1. “New look” Charity Commission - in force from 27 February 2007

1.1 The Charity Commission will have new statutory objectives, general functions and general duties defined in the Act:

1.1.1 The “objectives” are public confidence, public benefit, compliance, charitable resources and accountability.

1.1.2 The “general functions” are, in summary, determining charitable status, encouraging better administration of charities, investigating misconduct, issuing public collections certificates and disseminating information to the public and government.

1.1.3 The “general duties” are, in summary, acting in accordance with its objectives, performing its functions with reference to efficiency, effectiveness, economy, the principles of best regulatory practice and good corporate governance, acting in a way which is compatible with charitable giving and volunteering and having regard to the desirability of innovation by charities. The duty to have regard to the principles of best regulatory practice specifically refers to the obligation to act in a way which is proportionate, accountable, consistent and transparent, but does not refer specifically to an obligation to act fairly and reasonably. The Government argued that this was not necessary as the Commission has a general obligation, in common with all other public bodies, to act fairly and reasonably in any event.

There is no statutory obligation on the Commission to differentiate clearly between when it is giving directions to a charity, and when it is simply giving advice. But it is understood that the Commission is taking steps in this direction as a matter of practice.

1.2 The Charity Commission will become a body corporate, rather than a body of individual Commissioners. It will have a chair and up to eight other members, all appointed by the Minister for the Cabinet Office. At least two of the members must be legally qualified and one must be associated with Wales. Their knowledge and experience must include charity law, charity accounts, charity finance and the operation and regulation of different types of charity.

1.3 Terms of office of Commission members will be limited to three years: although they can be reappointed there will be a prohibition on anyone holding office for more than ten years in total.

1.4 As has been the case in practice since 2004, there will be a chief executive. The chief executive and other staff are appointed by the Commission, but the terms and conditions are subject to the approval of the Minister for the Civil Service.

1.5 The Commission will remain a non-ministerial government department. This means that government ministers have no legal power to give directions to the Commission. The Act makes it clear that although the functions of the Commission are performed on behalf of the Crown, the Commission will not be subject to the direction or control of any Minister or government department. But there was controversy during the Act’s passage through Parliament as to whether this status would give the Commission sufficient independence: this issue must be reviewed in 2011, as part of a general obligation on the Government to review the Act’s impact at that stage.

1.6 Greater accountability is provided for by the requirement for a public annual report and an annual public meeting at which questions relating to the report may be asked.

2. Charity Commission powers - in force from 27 February 2007

2.1 The Commission is given power to determine who the members of a charity are, on the application of the charity or following institution of a formal inquiry under section 8 of the Charities Act 1993.

2.2 The Commission is given a new power to enter premises and seize documents, under the authority of a magistrate’s warrant. The power can only be exercised once a section 8 inquiry has been instituted. The power is not limited to charity premises and may therefore include a trustee’s home. Written records must be kept and produced on demand.

2.3 The Act gives the Charity Commission power to relieve trustees, auditors and independent examiners from liability for breach of trust or duty, provided they acted honestly and reasonably and ought fairly to be excused for the breach. Previously only the court had this power.

2.4 The Act introduces a presumption in favour of allowing a trustee who has been disqualified from acting as a trustee to serve again after five years, in the absence of special circumstances. This will not apply to someone also disqualified from acting as a company director.

2.5 The Act introduces a new obligation for the Commission to give charities a copy of orders it makes under its protective powers, together with a statement of its reasons for making the order. This is a very welcome change which should help increase transparency for charities affected by these orders. There is an exception where the Commission considers it would prejudice any inquiry or investigation or would not be in the interests of the charity. From February 2007, this obligation will apply to orders under section 18 of the Charities Act 1993 (the Commission’s protective and remedial powers), and is likely to apply to other new Commission powers once they come into force in 2008.

2.6 The Commission’s old power to give formal advice to charity trustees under section 29 of the Charities Act 1993 is replaced by the new Act. But the changes to the power are minor – previously it related to advice on any matter affecting the performance of the duties of the charity trustees – it is now extended to any matter otherwise relating to the proper administration of the charity. But it is difficult to see what difference this will make in practice. There is also a new general power for the Commission to give such advice or guidance with respect to the administration of charities as it considers appropriate.

2.7 The provisions of the Charities Act 1993 that govern disclosure of information to, and by, the Charity Commission are modernised. In particular, there are tighter controls on the disclosure of Revenue and Customs information.

3. Trustee indemnity insurance - in force from 27 February 2007

The Act will introduce a statutory power for charities to purchase trustee indemnity insurance subject to certain safeguards: this will be a welcome relief for charities which currently have to make a formal application to the Commission if there is no express power in their constitution.

4. Powers for unincorporated charities to modify administrative powers or procedures - in force from 27 February 2007

The Act extends the existing power of trustees of small unincorporated charities to modify their administrative provisions. All unincorporated charities, regardless of size, will be able to modify their administrative provisions or procedures without giving public notice or prior notice to the Charity Commission. In the case of unincorporated associations with a body of members separate from the trustees, the approval of two-thirds of the members will be required, or approval at a general meeting by decision taken without a vote and without any expression of dissent.

