I. THE ORGANISATION
Ch.1: Setting up an organisation
Ch.2: Unincorporated organisations
Ch.3: Incorporated organisations
Ch.5: The organisation's objects
Ch.6: The organisation's name
Ch.7: The governing document
Ch.8: Registering as a charity
Ch.9: Branches, subsidiaries & group structures
Ch.10: Changing legal form
Ch.11: Collaborative working, partnerships and mergers
Ch.12: Members of the organisation
Ch.13: Members of the governing body
Ch.14: Officers, committees & sub-committees
Ch.15: Duties & powers of the governing body
Ch.16: Restrictions on payments & benefits
Ch.17: The registered office & other premises
Ch.18: Communication & paperwork
Ch.19: Meetings, resolutions & decision making
Ch.20: Assets & agency
Ch.21: Contracts & contract law
Ch.22: Risk & liability
Ch.24: Financial difficulties & winding up
III. EMPLOYEES, WORKERS, VOLUNTEERS & OTHER STAFF
Ch.25: Employees & other workers
Ch.26: Rights, duties & the contract of employment
Ch.27: Model contract of employment
Ch.28: Equal opportunities in employment
Ch.29: Taking on new employees
Ch.30: Pay & pensions
Ch.31: Working time, time off & leave
Ch.32: Rights of parents & carers
Ch.33: Disciplinary matters, grievances & whistleblowing
Ch.34: Termination of employment
Ch.36: Employer-employee relations
Ch.37: Employment claims & settlement
Ch.38: Self employed & other contractors
IV. SERVICES & ACTIVITIES
Ch.40: Health & safety
Ch.41: Safeguarding children & vulnerable adults
Ch.42: Equal opportunities: goods, services & facilities
Ch.43: Data protection & use of information
Ch.44: Intellectual property
Ch.45: Publications, publicity & the internet
Ch.46: Campaigning & political activities
Ch.47: Public events, entertainment & licensing
V. FUNDING & FUNDRAISING
Ch.48: Funding & fundraising: General rules
Ch.49: Fundraising activities
Ch.50: Tax-effective giving
Ch.51: Trading & social enterprise
Ch.52: Contracts & service agreements
Ch.53: Financial procedures & security
Ch.54: Annual accounts, reports & returns
Ch.55: Auditors & independent examiners
Ch.56: Corporation tax, income tax & capital gains tax
Ch.57: Value added tax
Ch.58: Investment & reserves
Ch.60: Land ownership & tenure
Ch.61: Acquiring & disposing of property
Ch.62: Business leases
Ch.63: Property management & the environment
VIII. BACKGROUND TO THE LAW
Ch.64: How the law works
Ch.65: Dispute resolution & litigation
UPDATED INFORMATION FOR CHAPTER 4:
VOLUNTARY SECTOR LEGAL HANDBOOK
This page contains information that has appeared on Sandy Adirondack's legal update website for voluntary organisations at www.sandy-a.co.uk/legal.htm. For current updates, including potential changes that are in the pipeline, see the legal update website.
To avoid spamming, an email address is not given on screen. If you can't see the word 'here' or have trouble sending an email by clicking on it, the address is bookservice at sandy-a.co.uk, with the spaces and 'at' replaced by the @ symbol.
These websites for each chapter update
the 3rd edition of The Russell-Cooke Voluntary Sector Legal Handbook by James Sinclair Taylor and the Charity Team at Russell-Cooke Solicitors, edited by Sandy Adirondack (Directory of Social Change, 2009). The websites are not intended as a comprehensive update and should not be treated as such.
To order a copy of The Russell-Cooke Voluntary Sector Legal Handbook, print out the order form at www.sandy-a.co.uk/bookserv.htm or send an email order by clicking
. It costs £60 for voluntary organisations or £90 for others, plus 10% p&p.
The information here covers the law applicable to England and Wales. It may not apply in Northern Ireland and/or Scotland. These news items are not a full or definitive statement of the law and are not intended as a substitute for professional legal advice. No responsibility for loss occasioned as a result of any person acting or refraining from acting can be taken by the author.
CHARITABLE STATUS, CHARITY LAW AND REGULATION
The items below formerly appeared on the legal update website for voluntary organisations and are archived here. The content may be out of date and links may not work. For current updates to the chapter, see the legal update website for voluntary organisations at www.sandy-a.co.uk/managing.htm.
THE CHARITIES ACT 2006: IMPLEMENTATION TIMETABLE
The Charities Act 2006 came into effect in stages starting in 2007, with three major provisions (registration of charities which cease to be exempt, charitable incorporated organisations, and new rules on licensing of public collections) not yet implemented. Changes taking effect since mid-2009 are listed below.
The Act and explanatory notes are at www.legislation.gov.uk/ukpga/2006/50/contents.
The Charity Commission's guide to the main provisions is at tinyurl.com/ylalulv.
Many of the provisions in the 2006 Act amend the Charities Act 1993. This is at www.legislation.gov.uk/ukpga/1993/10/contents.
Under s.73 of the Act, as amended by the fifth commencement order, a review of the Act must start by November 2011, looking in particular at the status of the Charity Commission as a government department and the effect of the Act on excepted charities, public confidence in charities, the level of charitable donations and the willingness of individuals to volunteer.
IN EFFECT FOR FINANCIAL YEARS ENDING ON OR AFTER 1 APRIL 2009
New threshold for unincorporated charities preparing accrual accounts
New thresholds for unincorporated charities and charitable companies submitting accounts and reports to Charity Commission
New thresholds for independent examination or audit of unincorporated charities and charitable companies
IN EFFECT FROM 1 APRIL 2010
Status of miners' welfare trusts
STARTED TO COME INTO EFFECT 1 JUNE 2010
Registration of exempt charities
EXPECTED TO COME INTO EFFECT IN 2011
Charitable incorporated organisation (CIO)
"NOT IN THE NEAR FUTURE"
CHARITY COMMISSION STRATEGIC PRIORITIES (a/k/a cuts)
Added 14/4/11. This information updates chapter 4 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission's consultation and review of its strategic priorities in the face of cuts will result in significant changes to its services. Its strategic priorities, with some of the changes that will be involved, include:
registering charities, which will now include the Commission "moving quickly and clearly to reject applications which do not meet the requirements rather than spending time working with them to refine their application";
providing guidance to trustees to enable them to manage their charity effectively, which will include "developing our partnerships with umbrella bodies so that over time they can take on responsibility for one to one advice", which presumably means the demise of the Commission's helpline, or a significant reduction in its capacity;
ensuring charities are accountable to the public by requiring and publishing information;
giving permissions as required in law, which will include "requiring charities to make 'right first time' applications which are then accepted or rejected";
taking action to deal with serious mismanagement or abuse of charity, which will include "maintaining the capacity to investigate individual charities where there is mismanagement or abuse but focus on individual interventions only where there is a serious and systemic risk and where our involvement can have most impact".
Following further consultation the changes started to be implemented in May 2011 with a view to having the new strategy and structure fully in place by October 2011.
The Commission's gloss on this, as presented by Commission chair Dame Suzi Leather, is, "This will mean a rebalancing of the relationship between the sector and the regulator so that umbrella bodies, and charities themselves, take back responsibility for sharing and promoting good practice building the strength and prominence of sector organisations. It will mean reinforcing the confidence and self-reliance of charities to make their own decisions within the legal boundaries wherever possible. It will mean reducing our interventions in individual charities and, over time, our one to one advice to charities."
