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Charities Act 2022 Briefing

Photo of Kevin Russell Kevin Russell
5 min

The Charities Act 2022 received Royal Assent on 24th February 2022. Here, we summarise some of the key provisions that affect churches and Christian charities.

The Act itself is quite technical in nature, dealing with shortcomings identified by the Law Commission in its report to Parliament on charity law. The provisions noted below apply in England and Wales only.

Trustees and trustee remuneration

Charities Act 2011 permits trustees to be remunerated for the supply of services (subject to certain safeguards). The new Act extends this to the supply of goods for example, by a trustee’s business. The Act, as amended, still does not permit trustees to be paid for being a trustee.
The Charity Commission is also given the power to:

  • Require a charity to remunerate a trustee, or to authorise remuneration already received, in certain limited circumstances (this was previously reserved to the Courts).
  • Resolve uncertainties or defects in the appointment of charity trustees, including validating acts committed by a person before the date of a Commission Order.

Ex gratia payments

Provided that the charity’s governing document doesn’t say otherwise, trustees will now be able to make small ex-gratia payments where it’s considered that there is a moral obligation to do so. Previously, in most cases, they would have needed to obtain consent from the Charity Commission. The permitted amount of each payment* is dependent on the gross income of the charity: between £1,000 for the smallest charity up to £20,000 for the largest charities.

*The Act is not expected to permit either regular, or fragmented payments in order to side-step the permitted payment thresholds. The need for an ex-gratia payment exists where the trustees could reasonably be regarded as being under a moral obligation to take action. Such payments can only be made in limited circumstances and, by nature, are rare and sporadic. Payments should ‘not be exercised lightly or on slender grounds’ (Re Snowden [1970] Ch 700). Trustees are of course under a general duty to act in the best interests of their charity.

Charity mergers

The Act corrects a technical defect in Charities Act 2011 which was intended to protect legacies destined for charities that cease before the death of the testator, because the charity merges with another charity in the interim. The 2022 Act corrects this defect. 

Amendment of Governing Documents

If you have ever tried to change the wording of a Trust Deed, CIO Constitution or Memorandum and Articles of Association, you will know that the process can be cumbersome. It is also inconsistent as between different charity structures.

The Act simplifies the process and brings consistency of treatment regardless of whether the charity is established as a trust, CIO or incorporated charity. The limited powers for unincorporated small charities in sections 260 to 279 Charities Act 2011 are replaced by a new general power to amend for all unincorporated charities.

The Failed Appeals Regulations and application of funds ‘Cy-Près’?

Where a fundraising appeal for a specific purpose doesn’t raise sufficient funds for the project to go ahead, this is known as an ‘initial failure’. An example being a new building fund appeal that after a long period of trying, has not raised enough to proceed. The funds raised cannot be applied for the intended purpose.

Until now, an ‘initial failure’ required compliance with rigid and detailed rules mainly set out in The Failed Appeals Regulations 2008, aimed at returning the funds to the original donors. These rules are replaced with simpler and more practical procedures. The 2008 Regulations are revoked. The changes are retroactive applying to both donations and appeals made prior to the 2022 Act.

Disposals and mortgages of charity land

Transactions in charity land often require the trustees to obtain a report from a specialist advisor, such as a qualified surveyor in the case of the disposal of land or a finance professional in the case of a charity mortgaging its land.

The range of specialist advisors that can provide the legally required advice now include fellows of the National Association of Estate Agents and of the Central Association of Agricultural Valuers, and qualified trustees, officers and employees are able to advise in certain circumstances. A range of other amendments simplify the required processes, clarify the law and add protection for purchasers of charity land.

Permanent Endowment

Permanent endowment is in effect capital of a charity which, by law, cannot be spent in the same way as income resources. This is not a well understood area. The new Act provides a better definition and allows for ‘endowment’ funds to be spent as income where the trustees are satisfied that the purposes of the endowment fund can be carried out more effectively if the capital or part of it is expended as income and the amount to be spent is no more than £25,000. Charity Commission consent continues to be required for larger sums. 

There is also a new statutory power for trustees to borrow (that is, spend down as income) up to 25% of the value subject to the requirements that it is replaced within 20 years. 

Financial thresholds

Although the Act does not include changes to financial thresholds, the Government accepts that thresholds for both:

  • charity registration and,
  • accounting and reporting requirements

should be reviewed at least every 10 years. We may see the first review this year. Any changes will be dealt with in secondary legislation.

Want to know more?

We plan to go into more detail on these topics in future blogs and in our Lunchtime Dial-Ins. You can access these live events for free, either through your web browser or by telephone. For more information on the Lunchtime Dial-In or to register you interest, click on the button below.

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Written by

Kevin Russell

Kevin is one of Stewardship’s leading team of technical experts with over 25 years of experience of helping churches and Christian charities maximise their potential. His expertise and knowledge is sought not only by charitable organisations but by Government, the Charity Commission and HMRC, helping to solve complex tax and charity law problems.

Prior to working for Stewardship, Kevin had a wide range of business, charity and teaching experience and is a qualified chartered accountant, and a chartered tax advisor. At PwC he was a Senior Tax Consultant assisting medium and large businesses in all aspects of their tax affairs. Also a lecturer in the Business School at Middlesex University and Principal of his own Chartered Accountancy practice.

Kevin is Vice Chair of the Charity Tax Group and Chair of CTG’s Gift Aid & Giving Technical Group. He represents the Christian church on HMRC’s Charity Tax Forum and advocate for the sector to Government, the Charity Commission and HMRC.

Currently a trustee of the UK arm of an international charity that inspires people to discover Jesus for themselves. Past roles include church deacon, trustee and auditor and he has helped set up two church plants.

Kevin and his wife Carol have 3 adult children and one grandchild.  They attend Grace Church, Highlands in North London.

Causes close to Kevin and Carol’s hearts are those working directly with the homeless, with drug addicts, and women in prostitution. Organisations working in evangelism amongst young people, in family life and demonstrating Christian love in action in the public sphere.

 

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