14 August 2022 by Selina Atim

The Implementation of the Charities Act 2022

Simplifying procedures, a win for charities

The Charities Act 2022 gained royal assent on 24 February 2022 and the government has now published their implementation plan which will gradually activate the new provisions over the next 18 months. The Act provides greater powers for trustees and aims to simplify the process of charity management and eradicate unnecessary bureaucracy.

Some of the key changes are summarised below:

The First Phase – Autumn 2022

  • Cy-près powers: This change allows for the original intentions of the donor to be carried out even if the original purpose of the gift has failed, providing for greater flexibility and for more funds to be allocated for charitable purposes in the long run. The rule can be applied when it is unreasonable to incur expense to return the donation made; the amount being donated is £120.00 or less; and where the donor cannot be identified or found. The Act also allows charities to apply the proceeds of a failed fundraising appeal for other purposes without obtaining a cy-près scheme.
  • Ex gratia payments: A new test has been laid out which allows charities to make ex gratia payments without the need for Charity Commission (‘the Commission’) approval. The new (objective) test will be linked to a charity’s gross income. The changes will also allow trustees to delegate the making of ex gratia payments (although, the responsibility of the decision will remain with the trustees).
  • Remuneration of trustees for the provision of goods: Currently the law states that trustees can receive remuneration for goods supplied which are linked to the services for which they are supplied. The new change will allow the remuneration of goods which are supplied that are not for a particular service e.g., office paper. Commission consent will not be required.
  • Power to amend Royal Charters: This rule assists those charities who do not have an express power in their constitution to make amendments. The new changes will allow for trustees of Royal Charter charities to amend their constitutions with greater ease.

The Second Phase – Spring 2023

  • Permanent endowment: The definition of permanent endowment and the power to spend the capital in relation to this will be simplified. A new power allowing trustees to borrow from this fund will be introduced with no order required from the Commission provided that the borrowing is limited to 25% of the endowment fund and the funds are repaid in 20 years. For charities who are investing on a total return basis there will also be greater flexibility for investing permanent endowment funds in social investments. Previously this was restricted as it was projected that such investments would make a loss.
  • Charity land: The new rules remove the requirement that charity land that is to be disposed of must be advertised. The charity must still consider advice received; however, there will be no requirement to follow this advice and there will be a larger pool of advisers from whom the charity can take advice. The new rules will also amend the general exceptions on disposing land to include a liquidator and administrator as well as refine the definition of “connected person” in this area to exclude employees where the land disposal is a fixed, short-term, or periodic tenancy that will be used as their home.

The Third Phase – Autumn 2023

  • Charity constitutions: The new changes will standardise the process of amendments to charity constitutions and will introduce new criteria for the Commission to consider when there are changes to the objects of a charity.
  • Charity trustees: The Commission will be able to authorise payments to trustees for work undertaken where it would be inequitable not to do so. Previously it was only the court who had such authority. The Commission will also have new powers to confirm a trustee’s appointment where there is doubt in this.
  • Charity mergers: The Act ensures that gifts to a charity which has merged with another will take effect as a gift to the new charity.

Reviews

A complete review of the Charities Act 2022 in line with the statutory review period is still due to take place within 3-5 years of royal assent. It has also been confirmed that there will be an update to the Charity Commission Guidance to provide for greater clarity on these rules soon.

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