The press release on the changes, issued on 16 February 2011, and a link to the Commission's blog on the strategic review can be accessed via tinyurl.com/646722n.
Other changes suggested by the Commission include making its materials and services available only online, with non-online alternatives available only in exceptional circumstances; giving trustees the right to make decisions that now require Commission consent, such as selling land and paying trustees; and possibly in future charging for services or increasing the threshold for registration.
LORD HODGSON'S REVIEW AND RECOMMENDATIONS ON CHARITY LAW
Updated 25/5/13. This information updates s.4.4.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Conservative peer Lord Hodgson of Astley Abbotts was appointed by the government in November 2011 to lead the review required under s.73 of the Charities Act 2006. His report, Trusted and Independent: Giving charity back to charities, was presented to Parliament on 16 July 2012. Its 158 pages and about 150 recommendations (including those in an appendix) are based on questionnaire responses from charities and the public, 13 calls for evidence and dozens of meetings.
Lord Hodgson said his intention was to hand back power and control to trustees by reducing red tape, helping charities demonstrate their success by making information requirements simpler and more transparent, and revolutionising investment rules to open up the social investment market for charities.
The vast majority of his recommendations are sensible and uncontroversial. My main complaint (apart from some significant recommendations that I don't agree with) is that the recommendations are not numbered and are presented inconsistently, so it is cumbersome to refer to them or even to count them.
The report can be accessed on the Cabinet Office website via tinyurl.com/c2azftb.
The report includes, at the end, a chart showing which recommendations will need primary legislation so can't happen for a while, those which could be implemented through secondary legislation (regulations), ministerial order or the Charity Commission, and those which are down to individual charities (e.g. "Charities should recognise the importance of public benefit reporting" or "Trustees should consider reimbursing trustees' expenses").
The government's interim response to the review was issued on 3 November 2012. The government's full response will include consideration of the Commons public administration select committee's report on its inquiry into the Charities Act 2006 and the regulation of charities, which was published on 6 June 2013.
The interim response is on the Cabinet Office website via tinyurl.com/poqqqr6.
Lord Hodgson's recommendations, a summary of the government's interim response (where applicable) and my comments are at:
The following are on my legal update page for funding, finance and property, at www.sandy-a.co.uk/finance.htm:
I have not included on my website the recommendations relating to royal charter charities and charities created by act of Parliament [Appendix A, recommendations 1, 2 and 34].
Recommendations requiring primary legislation will be considered as part of the Law Commission's review of charity law.
The charity law review advisory group set up by the National Council for Voluntary Organisations to operate alongside the Hodgson review published its report and recommendations on 16 May 2012, concluding in general that the current charity law system is fit for purpose despite the difficult operating environment, but making recommendations in relation to the impact of charity law on trustees (in particular liability of trustees, payment of trustees, and independence, transparency and accountability of trustees); the future of the Charity Commission; the law on public benefit; means of redress available for and against charities; regulation of fundraising; and the law on campaigning and political activities by charities.
The charity law review advisory group's report is on the NCVO website via tinyurl.com/my9unyg.
COMMONS PUBLIC ADMINISTRATION SELECT COMMITTEE REPORT ON THE CHARITIES ACT
Updated 18/8/13. This information updates s.4.4.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Separately from the Hodgson review of charity law and the National Audit Office and Law Commission reviews, the Commons public administration select committee (PASC) has carried out a post-legislative scrutiny inquiry into regulation of the charitable sector and the impact and implementation of the Charities Act 2006 (now Charities Act 2011). The committee asked for evidence from October to December 2012 on any or all of 10 specific questions or other relevant issues, and published its report, The role of the Charity Commission and "public benefit": Post-legislative scrutiny of the Charities Act 2006, on 6 June 2013.
Some of the issues covered by PASC overlapped with Lord Hodgson's review, while others covered different issues such as the potential effect of the increase in social enterprises and mutuals on the public perception of what a charity is and how charities are regulated, and whether the rules around political activity by charities are reasonable and proportionate.
The PASC report and evidence it received is on the Parliament website in two volumes, via tinyurl.com/qjwxk2t and tinyurl.com/px4h2z6.
The PASC's 57 conclusions and recommendations include the following. Paragraph numbers refer to paragraphs in the conclusions and recommendations, not paragraphs in the body of the report.
The PASC report concludes that the Charities Act 2006 (now Charities Act 2011) was a much-needed piece of legislation. But it was flawed on the question of charities and public benefit, and was not flexible enough to enable the Commission or the Cabinet Office to address changes that have occurred in the short time the act was passed, such as reductions in charity income, the growth of non-charitable organisations such as social enterprises, and a new focus on the delivery of public services by charities.
The Charity Commission (para.1-6). The Charity Commission's statutory objectives, as set out in the Charities Act 2006 (to increase public trust and confidence in charities, to promote awareness and understanding of the operation of the public benefit requirement, to promote compliance by charity trustees with their legal obligations in exercising control and management of the administration of their charities, to promote the effective use of charitable resources, and to enhance the accountability of charities to donors, beneficiaries and the general public) are far too vague and aspirational to determine what the Commission should do to fulfil these objectives "an aspiration which the Commission could never fulfil, even before the budget cuts were initiated".
The objectives should be revised, and the Cabinet Office must consider how to prioritise what is expected of the Commission, with a focus on regulation as its key task, rather than providing advice to the sector or acting as a champion for the sector.
Charges (para.7-9). The PASC does not support Lord Hodgson's recommendation that the Commission should charge for the registration of charities or the submission of annual returns.
It endorses his recommendation that there should be fines for late submission of annual returns, and recommends that the Commission and Cabinet Office develop a proportionate and flexible system of fines.
Registration (para.10-13). The PASC does not support Lord Hodgson's recommendation that the threshold for Charity Commission registration should be increased from £5,000 to £25,000.
Any provision for voluntary registration, as recommended by Lord Hodgson, should be implemented only if the Commission has adequate resources.
As recommended by Lord Hodgson, charitable companies should have to file only one annual return, rather than having to file a return with both the Commission and Companies House.
A passporting system for charity regulation across England and Wales, Scotland, and Northern Ireland should be developed, to ease the difficulties faced by charities operating across the separate countries.
Public benefit (para.14-21). The PASC says, "Parliament should be under no illusion about the scale of the task it presented to the Charity Commission when it passed the Charities Act 2006, which required the Commission to produce public benefit guidance without specifically defining 'public benefit'." The Charities Act 2006 is "critically flawed" on the question of public benefit and "has been an administrative and financial disaster for the Charity Commission and for the charities involved". It is therefore "essential for Parliament to revisit the legislation and set the criteria for charitable status rather than delegating such decisions to the Charity Commission and the courts".
But the PASC does not recommend a statutory definition of public benefit, as this could soon become out of date. This is the same conclusion as in Lord Hodgson's recommendations and the government's interim response to the Hodgson review.
