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Home / News and Insights / Blogs / Charity Law / 47: Charities Act 2022 – first changes in force

On 31 October 2022, the first set of changes introduced by the Charities Act 2022 (the Act) came into force. This is the first of three planned phases of implementation, with the others due to follow in spring and autumn 2023. We consider below what changes are in force now, as well as the new and updated Charity Commission guidance which is available, and a look ahead to changes still to follow and some which may be in doubt.

What has changed?

The changes now in force from phase one of the implementation are as follows:

Failed charity fundraising appeals – simplifying the statutory regime

Sometimes a charity appeal can fail, because it raises too little money or for some reason the funds raised cannot be used for the intended purpose, or it may raise surplus money. In either case, ideally the appeal literature should provide for what happens to the money raised in those circumstances.

If that has not happened, the charity trustees have to turn to statutory provisions which set out when they can apply the funds ‘cy-près’ for other charitable purposes, and what hurdles they need to leap in order to do so. The previous provisions were complex and, in many cases, could cost more than was proportionate given the funds involved.

Those provisions have now been replaced with a new statutory regime which will allow more flexibility to enable trustees to apply such appeal funds for other charitable purposes, balanced with due respect for donors’ wishes and Charity Commission oversight.

To coincide with the new regime coming into force, the Charity Commission has issued new guidance – Charity fundraising appeals for specific purposes – to help trustees negotiate the new provisions. It is divided into separate guidance documents for:

The Commission has also updated existing guidance – CC20 Charity fundraising: a guide to trustee duties and CC40 Charity emergency appeals: starting, running and supporting charitable emergency appeals, as well as that for NHS Charities.

The new statutory regime is an improvement, but charity trustees planning an appeal should remember that the better course remains to provide in advance, in the appeal literature, how funds will be dealt with if the appeal fails.

Payment of charity trustees providing goods to charity

There is already statutory power to pay charity trustees for services and for goods in connection with those services (subject to appropriate safeguards). The changes brought in on 31 October 2022 now extend that power to include Payment for supply of goods to the charity.

To take account of this change, the Charity Commission has published updated guidance on:

Trust corporation status

This is a highly technical point, but could lead to real practical problems if it is missed.

Very broadly, if a single corporate trustee is appointed over trust property and that corporate trustee is not a trust corporation (a special form of corporate trustee), there is a risk that the corporate trustee will not be able to deal properly with the trust property and that trustees who transferred property to the corporate trustee will not be properly discharged of their trustee obligations. This situation can arise where, for example, after an incorporation of an unincorporated charity or a merger, a corporate charity may become trustee of some charitable property.

The new provision, which is now in force, addresses that problem by conferring trust corporation status automatically on a corporate charity where it is acting as trustee of a charitable trust.

Royal Charter corporations

Also now in forcewil is a new statutory power for charities established by Royal Charter to amend their Charter where they do not have an express power to do so. There are conditions, set out in the Act 2022, to use this new power and the change must be approved by the Privy Council.

The Charity Commission has produced new guidance – Royal Charter charities – with input from the Privy Council Office, giving guidance generally about applying for and amending a Royal Charter, as well as on mergers of a Charter body with another charity.

Other provisions now in force

Other provisions brought into force are:

  • charities established or regulated by statute: the process for amending such charities’ constitutions by Parliamentary scheme has been changed to make it a little easier (by making them subject to the negative procedure in Parliament, rather than requiring an affirmative resolution in both Houses);
  • power of the court and the Charity Commission to make schemes: the Charity Commission has the same power as the court to make schemes for the administration of charity. Doubts had been raised as to whether that power extended to charities other than charitable trusts. The Act now confirms that it does;
  • tribunal proceedings – assurance on costs: a new power has been introduced 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; and
  • public notice of Commission orders etc: confirmation that the Commission’s power to give or require notice of an order extends also to prior notice (of the contents of the order proposed to be made) and extending the power to certain applications for the Commission’s written consent.

What changes are still to come?

As noted above, this first implementation is phase one of three. The next implementation phases are due in spring 2023 and autumn 2023. Progress on implementation can be followed on the DCMS implementation plan as it is updated. We can also expect each implementation phase to be accompanied by new and / or updated guidance from the Charity Commission, as well as changes to its online forms and processes.

In spring 2023, we should expect the following to be brought into force in relation to:

  • permanent endowment – including a simplified definition of ‘permanent endowment’, some streamlining of existing statutory powers to spend the capital of permanent endowment and a new power to borrow from permanent endowment;
  • charity land – making tweaks to the current statutory regime for disposals and mortgaging of charity land;
  • amendments of the Universities and College Estates Act 1925 – to replace numerous complex powers there with a consolidated general power in relation to land and removing certain consent requirements and restrictions;
  • charity names – expanding the Commission’s current power to direct charity name changes, including to enable it to direct a charity to stop using a ‘working name’; and
  • the definition of ‘connected person’ – to modify the definition and make provision for easier future changes by regulation.

In autumn 2023, we should expect changes to be brought into force on:

  • charity constitutions – including a wide new power to amend constitutions of unincorporated charities, as well as some changes to the current ‘regulated alterations’ regime for amending constitutions of charitable companies and CIOs;
  • charity trustees – new powers for the Commission to confirm a trustee’s appointment where there is doubt or a potential defect in an appointment / election process and to authorise a trustee payment, or retention of payment for work carried out, where it would be inequitable not to do so; and
  • relevant charity mergers – amendments including to improve the existing provision designed to ensure that post-merger gifts will pass to the merged charity (or a successor).

Changes to ex gratia payments – ‘under further consideration’

Where charity trustees feel a moral obligation to make a payment to a non-beneficiary but have no legal power to do, the Charity Commission can authorise them to make an ex gratia payment. These situations are necessarily relatively rare, as they involve the charity applying assets outside their charitable purposes. They typically (but not exclusively) crop up in legacy situations, eg where a charity benefits under a legacy but it is clear that the will does not reflect the testator’s intentions.

Changes to ex gratia payments were expected to be brought into force in phase one, but have been delayed.

The changes would introduce:

  • a new power for charity trustees to make small ex gratia payments (within limits set out in the legislation) without Charity Commission authority;
  • a new statutory power for the Commission, court or Attorney General to authorise charity trustees to make an ex gratia payment; and
  • in each case the power would apply a new statutory test (designed to confirm that charity trustees can delegate the function of deciding whether to make such a payment).

The implementation plan was updated on 14 October 2022 to remove these changes from phase one implementation. This move was due to concerns that the new statutory power to authorise ex gratia payments would extend to any charity, including those regulated by a statute which prohibits the charity’s assets being applied other than for its charitable purposes – hence the new power would ‘have the effect of enabling national museums for the first time to restitute items from their collections, based on moral grounds’.

On 13 October 2022, then Civil Society Minister Lord Kamall informed the House of Lords that the Government was deferring commencement of these provisions ‘until we fully understand the implications for national museums and other charities’. This intervention was said to be after being ‘advised that when your Lordships and the House of Commons debated the Charities Bill, no such intent was considered, nor agreed on’.

This intervention at this stage seems surprising, given that the provision arose from an extensive Law Commission consultation process and the point was highlighted expressly in the Explanatory Notes to the Bill before Parliament. It remains to be seen what will result from the ‘further consideration’ process, but in the meantime there is no scheduled implementation date for the ex gratia changes.

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