5. Changes to restrictions on mortgages of land - in force from 27 February 2007

The Act amends section 38 of the Charities Act 1993 to extend the situations in which a charity does not require the formal authority of the court or the Charity Commission to allow its land to be used as security. Previously, only mortgages securing loans were covered by this regime: now mortgages securing grants and other obligations will also be covered.

6. Relaxation of publicity requirements for schemes - in force from 27 February 2007

The Act replaces the previous compulsory publicity regime for Charity Commission schemes with a more flexible approach giving the Commission discretion over whether publication is necessary and if so, the time limits which are appropriate.

7. Changes to audit thresholds - in force from 27 February 2007

7.1 The thresholds determining when unincorporated charities must have their accounts professionally audited and when the trustees can instead elect to have them independently examined, are changed. The audit level is raised to gross income in excess of £500,000 or £100,000, where an unincorporated charity has assets with an aggregate value exceeding £2.8m. The new thresholds apply to financial years beginning after 27 February 2007.

7.2 The audit exemption threshold for charitable companies is amended so that a charity with a gross income between £90,000 and £500,000 (previously between £90,000 and £250,000) and with assets of not more than £2.8m (previously £1.4m) may have an accountant’s report instead of an audit. The audit exemption threshold for charitable groups is correspondingly amended so that a charitable company which is part of a group with a net turnover not more than £700,000 (£840,000 gross) may have an accountant’s report instead of an audit.

8. Reserve power to control fundraising - in force from 27 February 2007

8.1 The Act gives the Minister for the Cabinet Office reserve power to control fundraising by charitable institutions, by conferring a power to make such regulations as appear necessary or desirable for, or in connection with, regulating charity fundraising. This includes fundraising for charitable, benevolent and philanthropic purposes. The definition of charity fundraising excludes primary purpose trading but is broad enough to cover professional fundraising agencies.

8.2 The Act refers in particular to imposing good practice requirements and goes on to define this as meaning requirements to ensure that fundraising:

8.2.1 does not unreasonably intrude on privacy

8.2.2 does not involve unreasonably persistent approaches to persons to donate funds

8.2.3 does not result in undue pressure being used to procure donations

8.2.4 does not involve making any false or misleading representations on a number of specified matters.

8.3 It is not intended that these powers will be exercised during the first few years of the Act coming into force. As an alterative to government-imposed regulation, the Home Office and Scottish Executive have given funding to the Fundraising Standards Board to put in place a mechanism for the self-regulation of fundraising in the charity sector. The FSB launched in February 2007: for more information see www.fsboard.org.uk.

8.4. The principles which the Government will use to decide whether the self-regulation regime has been successful have been developed following public consultation. They include high levels of voluntary participation across the sector, the development of performance indicators following consultation with stakeholders and flexibility to identify and respond quickly to emerging trends in fundraising practice. For more information see the Ministerial Statement of 6 February 2006 on the Cabinet Office, Office of the Third Sector website www.cabinetoffice.gov.uk/third_sector, under Charity Law and Regulation, Fundraising.

9. Miscellaneous - in force from 27 February 2007

9.1 From 27 February 2007 the Act will allow participation of Scottish and Northern Ireland charities in common investment funds and common deposit funds: previously only charities in England and Wales were permitted to invest.

9.2 Sections 70 and 71 of the Act will give Secretaries of State and the Minister for the Cabinet Office Government, and the Welsh Assembly, power to give financial assistance to charities, meaning that they will no longer need to rely on the annual Appropriation Act, in which Parliament sanctions government expenditure of state funds. These changes are purely procedural and do not mean that more funds will be available. The Welsh Assembly’s power will commence from 27 February: the powers of English officials will commence on 1 April 2007.

10. Registration of small charities – April 2007

The Act introduces a new power for the Minister for the Cabinet Office to change the income threshold above which small charities are required to register with the Charity Commission. This power will be implemented with effect from 27 February, and is expected to be exercised by an order taking effect from the beginning of April 2007. The expectation is that the income threshold will be increased from £1,000 to £5,000 and the requirement for charities that hold permanent endowment or to occupy land to register regardless of income will be abolished.

When will the rest of the Charities Act 2006 come into force?

The next group of provisions from the 2006 Act are expected to be brought into force in October 2007, with a further group coming into force in early 2008. For some key areas (notably public collections), no implementation date has been announced other than a “not before 2009” date.

For further information:

Please do not hesitate to contact Christine Rigby at c.rigby@bateswells.co.uk, or Alice Faure Walker at a.faurewalker@bateswells.co.uk, or your usual contact at Bates Wells & Braithwaite. Alternatively, you may write to us at the address below:

Bates Wells & Braithwaite
2-6 Cannon Street
London EC4M 6YH
Tel: 0207 551 7777
Fax: 0207 551 7800