Prior to the 2006 act, there was an assumed presumption of public benefit for charities for the advancement of education, the advancement of religion and the relief of poverty. But s.4(2) of the Charities Act 2011 (previously in the Charities Act 2006) says, "In determining whether the public benefit requirement is satisfied in relation to any [charitable] purpose, it is not to be presumed that a purpose of a particular description is for the public benefit." With this removal of the presumption of public benefit, educational, religious and relief of poverty charities now have to demonstrate their benefit to the public when registering as a charity, in the same way that other charities have always had to.
The PACS recommends that s.4(2) is repealed. This would have the effect of reverting to the case law position before the 2006 act, of public benefit being presumed for educational, religious and relief of poverty charities.
The PASC also recommends repeal of the Commission's statutory objective to promote awareness and understanding of the public benefit requirement.
The majority of submissions to the PASC concerned the Charity Commission's refusal of charity registration for the Preston Down Trust meeting hall of the Plymouth Brethren Christian Church (also known as the Exclusive Brethren). The PASC received legal advice that this issue could be subject to judicial review so should be treated as sub judice. The PASC therefore did not comment on it.
The charity tribunal (para.22-23). The PASC says that the Commission's reliance on the charity tribunal to resolve contentious areas of law is an expensive, time-consuming and unjust way to test the law. In addition, the tribunal system has failed in its objective to reduce the cost of disputes. The Commission should devise informal dispute resolution procedures and should not use the tribunal system as a means of determining the law, except as a last resort.
A charity ombudsman? (para.24). Charities must take responsibility for resolving complaints from employees, trustees and volunteers, through internal complaints mechanisms and independent appeal processes.
The PASC agrees with Lord Hodgson that if the sector wants to have a charity ombudsman or a single body for dealing with complaints and arbitrating disputes, the costs should be borne by the charity sector rather than by the government or the Charity Commission.
Fundraising (para.25-26). The PASC said the self-regulation system for face to face fundraising (chugging) has not yet generated public confidence. It recommends that self-regulation remains in place but is placed on notice, as recommended by Lord Hodgson, with progress reviewed in five years. Should statutory regulation become necessary, the cost should be borne by the charities themselves, and should focus on the solicitation of direct debit collections.
House to house collections (para.27). The PASC does not support Lord Hodgson's recommendation to abolish national exemption orders for house to house collections operating in multiple local authority areas.
Payment of trustees (para.28). The PASC rejected Lord Hodgson's recommendation that large charities should have an automatic right to pay trustees, saying that the current rules allow for the exceptional cases where payment may be appropriate.
Political campaigning and independence (para.29). The PASC does not recommend any changes to the rules on political campaigning by charities, but recommends more transparency by charities about their political and campaigning activities. The Charity Commission should require charities to declare in their annual returns how much of their spending has gone on political and communications work, and should require charities above the registration threshold to declare how much of their income in the previous year was received from public of government sources as grants or other forms of remuneration, and how much as private donations.
It also recommends that ministers should make a written statement to Parliament whenever a decision is made to provide government support by direct grant to a charity which is involved in political campaigning.
Charitable think tanks must maintain the correct balance between political activity and neutrality, and must be regulated by the Commission in a fair, consistent and proportionate manner.
NATIONAL AUDIT OFFICE STUDY OF CHARITY COMMISSION
Added 18/8/13. This information updates s.4.4.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The National Audit Office (NAO) undertook in 2013 a study of the effectiveness of the Charity Commission as a regulator of registered charities. Its report, published 4 December 2013, looked at how the Commission identifies and allocates its resources according to risk, whether it makes proper use of its powers, and the effectiveness of its processes and structure.
The review can be accessed on the NAO website via tinyurl.com/p23omm4.
Prior to the Commons public administration select committee's post-legislative scrutiny of the Charities Act 2006, the National Audit Office produced in July 2012 an interesting briefing setting out some of the background and listing 15 issues the PASC might want to consider. These included whether the government understands the impact of its actions on the charity sector. The briefing can be accessed on the NAO website via tinyurl.com/cpbo2ta.
LAW COMMISSION REVIEW OF CHARITY LAW
Updated 20/8/13. This information updates s.4.4.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Law Commission's review of charity law, looking at possible statutory changes to charity law and taking into account recommendations from Lord Hodgson's review that will require technical research before they can be included in new primary legislation, started in March 2013 and was expected to finish in March 2014.
This is a technical review, and will not cover "political" aspects of law reform such as the meaning of public benefit.
The terms of reference for the review cover the possibility of:
A Law Commission consultation document in 2014 may be followed by a draft bill in March 2016 and new primary legislation in 2018 so it's important to recognise that these changes will not be quick fixes.
procedures for amending the governing documents of charitable corporations established by royal charter and charities with statutory governing documents;
giving trustees more autonomy for some charity transactions and dispositions, such as disposals of and the creation of charges (mortgages) over charity land; cy près application of property that cannot be used for its original purpose; ex gratia payments; and remuneration of trustees for goods provided to a charity, where not provided in conjunction with a service;
reforming Charity Commission powers to retrospectively authorise unauthorised benefits to charity trustees, require a charity to change its name prior to registration, and determine the membership of a charity; and reforming the grounds on which charity trustees are disqualified or may be suspended or removed from being a trustee;
changes to some powers and procedures of the charity tribunal;
review of insolvency law as it applies to permanent endowment of charitable trusts and incorporated charities, and property held on a special charitable trust (restricted funds);
changing some administrative rules for incorporation and mergers, in particular in relation to bequests, the transfer of permanent endowment and the assignment of leases and other rights, and the use of vesting declarations.
Information about the review, with a link to its terms of reference, is on the Law Commission website via tinyurl.com/pkx8qf2.
CONSOLIDATION OF CHARITY LAW INTO CHARITIES ACT 2011
Updated 17/3/12. This information updates s.4.4.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Recreational Charities Act 1958, remaining parts of the Charities Act 1993 and most of the Charities Act 2006 have been consolidated into the Charities Act 2011, which came into effect on 14 March 2012. The new act restructures and modernises existing legislation, brings most of it together in one place and removes obsolete provisions and most inconsistencies, but does not change charity law. Changes will have to wait until the charity law review.
The Recreational Charities Act, which gave charitable status to village halls and similar community groups, the Charities Act 1993, and the Charities Act 2006 apart from part 3 have been repealed.
Part 3 of the 2006 act, which would require door to door and street fundraisers to obtain public collection certificates from the Charity Commission, has never been implemented and will be reconsidered as part of the charity law review. Part 2 of the Charities Act 1992, covering professional fundraisers and commercial participators, remains in place. (The rest of the 1992 Act was repealed when its provisions were incorporated into the 1993 Act.) The fundraising provisions in part 2 of the 1992 act and part 3 of the 2006 act have not been consolidated into the 2011 act because they apply to a wide range of "good cause" organisations, not just charities.
The Charity Commission has confirmed that there is no need to change any documents finalised before 14 March, but from 14 March 2012 annual accounts and reports and other formal documents which would contain references to the repealed 1958, 1993 or 2006 acts should refer to the Charities Act 2011, and where a specific section is referred to, it should be changed to the 2011 section number. New documents will still be valid even if the old references are accidentally used. The Commission's statement is at tinyurl.com/72sxnac.
For charity accounts, the Auditing Practices Board's practice note 11, The audit of charities in the UK, was updated in March 2012 to reflect the new references to the 2011 act, and also to reflect changes in accounting and audit requirements under charity law in Scotland and Northern Ireland, and changes in reporting requirements for companies that are exempt from a company audit.
