42: The Charities Act 2022 – how and when will it affect charities?

On 13 April 2022, the DCMS published its implementation plan for the Charities Act 2022 (the Act) explaining how it will bring into effect the Act, which received Royal Assent in February. It is planned that implementation will take place in three tranches in Autumn 2022, Spring 2023 and Autumn 2023. This blog explains what changes are expected to come in and when.

The Act implements most of the recommendations from a Law Commission project which started in 2011 and, after extensive consultation, resulted in a Charities Bill being announced in the Queen’s Speech in 2021 and introduced to Parliament soon after.

For the most part, the Act is not a major overhaul of charity law. Instead, it introduces tweaks to current rules and processes so as to reduce unnecessary bureaucracy while maintaining an appropriate level of oversight. It does this across a lot of different areas of charity law, which means that there are a lot of different changes to be introduced. Many of these will also need changes to the Charity Commission’s guidance and forms. It is for this reason that the implementation is being staggered – to give charities and the Charity Commission time to adjust to the changes.

What is changing and when?

A summary of the changes being brought in and when is set out below. As might be expected, the provisions which are likely to need less adjustment and planning are introduced first, with the ones which may need more guidance coming later.

As will be seen, the gist of the changes in most cases is to introduce more options or more flexibility for charity trustees (with appropriate oversight) and/or to remove or amend some provisions which were regarded as ‘clunky’ and unnecessary.

Changes expected to come into force in Autumn 2022:

• Failed charity appeals – simplifying the statutory provisions to allow more flexibility for funds to be applied for other charitable purposes, with due oversight and regard to donors’ intentions.
• Ex gratia payments:
  • a new power for charities to make small ex gratia payments (within limits set out in the Act) without Charity Commission authority; and
  • a new test for making ex gratia payments designed to confirm that charity trustees can delegate the function of deciding whether to make such a payment.
• Payment of charity trustees providing goods to charity – expanding the existing statutory power to pay charity trustees for services (and for goods in connection with those services), subject to appropriate safeguards, to allow payment for goods.
• Trust corporation status – automatic conferral on a corporate charity acting as trustee of a charitable trust, thereby removing practical problems which can arise currently where this technical point is missed.
• Royal Charter corporations – a new power for charities established by Royal Charter to amend their Charter where they do not have an express power to do so.
• Statutory charities – a small amendment to make the process (by Parliamentary scheme) for amending constitutions of charities established or regulated by statute a little easier.
• Power of the court and the Charity Commission to make schemes – clarification that the power extends to charities other than charitable trusts.
• Tribunal proceedings – a new power for the tribunal (First-tier and Upper) to make an ‘authorised costs order’ (ACO) to give advance assurance for charity trustees that they can pay reasonable costs out of charity funds.
• Public notice of Commission orders etc – to extend the Commission’s power to give public notice (or require public notice be given) in certain circumstances.

Changes expected to come into force in Spring 2023:

• Permanent endowment:
  • the definition of ‘permanent endowment’ under the Act will be simplified;
  • the existing wide statutory power to spend the capital of permanent endowment will be simplified and the process streamlined;
  • a new power to borrow from permanent endowment will be introduced, bringing more options for charity trustees; and
  • for charities which have opted in to investing on a total return basis, there will be more flexibility for investing permanent endowment in social investments with the introduction of a new power to do so where there is an anticipated negative financial return.
• Charity land – making tweaks to the current statutory regime for disposals and mortgaging of charity land:
  • to clarify the scope of the regime so that it is clearer when it will, and won’t, apply;
  • to expand the exceptions from the restrictions to cover liquidators and receivers, among others;
  • to clarify the current exception for certain dispositions to another charity (so that dispositions to another charity where price is a factor will not be excepted);
  • to streamline the statutory ‘self-certification’ process for dispositions of charity land;
  • to widen and clarify who can advise on dispositions/mortgages of charity land and make the requirements for the report on dispositions more relevant;
  • to exclude from the meaning of ‘connected person’ in this context a charity employee where the disposition is a short fixed-term or periodic tenancy to use as a home (so that a Commission order will no longer be required); and
  • to clarify the wording required in relevant documents and remove the current requirement for a certificate to be given by the charity trustees where the charity is corporate.
• Charity names – to expand the Commission’s current power to direct charity name changes, including to enable it also to direct a charity to stop using a ‘working name’.
• Definition of ‘connected person’ – to modify the definition and make provision for easier future changes by regulation.
•  Amendments of the Universities and College Estates Act 1925 – replacing numerous complex powers there with a consolidated general power in relation to land and removing certain consent requirements and restrictions.

Changes expected to come into force in Autumn 2023:

• Amending constitutions of charitable companies and CIOs:
  • to amend the current ‘regulated alterations’ regimes for amending their constitutions, broadly for clarity and to align them more closely together; and
  • to introduce new criteria to which the Commission must have regard when deciding whether to consent to changes to the objects of a charitable company or a CIO.
• Amending constitutions of unincorporated charities – introducing a new wide power to amend their constitutions, subject to Commission consent for certain changes – the aim being to bring the regime more into line with those for charitable companies and CIOs, to make it less confusing and hopefully easier to apply.
•  Charity trustees:
  • introducing a new power for the Commission to confirm a trustee’s appointment where there is doubt or a potential defect in an appointment/election process. This can often be a problem which can be difficult, and expensive, to sort out, so this power has the potential to be very useful; and
  • giving the Commission a new power to authorise a trustee payment, or retention of payment for work carried out, where it would be inequitable not to do so. At present, only the court can provide such authority. Such a power will be useful, although will not, of course, be a substitute for obtaining proper prior authorisation for trustee benefits.
• Charity mergers – the Act will also amend some of the provisions related to ‘relevant charity mergers’ (which can also include incorporations) in current legislation, including to correct a defect in the current provision designed to ensure that subsequent gifts to a transferor charity will pass to the merged charity (or a successor) after a relevant charity merger.

What else is happening?

As noted above, for each round of implementation we should expect new or revised guidance from the Charity Commission (and the Land Registry for the changes to the provisions for dispositions and mortgages of charity land). A number of the Commission’s online forms will also need to change.

In tandem with implementation of the Act, there will be some further guidance changes which were recommended by the Law Commission but which did not require legislation. These include recommendations for some clarifications to the Commission’s guidance CC12 Managing a charity’s finances and CC33 Acquiring Land and a recommendation to investigate whether, on registering a merger, a charity’s entry in the register of charities could include a reference to the registered merger.

The DCMS has also committed to another recommendation of the Law Commission, that it review the financial thresholds in the Charities Act 2011 to consider whether they should increase in line with inflation. The DCMS aims to begin that review this year. The Act itself is also due to be reviewed within a period of three to five years following Royal Assent.

The Charity Commission will certainly have a busy 15 months or so ahead to make all the changes necessary to see the Act implemented and the right guidance in place. For the sector, it should in most cases be a much gentler transition, but hopefully one which will ultimately make running their charities that little bit easier.