What does the Charities Act 2022 mean for your charity?

The Charities Act 2022 was passed into law in February last year, with the first tranche of changes taking effect on 31 October 2022.

This Act is by no means a revolution of the law that governs charities, but it does introduce welcome changes that will reduce red tape, regularise technical anomalies and increase efficiency in some areas.

New provisions are expected to come into force in phases over the course of the next year. Here we discuss what you need to know about the changes that came into force this Autumn.

Paying a trustee to supply goods

As a general rule, trustees should not benefit financially from their position unless that benefit is permitted by law, authorised by the Charity Commission or by the charity’s governing document.

From 31 October 2022 onwards, charity trustees can now make use of a new statutory power to pay a trustee, and people and businesses connected to them, to supply goods to their charity.  

This extends the existing statutory power, which previously only allowed payments for providing services (or for goods connected to those services). So, for example, a charity can now pay a trustee to paint their premises, to supply the paint, or to do both. The power does not extend to paying a trustee simply for being a trustee or to being employed by the charity.

When taking a decision to use this new power, trustees must make sure:

• There is a written agreement which confirms the agreed price (or maximum price)
• The price is reasonable in the circumstances for the goods and/or services in question
• The arrangement as a whole is in the best interests of the charity
• Only a minority of trustees are receiving a financial benefit from the charity at any one time (directly or via a person or business connected to them)
• There is no restriction in the charity’s governing document that prohibits the trustee from receiving payment from the charity.

The Charity Commission’s guidance on paying trustees has also been updated and reminds trustees of the need to discharge their duty of care to the charity when taking this kind of decision. This will include:

• Managing conflicts of interest effectively
• Using reasonable care and skill when taking the decision
• Deciding what trustees will do if the goods are unsatisfactory
• Minuting the decision (including demonstrating they have had regard to the Commission’s guidance)
• Ensuring the payment is disclosed in the charity’s accounts.  

It’s best practice to retain the written agreement in the charity’s records for 6 years.

Fundraising appeals that raise too little or too much money

Fundraisers will understand the need to carefully word fundraising appeals for specific purposes (like renovating a building or purchasing equipment) to avoid issues if the appeal raises too little or too much money.

From 31 October 2022 onwards, if you haven’t considered this, it should be easier to rectify after the event.

Surplus funds

If the appeal raises more money than is required, trustees will need to decide by a majority - and carefully record their reasoning - on what they propose to use these funds for. They need to consider:

• If it’s possible to use the excess funds for a similar purpose to the original one
• Is the new purpose suitable and effective in the current socioeconomic circumstances.

The Charity Commission must give prior authorisation to the proposal if the total value of donations is over £1,000, and the trustees’ decision is effective from the date it does so. If under £1,000 the trustees’ decision takes effect straight away.

Insufficient funds

If the appeal raises insufficient funds, then trustees will need to offer donors their money back. There are exceptions to this rule when the donations are received from a cash collection or are the proceeds of a lottery, competition or similar. Or if any particular donor contributes £120 or less in total for the appeal.   

If the donations don’t fall within these exceptions, you must get prior authorisation from the Charity Commission before you contact donors to offer their money back. The approach you wish to take should be reasonable in the circumstances. There may be times when it may be unreasonable to return donations, for example, if the cost of returning them isn’t proportionate to the donation amount. Or the type of donation or circumstances in which it was given mean that returning it would be unreasonable.

If you fail to find or identify donors after taking the authorised actions, or if the charity trustees consider it unreasonable in the circumstances to return certain donations, they can be used for a new purpose by following the same approach as for surplus funds.

Updated Charity Commission guidance on this topic also highlights the need to record any information or evidence used to make decisions. The Charity Commission may also require you to advertise your proposals before they will authorise your decision.

Other changes now in force

The other changes effective from Autumn 2022:

• The process by which charities established by Royal Charter or an Act of Parliament can amend their constitutional documents is simplified
• The types of charities for which the Charity Commission can make a scheme has widened
• New provision providing trust corporation status to certain corporate charities
• The Charity Tribunal can authorise costs to be incurred in relation to charity proceedings and to be paid out of the funds of the relevant charity
• Updates to provisions relating to giving public notice to written consents and orders of the Charity Commission.

If you have any questions on issues raised in this article, please contact Samantha Pritchard on 0191 211 7905 or by emailing [email protected]