Bates, Wells & Braithwaite Solicitors have a two-page table showing where the sections of the 1993 and 2006 Charities Acts most commonly used by existing charities appear in the 2011 act. It can be accessed via tinyurl.com/7g99wnz. For example the rules on disposing of charity property under s.36 of the Charities Act 1993 are now ss.117-121 of the Charities Act 2011, the rules on charity mortgages under s.38 of the 1993 act are now s.124 of the 2011 act, Charity Commission s.26 orders will become s.105 orders, and Commission advice under s.29 of the 1993 act will become advice under s.110 of the new act.
All of the references can be found in the comprehensive table of destinations showing, for each section in the 1958, 1993 and 2006 acts, where the provisions have ended up in the 2011 act. There is also a table of origins showing where each provision in the 2011 act comes from. These tables can be accessed from the "more resources" tab at the top of the page with the 2011 act itself at www.legislation.gov.uk/ukpga/2011/25/enacted.
The 2011 act has 19 parts with a total of 358 sections, plus 11 schedules. The 19 parts are:
The Charity Commission has amended the references in its guidance to reflect the new act.
Part 1 (ss.1-12): Meaning of "charity" and "charitable purpose"
Part 2 (ss.13-21): The Charity Commission and the official custodian for charities
Part 3 (ss.22-28): Exempt charities and the principal regulator
Part 4 (ss.29-45): Registration and names of charities
Part 5 (ss.46-60): Information powers
Part 6 (ss.61-116): Cy-prŤs powers and assistance and supervision of charities by court and Commission
Part 7 (ss.117-129): Charity land
Part 8 (ss.130-176): Charity accounts, reports and returns
Part 9 (ss.177-192): Charity trustees, trustees and auditors etc.
Part 10 (ss.193-203): Charitable companies etc.
Part 11 (ss.204-250): Charitable incorporated organisations (CIOs) - not yet in force
Part 12 (ss.251-266): Incorporation of charity trustees
Part 13 (ss.267-286): Unincorporated charities
Part 14 (ss.287-292): Special trusts
Part 15 (ss.293-304): Local charities
Part 16 (ss.305-314): Charity mergers
Part 17 (ss.315-331): The Tribunal
Part 18 (ss.332-353): Miscellaneous and supplementary
Part 19 (ss.354-358): Final provisions
Schedule 1: The Charity Commission
Schedule 2: The official custodian
Schedule 3: Exempt charities
Schedule 4: Enlargement of areas of local charities
Schedule 5: Courtís jurisdiction over certain charities governed by or under statute
Schedule 6: Appeals and applications to Tribunal
Schedule 7: Consequential amendments
Schedule 8: Transitionals and savings
Schedule 9: Transitory modifications
Schedule 10 Repeals and revocations
Schedule 11 Index of defined expressions
REVIEWS OF CHARITY LEGISLATION
Added 2/1/12. This information updates s.4.4.1 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Under s.73 of the Charities Act 2006, a person had to be appointed by November 2011 to undertake a review of the Act, looking in particular at the status of the Charity Commission as a government department and the effect of the Act on excepted charities, public confidence in charities, the level of charitable donations and the willingness of individuals to volunteer.
Conservative peer Lord Hodgson of Astley Abbotts was appointed by the government in November to lead the review, and will report to Parliament by mid-July 2012. He spoke for the Tories in the House of Lords when the Charities Act 2006 and Companies Act 2006 were going through Parliament, led the government's big society deregulation task force in 2011, is president of the National Council for Voluntary Organisations, and is chair of the Armed Forces Charities Advisory Company and a trustee of Fair Trials International. He will not be paid for his work on the review.
The review will look not only at the effectiveness of the 2006 Act, but also at further changes to the legal and regulatory framework for charities. These will include:
the objectives, functions and structure of the Charity Commission;
the charity tribunal, and the range of Charity Commission decisions that can be appealed to or reviewed by the tribunal;
public benefit (see Public benefit);
the implications of there being two different definitions of charity in the 2006 act (there were attempts to change this as the 2011 Act was going through Parliament, but a consolidation act cannot change legislation);
whether there should be a single definition of the word "charity" covering all of the UK, as recommended by the Calman commission on Scottish devolution in 2009 (the definitions in Scotland and Northern Ireland are currently different than the definition for England and Wales);
the licensing regime for public charitable collections, and whether the current provisions on street collections and house to house collections dating from 1916 and 1939 should be replaced by the provisions in the 2006 Act or by different provisions;
the self-regulatory Fundraising Standards Board, which was established in 2007, and which could be replaced by a statutory regulator if self-regulation of fundraising is considered not to have been effective.
reducing the regulatory burden on charities, including changes to the rules on disposal of charity land as recommended by an Office for Civil Society consultation in 2010;
transparency and accountability of charities, including thresholds and procedures for accounting, reporting, audit and fundraising disclosure statements, and issues in cross-border reporting;
the £5,000 threshold for registration of most charities and the £100,000 threshold for registration of excepted charities;
facilitating social investment or "mixed purpose" investment by, and into, charities;
the charity merger provisions in the 2006 Act, in particular adding a provision to ensure legacies to a charity that was wound up on merger can go to the new (merged) charity;
exempt charities and principal regulators;
the legal structures available to charities, including the charitable incorporated organisation (CIO);
supporting and encouraging individuals to volunteer as trustees, recognising concerns about trustee liability;
other matters relating to charity law, and (with the consent of the Cabinet Office), relevant matters relating to other law.
The terms of reference for the review can be accessed via tinyurl.com/clahbfa. Charities and other stakeholders will in due course be asked for evidence and input.
Civil Society magazine has listed issues which were raised at a parliamentary public administration select committee meeting on 25 October 2011 on the work of the Charity Commission, which could possibly be included as "other matters". These include how the Commission is funded, campaigning and political activity by charities, sanctions for trustees who breach charity law, and whether the Commission should monitor levels of charity expenditure on salaries and administrative costs. The article can be accessed via tinyurl.com/82925uw.
Some other issues that have been mentioned by various commentators include payment of trustees, the need for Commission consent to amend governing documents, issues relating to charities established by royal charter, and the possibility of a charities ombudsman.
NCVO has set up a parallel charity law review advisory group to take evidence and make recommendations to the Hodgson review. Its terms of reference and other information can be accessed via tinyurl.com/7ekbj5c. The NCVO review will be chaired by Baroness Howe of Idlicote, a cross-bench peer and member of NCVO's advisory council.
Another parallel review will be undertaken by a working party set up by the Charity Law Association, representing lawyers and other legal professionals who work with charities. A CLA spokesperson said the NCVO review would take a policy-driven approach, while the CLA review would take a legal approach. The working party has divided topics into four categories: controversial (the biggest group), important but difficult to implement, easy wins, and issues that only require clarification.
Then, starting in late 2012, the Law Commission will undertake its own review, looking at possible statutory changes to charity law and taking into account recommendations from the Hodgson review. A Law Commission consultation document in 2013 may be followed by a draft bill in 2015 and new primary legislation in 2018 so it's important to recognise that changes arising from the Hodgson review that require new primary legislation will not be quick fixes. However some changes, such as new thresholds for registration or accounts, can be made by secondary legislation (statutory instruments or orders) so could happen sooner.
