out for further draft sub-sector guidance. The Commission plans to produce separate guidance for the advancement of non-religious beliefs and on professional bodies and professional education.

Changes to fundraising statements

There are new rules on statements which must be made by professional fundraisers raising money for charities, and commercial participators representing that funds will be given to charity. There are three main changes:

1. Professional fundraisers will have to state the actual amount (or a reasonable estimate) of what they will be paid.

2. Similarly, commercial participators will have to state the actual amount (or a reasonable estimate) of what they will pass to the charity.

3. There is a new requirement for statements to be made by a paid charity employee, paid charity trustee or paid officer of a charity or charity trading subsidiary if they are collecting as part of a street or house-to-house collection.

The Cabinet Office has published draft guidance on the new statements, asking for comments by 31 May. There are some concerns about the Cabinet Office’s interpretation of the law: for instance the draft guidance indicates that both professional fundraisers and commercial participators must make a statement of the total amount they will be paid/pass to charity in the course of the fundraising campaign. This goes further, in the case of commercial participators at least, than what many had thought would be the case. Again, charities involved in fundraising are urged to respond to the consultation. Charities or fundraisers with concerns about the contents of their statements should seek further advice from BWB.

Accounts

All charities are now required to prepare group accounts once the income from the group reaches a certain threshold. The accounting requirements of the Charities Acts and Companies Acts have been streamlined, so that the same audit thresholds will apply to all charities, regardless of their legal form. The Charity Commission has published new guidance on the reporting and accounting thresholds: CC15a – Charity Reporting and Accounting: The Essentials.

Future implementation

The latest changes mean that the most of the Charities Act 2006 is now in force. We await implementation of the following parts of the Act:

• the new rules on excepted charities are due in late 2008

• charitable incorporated organisations – a new legal form for charities - are likely to become available early next year (draft regulations are expected in the summer of 2008)

• the new regime for exempt charities is due in late 2009

• the new public charitable collections rules are not expected until 2009 or beyond.

We also expect changes to various financial thresholds in charity legislation (eg the threshold for filing accounts with the Charity Commission, and the audit threshold), following the consultation which closed on 31 March, and new consultation on the secondary legislation under the Charities Acts.

Companies Act 2006

Charitable companies will also be interested in the latest provisions of the Companies Act 2006 to come into force – on 1 April 2008.

For any questions please contact Christine Rigby (c.rigby@bwbllp.com), Alice Faure Walker (a.faurewalker@bwbllp.com) or your usual BWB contact.

Charities Act 2006 Seminar (29 April 2008)

There are still places available at BWB’s free seminar for clients on the Charities Act 2006 at 4pm on 29 April. To register a place, please vist "Charities Act 2006 Seminar".  Alternatively, please contact Mona Rahman on seminars@bwbllp.com (quoting reference Charities Act 2006 Seminar) for more information.