Date 3 October 2006
The basis for existing charity law goes back to an enactment of Elizabeth I and the current list of charitable purposes was last updated in the nineteenth century. The charitable sector’s key commentators have been demanding a modern and effective legal framework for charities, which should clarify charity law and enhance public trust and confidence both in the concept of charity and charities themselves. The government has decided that the time has come for an overhaul of existing legislation. The Charities Bill is the outcome so far. This article is intended to provide a brief introduction to some of the current proposals.
Key Components of the Bill
The Bill will comprise of a list of 12 charitable purposes. Allied to this, charities will be obliged to be able to demonstrate they provide a public benefit. The Charity Commission (“the Commission”) will be reconstituted and emboldened with new functions, powers and objectives. The Commission will also act as regulator for “exempt” charities. To counterbalance the increased status of the Commission, a new Charity Appeal Tribunal will hear appeals against Commission decisions.
Registering a charity will have some new requirements, notably the raising of the annual income threshold for registration to £5,000. The Bill also proposes a new charity entity, the “Charitable Incorporated Organisation” (CIO) and will introduce a statutory right to remunerate trustees for services (provided certain criteria are met). It will be easier for unincorporated charities to transfer their money, replace their purposes or spend permanent endowment. A new system for regulating public charitable collections will also be introduced (further information can be obtained on the Charity Commission website at www.charity-commission.gov.uk).
New charitable purposes
Under the Bill, the new purposes are likely to be as follows:
- Prevention or relief of poverty
- Advancement of education
- Advancement of religion
- Advancement of health or the saving of lives
- Advancement of citizenship or community development
- Advancement of the arts, culture, heritage or science
- Advancement of amateur sport
- Advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
- Advancement of environmental protection or improvement
- Advancement of animal welfare
- Relief to those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
- Promotion of the efficiency of the armed forces of the Crown
- Other purposes currently recognised as charitable and any new charitable purposes which are similar to another charitable purpose.
Public Benefit
The Charities Bill will not itself define “public benefit”. The definition is governed by existing law which has been shaped by the courts over the years. However, the Bill does remove the presumption that any particular kind of purpose is for the public benefit. Each case has to be considered on its own merits.
However, the Commission has provided some guidance on “public benefit”, which has been summarised in five principles:
- There must be an identifiable benefit, but this may take many forms
- Benefit is assessed in the light of modern conditions
- The benefit must be to the public at large, or to a sufficient section of the public
- Any private benefit must be incidental
- Those who are less well off must not be excluded from the benefit.
These five principles are a guide only and for a detailed discussion, please refer to the Commission website.
The role of the Charity Commission
The Bill establishes the Commission as a corporate body and for the first time sets out its objectives and functions, as well as its general duties. The Commission’s objectives will include increasing public trust and confidence in charities and increasing trustee compliance with their legal obligations. The Commission will also be responsible for enabling and encouraging charities to maximise their social and economic impact. The accountability of charities to donors, beneficiaries and the general public will also be addressed.
Purpose of the Appeal Tribunal
The Tribunal will become "the court of first instance" for appeals against certain decisions of the Commission including decisions to register an institution, to remove an institution from the register, to open an inquiry and to establish a scheme for the administration of a charity. It will also hear appeals against decisions to suspend (or remove) a trustee, officer or agent, or to appoint a receiver and manager. Other matters which the Tribunal will determine will include the validity of specific directions which the Commission considers expedient for the protection of a charity where an inquiry has been opened (a new power to be given to the Commission under the Bill) as well as decisions to direct the application of charity property (another new power to be given to the Commission where an inquiry has been opened). Finally the Tribunal will be empowered to waive the disqualification of a trustee.
Charitable Incorporated Organisations (CIOs)
A CIO will be made up of members, who can elect to be liable or non-liable to contribute if the CIO is wound up. The non liable option looks likely to be the more popular of the two, except where existing charitable companies limited by guarantee convert into CIOs, in which case the guarantee will continue to apply.
The general management and control of a CIO will be undertaken by the “trustees”. It is not necessary for the members and trustees to be the same (or even for a trustee to be a member at all). Regardless, each member (and trustee) will be under the same duty of good faith in the exercise of their powers on behalf of the CIO.
The Commission will be the sole regulator but there is no provision for the Commission to maintain a register of charges. It is therefore not clear whether a CIO will be able to create an effective charge.
An existing charitable company (or registered friendly society) can convert to a CIO by applying to the Commission.
Next Steps
The Charities Bill has completed the Committee stage in the House of Commons. While some amendments are inevitably going to be made, there will not be any further progress of the legislation until after the parliamentary recess in October, when implementation of the legislation will be proposed.
Early indications from sector insiders are that the proposed framework will be welcomed. A period of adjustment will follow enactment, but an initial ‘bumpy’ ride should be followed by a smoother passage for all concerned.
For more information, please contact Chris Wilks at chris.wilks@salaw.com or on 01727 798083.
© SA Law 2006
Every care is taken in the preparation of our articles. However, no responsibility is accepted as being owed to any person or organisation who acts on the basis of information contained in them. You should obtain specific advice in respect of individual cases.