Charities Bill 2006

posted 09.11.2006

England and Wales

The Charities Bill 2006 received Royal Assent on 8 November 2006. It is now on the statute book as the Charities Act 2006.

The proposals for revising charity legislation were first published as a Draft Bill in May 2004. Following pre-legislative debate and scrutiny the Charities Bill itself was introduced into Parliament in December 2004. The journey through Parliament has taken almost two years ending with a final debate in the Lords on 7 November 2006.

The Act will be implemented in stages. Some of the key provisions, including the Charitable Incorporated Organisation (CIO), will require new regulations to be drafted and consulted upon before they can be up and running. The Office of the Third Sector will shortly be publishing a timetable for implementation on its website: www.cabinetoffice.gov.uk/third_sector.

Essentially, it will alleviate some of the bureaucracy charities struggled with and enable them to adapt to new needs and ways of working.

The Charity Commission has published a guide: www.charity-commission.gov.uk/spr/ca2006prov.asp

Summary of changes (CC = Charity Commission):

• Definition of a charity and charitable purposes: 4 ‘heads’ have been replaced by 13.
• A ‘public benefit test’ - all charities must exist for public benefit.
• Charitable Incorporated Organisations - charities will no longer need to register as companies to benefit from incorporation as a legal body.
• Registration - charities will only have to register with the CC when they have an annual income of £5,000 or above.
• Purposes - the new Act will allow smaller, unincorporated (non-company) charities with income of less than £10k a year to take certain actions without permission.
• Admin - the Act gives trustees of non-company charities power to alter the parts of their charity’s governing document which set out how they administer their charity.
• Charitable companies - must get prior consent if they want to make changes to their memorandum and articles of association but the Act cuts down the occasions where they will have to seek permission first.
• Mergers - a public register of charity mergers will ensure gifts and legacies ies will automatically be transferred to the new merged charity.
• Membership - the Act gives the CC the power to decide who a charity’s members are if necessary.
• Publicity requirements for schemes - the Act gives the CC discretion to decide whether publicity for a scheme is needed or not, with a default that it won’t be needed unless absolutely necessary.
• Assets from 'failed' appeals or trusts - the Act allows the CC and the Courts to take into account current circumstances when charities seek to use donated money when they cannot use it as originally planned.
• Fundraising - new fundraising solicitation statements which will have to include the amount the professional fundraiser or will be paid; different statements will also have to be made by employees, officers and trustees who act as collectors.
• Public charitable collections - a new system for licensing charitable collections in public will apply to all such collections, including face-to-face fundraising, involving requests for direct debits.
• Professional audit and independent examination - the Act simplifies the rules about when a professional audit is required and gives both charities which are companies, and those which are not, similar thresholds.
• Group accounts - the new Act enables a parent charity to provide group accounts which include subsidiaries e.g. companies and other entities they own or control.
• Whistleblowers - the Act ensures that auditors and independent examiners of charity accounts will be protected from the risk of action for breach of confidence or defamation when they pass on relevant information to the CC.
• Permanent endowment - the Act now allows a wider range of charities to spend the capital not just the income generated.

Trustees:

• Charity property - the CC has the power to direct trustees to use charity property as it was intended.
• Payment - trustees cannot be paid for being trustees. However, the Act allows trustees to pay an individual trustee for providing an additional service to the charity without having to go to the CC for authorisation to do so.
• Personal liability - charity trustees can apply to the CC, as well as the courts, for relief from personal liability for a breach of trust where the trustee has acted honestly and reasonably.
• Trustee indemnity insurance - trustees can now take out trustee indemnity insurance using the charity’s funds without CC permission, as long as there is no provision in the governing document which forbids this... more information
• Suspending or removing trustees and others - the CC now has the power to make an order to suspend or remove someone from membership of the charity and to direct trustees, officers, employees to take specific actions to protect a charity, when an inquiry is open.
• Waiver of trustee’s disqualification – The CC generally has to grant a waiver for disqualified trustees. It cannot if the trustee is disqualified as a company director, is an undischarged bankrupt or has defaulted under a county court administration order.

Non-Scottish charities operating in Scotland

• Scottish Charities Act came into force in April 2006.
• Regulated by The Office of the Scottish Charity Regulator (OSCR).
• A new register of charities and new definition of charitable purposes and a public benefit test.
• Affects Charities governed by laws covered in England and Wales with property and/or activities in Scotland.

The Charities and Trustee Investment (Scotland) Act, passed by the Scottish Parliament, impacts on some non-Scottish charities operating in Scotland. UK-wide charities that ‘occupy land or premises in Scotland or carry out activities in any office, shop or similar premises in Scotland’ will have to register with OSCR, the Scottish charity regulator.

Charity lawyers Farrer & Co have produced a guide explaining the implications of the Scottish Act for non-Scottish charities (charities governed by laws covering England and Wales)

Briefing by Farrer & Co (pdf - 56k)

Source: Directory of Social Change, 2006