HODGSON RECOMMENDATIONS ON THE ROLE OF THE CHARITY COMMISSION
Updated 18/8/13. This information updates s.4.5 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3)..
In his review of the Charities Acts presented to Parliament on 16 July 2012, Lord Hodgson made the following recommendations in relation to the role of the Charity Commission, and the government commented on some of them in its interim response on 3 November 2013. The government's full response will include consideration of the Commons public administration select committee's (PASC) report on its inquiry into the Charities Act 2006 and the regulation of charities, which was published on 6 June 2013.
Lord Hodgson's report and recommendations can be accessed on the Cabinet Office website via tinyurl.com/c2azftb. The government's interim response is on the Cabinet Office website via tinyurl.com/poqqqr6.
The Charity Commission should remain as a non-ministerial department, with its independence protected in statute [Chapter 5 recommendation 1]. This was accepted by the government in its interim response to Lord Hodgson's recommendations.
The Commission should prioritise its core functions: registering charities and maintaining an accurate register; identifying, deterring, and tackling misconduct and abuse of charitable status; and
providing the public with information (in a relevant form which is easily understood by the public) about charities, and charities with information about charity law [Chapter 5 recommendation 2]. This was accepted by the government in its interim response.
The Commissionís statutory objectives are sound, but it should focus more tightly on regulation of the sector; not just reactive but proactive regulation, including checking random and risk-weighted
samples of charity accounts. The Commission should be more proactive in deterring, identifying, disrupting and tackling abuse of charitable status [Chapter 5 recommendation 3]. This was accepted by the government in its interim response. Similarly, the public administration select committee (PASC) recommended that the Commission focus on its regulatory role.
The Charity Commission's competence is in charity law. It should not be producing guidance on issues that are not concerned with that, unless it provides clarity on an issue that directly impacts on charity law and is published jointly with another organisation that can provide authoritative advice [Chapter 5 recommendation 4]. This was not explicitly mentioned in the government's interim response to Lord Hodgson's recommendations but is implicit.
The Commission needs to be adequately funded to properly regulate the sector. Some analysis of financial efficiency and requirements needs to be undertaken as reductions in the Charity Commissionís budget take place [Chapter 5 recommendation 5]. The public administration select committee emphasised, throughout its report and recommendations, the importance adequate funding for the Commission, and the Commission not being expected to do the impossible with limited resources.
Consideration should be given to whether the name "Charity Commission" is sufficiently well matched to the Commission's role going forward to support public and sector understanding of its role. A change to "Charity Authority" is suggested [Chapter 5 recommendation 6]. The government's interim response did not support changing the Commission's name.
The Charity Commission exercises a number of functions and grants a number of permissions that could be moved elsewhere, or removed altogether, to streamline regulation. A list of the functions
that could be altered or removed is set out in Appendix A. Where this deregulation enables charities themselves to make more decisions, there should be a "comply or explain" approach [Chapter 5 recommendation 7]. The government's interim response noted that the Commission is in the early stages of exploring whether there are parts of its work that could be more effectively carried out by partners such as umbrella bodies.
The Commission should be able to continue to offer bespoke legal advice such as the development of specialised schemes, on a cost recovery basis, if it wishes [Chapter 6 recommendation 19].
The Commission should have wider powers to work out who the properly elected or appointed trustees of a charity are and wider powers to remove trustees (including, in membership charities, power to remove trustees from membership) [Appendix A recommendations 11-12].
Go back to list of all of Lord Hodgson's recommendations
HODGSON RECOMMENDATIONS ON CHARITY COMMISSION PARTNERSHIP ARRANGEMENTS
Updated 25/5/13. This information updates s.4.5 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
In his review of the Charities Acts presented to Parliament on 16 July 2012, Lord Hodgson made the following recommendations in relation to partnership arrangements between the Charity Commission and other bodies, and the government commented on some of them in its interim response on 3 November 2013. The government's full response will include consideration of the Commons public administration select committee's report on its inquiry into the Charities Act 2006 and the regulation of charities, which was published on 6 June 2013.
For recommendations specifically about the Commission working with principal regulators of exempt charities, see Registration of previously exempt charities.
Lord Hodgson's report and recommendations can be accessed on the Cabinet Office website via tinyurl.com/c2azftb. The government's interim response is on the Cabinet Office website via tinyurl.com/poqqqr6.
The Charity Commission should remain the main regulator of charities in England and Wales [Chapter 6 recommendation 1].
The Charity Commission should continue its work to develop more partnerships with sub-sector umbrella bodies, enabling them to take on a greater role in promoting compliance, developing best
practice (including model governing documents) and helping their membership with queries. The Commission should underscore these agreements with memoranda of understanding that are
published on its website [Chapter 6 recommendation 2]. The government's interim response noted that the Commission is at the early stage of discussions with relevant bodies.
Sandy's comment: There is concern that functions currently carried out by the Commission will be contracted out to national, local or sector-specific umbrella bodies, with a risk that the organisations providing the services will be under-resourced, the quality of information provided may be variable, situations may arise where individual charities are required to join an umbrella organisation and pay a membership subscription in order to obtain the services, and/or a charity which relates to two or more umbrella organisations (for example a local pre-school that is a member of both its local council for voluntary service and the Pre-school Learning Alliance) might receive conflicting information or advice from the two umbrellas, without having access to the Charity Commission to confirm which advice is most appropriate.
The Commission should keep such partnership arrangements under review, and include a section in its annual report about the effectiveness of its partnership working [Chapter 6 recommendation 3].
The Charity Commission should be given the power to delegate some or all of its functions to other bodies, where it considers this to be in the interests of good regulation and the overall standard of regulation will be equivalent. In all cases the Commission must both retain its powers to investigate any individual charity and be able to withdraw a co-regulation authorisation at any time [Chapter 6 recommendation 5].
Go back to list of all of Lord Hodgson's recommendations
CHARITY REGISTRATION IN NORTHERN IRELAND
Updated 20/8/13. This information updates ss.4.4.6, 5.3.8 & 8.4 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission for Northern Ireland (CCNI) remains on course to start registering charities in autumn 2013, with a phased process. The Charities (2008 Act) Commencement No.4 Order (Northern Ireland) 2013 brought into effect, on 24 June 2013, many provisions of the Charities Act (Northern Ireland) 2008 giving powers to the CCNI and placing requirements on registered charities.
The 2008 act created for the first time a statutory framework for charities in Northern Ireland and established the CCNI and a charity tribunal, But implementation was delayed by uncertainty about the legal interpretation of the public benefit provision in s.3 of the 2008 act, exacerbated by differing views about whether all charities should be required to demonstrate public benefit or whether some types of charities should be presumed to be for the public benefit, without having to demonstrate it as part of the registration process.
Finally the Charities Act (Northern Ireland) 2013, which received royal assent on 18 January 2013, amended the 2008 act to make clear that all charities in NI are required to demonstrate how they benefit the public. But it will be up to the CCNI to determine whether or not a charity is set up for the benefit of the public, rather than having, as the 2008 act provided, a prescribed test enshrined in legislation.
