Charities Act 2022: what you need to know

Last week the Charity Commission introduced some updates to the Charities Act. While it’s fair to say that there are no Earth-shattering changes, there are a couple of interesting elements which we picked out and unpacked for you.

The 2022 update is focused on four main areas:

  • Paying trustees for providing goods to the charity
  • Making moral or ‘ex gratia’ payments from charity funds
  • Fundraising appeals that do not raise enough or raise too much
  • Power to amend Royal Charters

Let’s take a closer look at each…

Paying trustees for providing goods to the charity

This is our least favourite change to the Charities Act. Why? Because the Charity Commission’s rules, in this case, may allow charities and trustees to wander into agreements with best intentions, only to fall foul of conflicts of interest.

Charities already have the power to offer remuneration for services only, for example paying for building work such as plumbing or painting, but the latest change gives charities the ability ‘in certain circumstances’ to pay trustees for goods provided.

The obvious point here is that paying trustees for goods and services creates more grounds for conflicts of interest. The two types of conflict of interest for trustees are financial conflicts and loyalty conflicts. In this case financial conflicts can arise, and what’s more, the Charity Commission themselves highlighted payment for goods as an example of a financial conflict of interest in their 2020 guidance: “Financial conflicts for a trustee happen if your charity is deciding whether to (for example) buy goods from a business owned by the trustee”. The guidance further states: “It still counts as a conflict, even if your charity would get a good deal for its money.” It appears that from Autumn 2022 this currently unacceptable conflict of interest will be completely acceptable.

It also potentially places charity leaders in a difficult position where a trustee may offer their goods and services, it could be hard to decline or argue a potential conflict of interest at the board level. Like it or not, there is a power-dynamic between trustees and CEOs which could make it hard to say ‘thanks, but no thanks’.

When this change comes into force in Autumn 2022, our advice to charities thinking of paying trustees for providing goods is, be careful! Make sure you are carefully considering and recording the details of such transactional work. But importantly, consider what kind of message this gives to your beneficiaries and partners, and consider every extension of that initial agreement carefully… it could be a slippery slope!

Making moral or ‘ex gratia’ payments from charity funds

This change would give charities more choice on accepting or declining legacy funding or indeed repaying donated legacy funds when there are moral grounds to do so. For example, when there is evidence that a legacy donor had changed their mind prior to their death. An important element of this change is that charities would not have to apply to the Charity Commission to process what they deem to be ‘small amounts’ based on a handy table outlining what can be paid in line with a charities’ gross income.

Overall, this change, which comes into force in Autumn 2022, gives more direct decision-making power to charities to help maintain their relationships with legacy donors and their families. Importantly, this change has some pragmatic prowess, on the basis that it affords charities the ability to form their decision to accept, reject or repay funds based on factors such as annual gross income and the amount of the request.

Fundraising appeals that do not raise enough or raise too much

Having too much money is not a common problem for the majority of charities. However, when funding appeals raise more than their target amount, there can be a question about how to spend that additional cash. Not because there’s nothing to spend it on but because folk have donated those funds for a specific purpose. This new change is designed to cut through red-tape and expedite charities ability to act when they receive too much or too little funding from appeals.

This will hopefully expedite charities’ ability to act when fundraising appeals fall £1,000 short, or exceed their target up to £1,000, without needing to apply to the Charity Commission for permission. Additionally, charities no longer have to wait six-months for donors to apply for a refund – again helping to expedite the use of funds.

Of course, the £1,000 limit is aimed at small charities with small fundraising appeals, rather than for major fundraising appeals. This change will hopefully reduce holdups for small charities – often run by volunteers – who don’t have the resources to broker protracted agreements with the Charity Commission or donors, on how to utilise funds from small appeals for initiatives which are typically time sensitive.

Power to amend Royal Charters

This final major change focuses on Royal Charters. Basically, as long as the Privy Council approves, charities under Royal Charter will have the ability to change sections of their charter. Again, this change is placing more autonomy in the hands of charities, which is a welcome development.

What do these changes all have in common?

The Charity Commission’s latest update: The Charities Act 2022, is clearly designed to give charities more autonomy on issues which in the past created demands on time and resources for both sides of the regulatory table. While the trustee remuneration change raises a few eyebrows around conflict of interest; this is, after all, the Charity Commission giving charities a little more power and autonomy to self-govern and to make decisions in their charities’ best interests. It’s up to charities and trustees to self-govern and avoid things like conflicts of interest. Afterall, with power comes responsibility!