Guidance

Charities Bill Factsheet

Published 22 June 2021

This was published under the 2019 to 2022 Johnson Conservative government

Applies to England and Wales

1. Charities Bill Factsheet

The Charities Bill implements recommendations from the Law Commission’s 2017 Technical Issues in Charity Law Report.

It will simplify a number of relevant processes to help charities consolidate and restructure, for example by making it easier for charities to amend governing documents, dispose of land or carry out mergers.

2. What the Bill does

The Charities Bill implements the majority of recommendations made by the Law Commission in its report Technical Issues in Charity Law, published in 2017. It addresses a variety of technical issues in the law governing charities. It does so primarily by amending the Charities Act 2011 but also by amending other legislation such as the Universities and College Estates Act 1925 and the Trusts of Land and Appointment of Trustees Act 1996.

These measures will simplify a number of processes and provide a more consistent legal framework, whilst ensuring appropriate safeguards. The reforms will save charities time and money, notably legal costs. The measures will also benefit the Charity Commission, by removing or reforming unnecessary or overly bureaucratic processes.

Overall, the implementation of the Law Commission’s recommendations is estimated to deliver cost savings for charities of at least £28m over a ten year period. Alongside this, the added clarity of issues with the law that are causing uncertainty will allow charities to focus on delivering on their mission.

3. Overview of the Bill

The Charities Bill will:

• give charities wider or additional powers and flexibility to amend their governing documents, to decide on how they procure goods and services, and to make “ex gratia” payments (which charities have a moral obligation, but no legal power, to make)
• clarify when property can be applied cy-près (Cy-près means “as near as possible”. When a charitable purpose cannot be carried out, the Charity Commission can direct under a scheme that the funds should be used for other similar charitable purposes), including the proceeds of failed fundraising appeals
• produce a clearer and less administratively burdensome legal framework for buying, selling, leasing and mortgaging charity land
• clarify and expand the statutory regime that applies to permanent endowment
• introduce a power – with appropriate safeguards – for charities to borrow from their permanent endowment and to make certain social investments using permanent endowment
• facilitate, where appropriate, charity mergers and incorporations
• confer additional powers on the Charity Commission to authorise charities to pay an equitable allowance, to require charities to change or stop using inappropriate names, and to ratify the appointment or election of charity trustees where there is uncertainty concerning the validity of their appointment or election
• improve and clarify certain powers of the Charity Tribunal

4. Main measures in the Bill

Amending governing documents

• reduce inconsistency by more closely aligning the amendment mechanisms for incorporated and unincorporated charities
• a new, clearer statutory power for all unincorporated charities to amend their governing documents by resolution
• consistent criteria for the Charity Commission to consider before consenting to a change of purpose, regardless of whether the charity is a company, CIO, or unincorporated charity

Improving land transactions

• greater flexibility to obtain advice on disposals of land from a greater range of professional advisers
• removing certain overly prescriptive and burdensome statutory requirements
• creating certainty for purchasers when they buy land from charities, with a reliable, straightforward and practically workable process for certifying compliance with the Charities Act requirements

Making use of permanent endowment

• a new definition of permanent endowment which is clear, consistent and aligns with the sector’s understanding of the term
• a new power to borrow from permanent endowment as a useful alternative to the existing rules
• for trustees who have opted in to total return investment, the ability to use permanent endowments for loss-making social investments when they expect those losses to be offset elsewhere, which will promote long-term investments for social good

Helping incorporations and mergers

• allowing legacies in wills to be transferred to a merged charity, which will remove a need for “shell charities” to be maintained, which results in wasted money through admin costs
• giving corporate charities “trust corporation status” automatically if they administer charitable trusts
• providing trustees with certainty about costs before the Charity Tribunal
• new “authorised costs orders” which would provide advanced assurance that the costs incurred by trustees can properly be paid from the charity’s funds

Other measures in the Bill

• fundraising appeals: expanding and rationalising the circumstances in which funds from a failed fundraising appeal can be applied to other purposes of the charity, with appropriate oversight by the Charity Commission
• remuneration for supply of goods from trustees: enabling trustees to be paid for goods provided to a charity, subject to appropriate safeguards - this aligns with the current law which allows trustees to be paid for services, creating consistency and enabling charities to access goods which may be offered at more favourable terms by a trustee than elsewhere
• equitable allowances: enable the Charity Commission to authorise trustees to be paid for exceptional skill and effort with which they have carried out work for their charity in circumstances where it would be unjust not to do so
• ex gratia payments: enabling charities to make relatively small ex gratia payments without seeking Charity Commission permission, and to delegate the power to make those payments to an appropriate person within the charity
• charity names: expansion of the Charity Commission’s powers in respect of misleading, offensive or duplicative charity names to remove anomalies and to prevent the registration of a charity with an inappropriate name (or prevent the registration of a change of name)
• identifying charity trustees: creation of a new power for the Charity Commission to ratify a trustee’s appointment or election which is, or is potentially, invalid

5. Will these measures apply across the United Kingdom?

The provisions extend and apply to England and Wales only, subject to a couple of minor provisions which extend as far as the enactments to which they apply. Charity law is devolved in Scotland and Northern Ireland.

The Charity Commission will work with its counterparts in the devolved administrations, the Office of the Scottish Charity Regulator and the Charity Commission for Northern Ireland under existing protocols to agree how the changes will affect their regulation of charities which operate UK-wide.

6. How much will this cost?

A de minimis impact assessment has been prepared in support of the Bill to assess the costs and benefits of the Bill to businesses and other stakeholders. This concluded that the overall net impact to business resulting from this legislation is estimated to be well below the £5 million de minimis threshold. The ongoing benefits of the intervention which could be monetised total £2.8 million per year and £28 million over ten years.

7. Key facts and figures

There are approximately 169,000 charities in England and Wales registered with the Charity Commission with a combined annual income of over £83 billion ^{[footnote 1]}.

The sector employs almost 3 per cent of the total UK workforce. There are also more than 944,000 ^{[footnote 1]} trustees of registered charities, supported by over 6.2 million ^{[footnote 1]} volunteers.

8. Key documents

• Charities Bill
• Charities Bill Explanatory Notes
• Delegated Powers Memorandum
• Delegated Powers Memorandum Policy Statements
• The Law Commission’s Technical Issues in Charity Law Report (September 2017)
• The government’s response to the Law Commission’s Technical Issues in Charity Law Report (March 2021)
• Keeling Schedule - A marked up version of the Charities Act 2011, showing all the amendments that would be made by the Bill, is available on the Law Commission’s website at https://www.lawcom.gov.uk/project/charity-law-technical-issues-in-charity-law/

1. Figures correct as of 26 May 2021. Please refer to the following websites for up to date figures: https://register-of-charities.charitycommission.gov.uk/sector-data/charities-by-income-band and https://register-of-charities.charitycommission.gov.uk/sector-data/sector-overview ↩ ↩² ↩³