As soon as the 2013 act was in place the CCNI opened a public consultation, from 4 February to 6 May 2013, on its public benefit and registration guidance. The final statutory guidance, The public benefit requirement, was published in July 2013 and can be accessed, along with a glossary and frequently asked questions, via tinyurl.com/ph82659. Supplementary information on the 12 purposes set out in the 2008 act is being finalised.
From 19 August 2013, the Charities Act 2008 (Transitional Provision) Order (Northern Ireland) 2013 replaces the 2011 order with the same name. The 2013 order makes clear that organisations which as of 19 August 2013 are registered as charitable for tax purposes with HM Revenue & Customs are to be treated as charities until a decision is made about whether they are to be registered with CCNI. CCNI has referred to these charities as "deemed charities". The distinction is necessary because there may be some situations where HMRC has granted charitable status for tax purposes, but CCNI, when it comes to register the organisation, decides that its purposes do not fall within the 2008 act or are not for the benefit of the public so it cannot be registered.
In early October 2013 the CCNI will start a public consultation on its interim reporting proposals for registered charities, followed by a consultation in 2014 on the format, structure and content of the full accounting and reporting requirements. During the interim period, registered charities will be required to provide their accounts and reports and complete an annual return covering their activities, governance and finances, but the accounts and reports can be in the format they currently use. Information about the consultation is at tinyurl.com/o5jvyhv.
The CCNI's website includes information about cy près schemes, which allow property or funds to be used for charitable purposes other than those for which it was originally intended. The CCNI can consider such schemes now, but cannot finalise them until further statutory provision is made, which they hope will be by late 2013. Information is at tinyurl.com/lhydbwh.
The cy près webpage also includes information about the Charity (Failed Appeals and Disclaimers) Regulations (Northern Ireland) 2013, under which the CCNI can make a scheme where an appeal for a specific purpose does not raise enough funds for the purpose (for example, for a specific project or piece of equipment), or raises too much. The regulations came into effect on 1 July 2013 and are at tinyurl.com/ku6z5vq.
Under s.167 of the 2008 act, charities that operate in NI but are based in England and Wales, Scotland, the Republic of Ireland or other countries have to register with CCNI and submit financial returns to CCNI, but it will be a "light touch" registration rather than full registration, and they will be included on a "parallel register" which will not require them to show that they are legally charitable under NI law. These "s.167 charities" will not be registered until all NI-based charities are registered and regulations are in place setting out the s.167 accounting and reporting requirements.
Overall, the NI legislation is similar to the 1993 and 2006 Charities Acts (now the 2011 act) for England and Wales. Some significant differences are:
Promoting the efficiency of the armed forces is not a charitable purpose, as it is in England and Wales.
As in Scotland all charities will be required to register, with no exemptions or exceptions as there are in England and Wales (s.3).
"Designated religious charities" which meet certain criteria will have more organisational freedom than other charities (s.165).
The CCNI website is at www.charitycommissionni.org.uk.
"The advancement of peace and good community relations" is included in the charitable purpose that includes the advancement of human rights, conflict resolution, reconciliation etc (
NIVCA (the Northern Ireland Council for Voluntary Action) has information, including its submission to the CCNI public benefit and registration consultation, on its website at www.nicva.org/news/charity-law-reform.
The Charities (2008 Act) Commencement No.4 Order (Northern Ireland) 2013 is at www.legislation.gov.uk/nisr/2013/145/made.
The 2008 and 2013 acts are at www.legislation.gov.uk/nia/2008/12/contents and www.legislation.gov.uk/nia/2013/3/contents/enacted.
CHARITY REGISTRATION STILL DELAYED IN NORTHERN IRELAND
Updated 4/1/12. This information updates ss.4.4.6, 5.3.8 & 8.4 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charities Act (Northern Ireland) 2008 creates for the first time a statutory framework for charities there and establishes a Charity Commission for Northern Ireland (CCNI) and charity tribunal. But charity registration and the creation of the register of charities, which were expected to start in the first half of 2010, have still not started, and the rules for public collections and the introduction of the charitable incorporated organisation did not come into effect in 2011 as originally expected.
In the meantime, the Charities Act 2008 (Transitional Provision) Order (Northern Ireland) 2011 allows the CCNI to regulate (but not yet register) approximately 7,000 organisations already registered as charitable with HMRC. These organisations on the "deemed" list of charities (as they are called by the CCNI) are listed on the CCNI website and must provide updated information to the CCNI, and the CCNI has power to investigate complaints about them. New charities should continue to apply for registration with HMRC, and will be added to the list on the CCNI's website on a quarterly basis. The CCNI will also assume, in 2012, its powers to make cy près schemes allowing property or funds to be used for charitable purposes other than those for which it was originally intended.
The delay in registering charities has been caused by an inconsistency in the drafting of the Act. The NI legislation includes the England/Wales Charities Act 2006 definition of a charitable purpose as "a purpose which is for the public benefit", but the NI Act also says that in assessing whether an organisation is charitable, it will be assessed on the same basis as Scottish charities are under the Charities and Trustee Investment (Scotland) Act 2005: whether it "provides or intends to provide public benefit". This leaves it unclear whether a prospective charity is to be assessed on the basis of its stated purposes (as in England and Wales) or its actual or proposed activities (as in Scotland).
The Department for Social Development, which is responsible for drawing up charity law in NI, put forward proposed legislation in February 2011 that would make clear that the England/Wales criteria would apply. It was proposed that the new legislation go through on an accelerated procedure so it could be passed before the Assembly was dissolved on 24 March. However, s.3 of the 2008 Act says that in determining whether an organisation is for the public benefit, "it is not to be presumed that a purpose of a particular description is for the public benefit". The expectation was that the CCNI would vet all organisations, even those already registered with HMRC, to confirm they comply with NI law before registering them. But after putting forward its proposed legislation in February to clarify the definition of public benefit, DSDNI was asked to include amendments that would reintroduce a presumption of public benefit for organisations whose purpose is the advancement of religion, advancement of education or relief of property. This would be a major change, inconsistent with the current approach in both England/Wales and Scotland.
The three options now being considered are: (1) all charities in NI would be required to demonstrate how they benefit the public, as is provided for in the 2008 Act, but it would be up to the CCNI to determine whether or not a charity is set up for the benefit of the public, rather than having a prescribed test enshrined in legislation; (2) the presumption of public benefit would be restored to those charities working for the relief of poverty, the advancement of education and the advancement of religion (the three original heads of charity); or (3) the presumption of public benefit would be restored, but only for those charities that are engaged in the advancement of religion. At the end of 2011, no decision had been made and it was not expected that charity registration would start until October 2012 at the earliest.
When registration finally starts, it is expected that charities based in England/Wales, Scotland or the Republic of Ireland that operate in NI will have to register with CCNI and submit financial returns to CCNI, but it will be a "light touch" registration rather than full registration, and they will be included on a "parallel register" which will not require them to show that they are legally charitable under NI law (s.167).
Overall, the NI legislation is similar to the 1993 and 2006 Charities Acts for England and Wales. Some significant differences are:
The CCNI website is at www.charitycommissionni.org.uk. Its office moved in October 2011 from Belfast to 257 Lough Road, Lurgan, Craigavon BT66 6NQ.
"The advancement of peace and good community relations" is included in the charitable purpose that includes the advancement of human rights, conflict resolution, reconciliation etc (s.2(3)).
Promoting the efficiency of the armed forces is not a charitable purpose, as it is in England and Wales.
As in Scotland all charities will be required to register, with no exemptions or exceptions as there are in England and Wales (s.3).
"Designated religious charities" which meet certain criteria will have more organisational freedom than other charities (s.165).
NIVCA (the Northern Ireland Council for Voluntary Action) has information on its website at www.nicva.org/news/charity-law-reform.
The Act is at www.legislation.gov.uk/nia/2008/12/contents.
The transitional provision order is at www.legislation.gov.uk/nisr/2011/12/contents/made.
CHARITY COMMISSION STRATEGY AND RISK FRAMEWORK FOR 2012-2015
Updated 17/3/12. This information updates s.4.5 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Following the funding cuts announced in October 2010, the Charity Commission undertook extensive consultation about its future priorities. This resulted in a strategic plan for the three years from 2012-2015, published on 7 December 2011, setting out its two key priorities as developing the compliance and accountability of the charity sector, and developing the self-reliance of the sector. The focus will be on what only the Commission can do: registration of charities; generic guidance; statutory advice or permissions; transparency through charity annual returns; and investigation of alleged wrongdoing. Other priorities are making the best use of technology, and improving the Commission's efficiency.
The autumn 2011 edition of Charity Commission News (no.36) summarises the strategy and what "the new Commission" is already doing to implement it. This includes the charity review project with the Institute of Chartered Accountants in England and Wales (ICAEW), which aims to help charities review their financial controls and risk management systems; publishing new guidance on charities and investment matters; developing online tools for trustees; producing a new registration bulletin; and starting new-style public meetings.
Likely changes include:
The plan can be accessed via tinyurl.com/d8a938t, and via tinyurl.com/2aklwzj.
charities being encouraged to join umbrella organisations, and umbrella organisations being encouraged to provide the sort of advice the Commission now provides (which raises issues about charities which do not fit into any specific umbrella organisation and/or cannot afford the membership fee, as well as issues about the capacity of some umbrella organisations to fill this role when they may themselves be facing severe cuts);
withdrawal of the Commission's provision of one to one advice through the telephone helpline, with charities expected to rely on generic guidance on the Commission's website (given that even I often can't easily find what I'm looking for on the website or can't find it at all the website is going to have to become a lot more user-friendly and accessible if "ordinary people" who aren't sure what is on the website or what they are looking for are going to be able to use it effectively. And anyway, a lot of queries, even though relatively straightforward, can't be answered by generic guidance on a website);
less possibility of getting formal legal advice or consents from the Commission in more complex cases, especially where the consent is being sought to reassure the trustees rather than because it is a statutory requirement;
a streamlined registration process, which is probably good in principle but may make it more difficult to negotiate. (For the beginnings of this streamlined process, see Charity registration.)
The strategic plan is complemented by a risk framework published on 16 January 2012, explaining the Commission's approach to regulation and how it assesses risks affecting charities, the wider charity sector, and public confidence in charities. The emphasis will be on preventing problems, identifying risks early and providing web based guidance though if there is no helpline for charities to contact, and trustees won't be able to contact the Commission for reassurance about what they want to do, I find it hard to know how the Commission will be able to prevent problems and identify risks early. (I am not sure whether the word 'and' is significant or whether it is intended to be 'or'.
If it is necessary for the Commission to grant a legal permission or use its powers, it will where possible provide streamlined processes and enable trustees to self-certify their required changes by making greater use of trustee declarations. The Commission will focus on legal permissions where there is legal uncertainty and the matter is of significant importance.
The framework also explains how and when the Commission will intervene in serious cases and where there has been non-compliance or abuse, including when it will investigate a charity.
The risk framework, and detailed guidance for Commission caseworkers on how to apply it when dealing with individual charities, can be accessed via tinyurl.com/6kqdnxg. A press release summarising the main points is at tinyurl.com/7a79g7s.
The risk framework replaces The Commission and regulation and the Commission's previous risk and proportionality frameworks.
REPORTING SERIOUS INCIDENTS TO THE CHARITY COMMISSION
Updated 8/12/14. This information updates s.4.5.8 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
In a regulatory alert issued on 2 September 2014, the Charity Commission reminded charity trustees that they should report actual or suspected serious incidents to the Commission as soon as they become aware of them. The alert is on the Gov.uk website at tinyurl.com/l55poj3.
A summary of the Commission's guidance, on the Gov.uk website at tinyurl.com/lehlghs, covers incidents that need to be reported, how to report a serious incident and what happens after an incident is reported. It includes a link to the Commission's detailed guidance, updated most recently in December 2013.
The detailed guidance lists nine areas of potential risk and for each one gives examples, and explains what should be reported to the Commission and to other authorities.
Incidents that should be reported are:
Trustees of registered charities with annual income over £25,000 must sign a declaration as part of the annual return that there are no serious incidents or other matters relating to the charity over the previous financial year that they should have brought to the Commission's attention but have not. If an incident has taken place but has not been reported to the Commission, this should be done when the annual return is submitted.
any actual or suspected fraud and theft;
significant loss (defined as loss of funds or other property with a value of 20% or more of the charity's income, or £25,000, whichever is the lower) due to other causes, such as through fire, flood or storm damage, or having to abandon property, for example in a war zone;
significant sums of money or other property donated to the charity from an unknown or unverified source;
the charity (including any individual staff, trustees or volunteers) having any known or suspected monetary/finance based links to a proscribed (banned) organisation or to terrorist or other unlawful activity ["any known or suspected monetary/finance based links" has replaced "any known or alleged link"];
a person disqualified from acting as a trustee has been or is currently acting as a trustee of the charity;
the charity has no vetting procedure to ensure that a trustee or member of staff is eligible to act in the position he or she is being appointed to;
the charity does not have a policy for safeguarding its vulnerable beneficiaries (eg children and young people under 18 years of age, or adults who are vulnerable at a particular time because they are in receipt of a regulated activity) [definition of vulnerable beneficiaries has been changed in line with changes to the Safeguarding Vulnerable Groups Act that came into effect in 2012 see www.sandy-a.co.uk/activities.htm#regulated-activity];
suspicions, allegations and incidents of abuse or mistreatment of vulnerable beneficiaries;
the charity has been subject to a criminal investigation, or an investigation by another regulator or agency, or sanctions have been imposed or concerns raised by another regulator or agency such as the Health and Safety Executive, the Care Quality Commission or Ofsted.
As a matter of good practice the Commission encourages all charities, not just those with annual income over £25,000, to report immediately, without waiting until the annual return, any serious incident that has resulted or could result in a significant loss of funds or a significant risk to a charityís property, work, beneficiaries or reputation. This enables the Commission to offer guidance at an early stage, if it considers it necessary to protect the charity or its beneficiaries.
If trustees fail to report a serious incident, or do not report it promptly when it occurs, the Commission could consider this to be mismanagement and could take regulatory action, particularly if additional abuse or damage has arisen following the initial incident.
The Commission emphasises that it will not disclose to the media or public the names of charities that have made serious incident reports. But if approached by the media about an incident, the Commission will confirm whether or not the charity reported the incident. If the Commission can state that the trustees acted responsibly in reporting it, this may reduce the reputational damage caused by negative media exposure.
REPORTING SERIOUS INCIDENTS
Updated 13/7/10. This information updates s.4.5.8 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
The Charity Commission requires trustees of charities with annual income over £25,000 to confirm in their annual return [not annual report, as we incorrectly say in the Legal Handbook] that no serious incidents have occurred during the year which have not been reported to the Commission. It is an offence to make a false statement.
The Commission recommends that trustees report incidents when they occur, not at the end of the year. It also recommends, as best practice, that trustees of charities under £25,000 report incidents, but they are not required to make the statement in their annual return.
Incidents that should be reported include fraud, theft or significant loss of funds or other property; significant donations from an unknown or unverified source; any known or alleged links to a banned organisation or to terrorist or other unlawful activity; someone who is disqualified from acting as a trustee serving in that role; charities not having adequate policies and procedures in place to comply with the law on safeguarding and to protect vulnerable beneficiaries; and suspicions, allegations and incidents of abuse or mistreatment of beneficiaries.
The Commission's guidance on reporting serious incidents is at tinyurl.com/yjlfbco. The revised version, issued on 25 June 2010:
clarifies that trustees are responsible for reporting serious incidents, but can delegate it to employees or other representatives of the charity;
explains the Commission's role as regulator compared to the regulatory role of other agencies;
clarifies why cases of actual or suspected harm to beneficiaries have to be reported to the Commission as well as to other regulatory agencies;
gives trustees greater discretion in deciding when to report low value fraud and theft (but makes clear that no fraud relating to or theft from a charity is ever acceptable, and that trustees must take reasonable steps to prevent it);
clarifies when and how confidentiality applies to serious incident reports.
HODGSON RECOMMENDATIONS ON COMPLAINTS ABOUT CHARITIES AND THE CHARITY COMMISSION
Updated 18/8/13. This information updates s.4.5.11 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
In his review of the Charities Acts presented to Parliament on 16 July 2012, Lord Hodgson made the following recommendations in relation to complaints about charities and the Charity Commission, and the government commented on some of them in its interim response on 3 November 2013. The government's full response will include consideration of the public administration select committee's report on its inquiry into the Charities Act 2006 and the regulation of charities, which was published on 6 June 2013.
Sandy's comment: The charity law review advisory group set up by NCVO to operate alongside the Hodgson review recommended that there should be a full consultation on the possible creation of a charities ombudsman.
A new charities ombudsman, or expansion of an existing ombudsman to cover charities, would offer little additional value and is not recommended [Chapter 7 recommendation 1]. The government's interim response agreed with this, as did the public administration select committee (PASC).
In rejecting the idea of a charities ombudsman, Lord Hodgson suggests that the sector could set up its own body or scheme to deal with complaints and arbitrate disputes which do not fall under the jurisdiction of another organisation, with the Commission acting as facilitator [para.7.8-7.10 in the review]. The government's interim review did not comment on this. The PASC said that if the sector wanted an ombudsman or a single organisation to deal with complaints about charities, it should be funded by the sector rather than by the government or the Charity Commission.
Individual charities should adopt and publish internal procedures for disputes and complaints. Umbrella bodies are ideally placed to support charities with this by the development of pro-forma procedures and support in their implementation, perhaps even taking on the role of adjudicator for their members [Chapter 7 recommendation 2]. The government's interim review supported the proposal for charities to have their own internal complaints procedures.
The jurisdiction of the tribunal should be reformulated as a right of appeal against any legal decision of the Commission, and a right of review of any other decision of the Commission [Chapter 7 recommendation 3]. The government's interim review said this would need further consideration, to ensure any rationalisation of appeal rights does not expose the Commission to challenge where it decides not to intervene in a charity in line with its risk and proportionality framework.
Sandy's comment: At the moment, the tribunal is limited in the types of complaint it can hear about the Charity Commission's decisions. This recommendation would broaden its remit.
Those who should have standing before the tribunal to appeal or seek a review should be the charity (if it is a body corporate); the charity trustees; or any other person affected by the decision, order, direction, determination or decision not to act, as the case may be [Chapter 7 recommendation 4].
The Charity Commission and tribunal should work together to produce and agree guidance as to the scope of the tribunalís jurisdiction and when a claim can be brought (including interventions by interested parties in reference cases) [Chapter 7 recommendation 5].
The time limit for bringing a tribunal case should be extended from the current 42 days to four months. This would allow time to utilise Charity Commission review procedures before having recourse to the tribunal [Chapter 7 recommendation 6].
Responsibility for making decisions on appropriate use of funds in specific litigation (i.e. whether it is appropriate for trustees to use charitable funds to pay for legal action) should be transferred to the tribunal. At present trustees need to approach the Commission for permission to use funds in this way, which involves a clear conflict of interest. A clear power for the tribunal to authorise expenditure on proceedings should be introduced to resolve this [Chapter 7 recommendation 7; Appendix A recommendation 8].
The Charity Commission should be given the power to make references to the tribunal without the need for the attorney generalís permission, provided it notifies the attorney of any references it makes and the attorney retains the right to become a party to the case [Chapter 7 recommendation 8].
The tribunal should consider whether there are any further ways in which it could use its caseload management powers to simplify proceedings, make them less adversarial and dispose of cases rapidly. Parties should be encouraged to deal with cases without an oral hearing where appropriate [Chapter 7 recommendation 9].
The tribunal should consider the value of including in each of its judgments a plain English summary of the key points and decisions, to aid understanding of the law [Chapter 7 recommendation 10].
The government should consider ways in which the tribunal could be empowered to take account of changing social and economic circumstances as well as case law precedents [Chapter 7 recommendation 11].
Further thought should be given to the tribunal's powers to suspend the effects of a Commission scheme or authorisation, pending determination of a case [Appendix A recommendation 15].
Lord Hodgson's review and recommendations can be accessed on the Cabinet Office website via tinyurl.com/c2azftb. The government's interim response is on the Cabinet Office website via tinyurl.com/poqqqr6.
Go back to list of all of Lord Hodgson's recommendations
Updated 25/4/11. This information updates in s.4.5.11 in The Russell-Cooke Voluntary Sector Legal Handbook (VSLH3).
Under the restructuring of the tribunals service which started in November 2008, the charity tribunal became on 1 September 2009 part of the general regulatory chamber in the first tier tribunal, and is called the first tier tribunal (charity). On 1 April 2011 the tribunals service merged with the courts service
When the charity tribunal was created by the Charities Act 2006, the whole point was to make it possible to appeal against Charity Commission decisions without going to the high court. Some charity lawyers fear that the merger of the courts and tribunal services will lead to a loss of the charity tribunal's informality.
Information about the charity tribunal is on the justice.gov.uk website and can be accessed via tinyurl.com/3qoumje. Tribunal decisions are at www.charity.tribunals.gov.uk/decisions.htm.
For trustees and charities who cannot afford the costs of the necessary legal advice to take a case to the tribunal, the Chancery Bar Association and the Bar Pro Bono Unit have set up a specialist panel to provide pro bono (free) assistance. This can be contacted via www.barprobono.org.uk.
Another cause of concern is that the tribunal can only hear appeals against Charity Commission decisions on specific issues set out in the Charities Act 1993. It cannot hear appeals against decisions on other issues, or against Commission actions which are not decisions. These limitations may be considered as part of the review of the Charities Act 2006 in 2011.