Charities Act 2022 reforms: what, when and why?

The Law Commission published a report in 2017 recommending some technical changes to charity law. The Charities Act 2022 seeks to implement those changes with the overall aim of reducing unnecessary bureaucracy for charities. The Act is being implemented in three stages. The first group of reforms came into force on 31 October 2022 and the government intends to implement the remaining legislation by autumn 2023.

The first reforms

The first group of reforms, which came into force at the back end of last year, included:

• giving Royal Charter and Act of Parliament charities an easier process for amending their constitutions
• more relaxed rules to enable donations to failed appeals to be applied for similar purposes rather than having to be returned to donors
• enabling a charity to pay trustees to supply goods and services to the charity
• giving automatic trust corporation status to corporate charities to make it easier for them to deal with land – under previous rules a corporate charity often had to appoint a second trustee
• giving the Charity Tribunal power to make advance assurances to charity trustees that they can legitimately incur legal costs and seek a refund from charity funds when getting involved with charity tribunal proceedings.

What next?

We expect the second tranche of reforms to come into force in spring 2023. These include reforms to the current rules on permanent endowment, charity land and charity names. Permanent endowment is property given to charity with the intention that it should be held forever and not used up as income. The rules surrounding permanent endowment are not always easy to apply and the reforms aim to remove inconsistencies and clear up areas of uncertainty.

Another area of charity law that has been criticised as too complicated to apply in practice is the regime surrounding charity land disposals. The original rules were designed to prevent charity trustees making unwise or reckless decisions by ensuring that the best terms were obtained when disposing of or mortgaging charity land. The Act aims to make these protections easier to apply and should be welcomed by charity trustees and conveyancers alike. The second tranche of reforms also includes giving the Charity Commission (the Commission) power to force a charity to change its working name if it is inappropriate, misleading or offensive. Under existing powers, the Commission can force a charity to change its official name but there is a loophole that enables an organisation to continue using a misleading or offensive working name. Using inappropriate or misleading working names was seen as tarnishing the reputation of charities generally.

A third and final tranche of provisions is scheduled to be brought in in autumn 2023. These include reforms to the current rules on amending charity governing documents, charity trustee remuneration, powers to appoint charity trustees and charity mergers. The rules on making changes to charitable purposes for all forms of charity will be harmonised. Currently there are differences to the rules as they apply a charitable company, CIO or unincorporated charity.

The Commission will be given new powers to order a charity to pay charity trustees for work they have carried out for the charity where it would be unfair for them not to be paid. This will avoid the need for a charity to go to court to authorise these payments or benefits. The Commission will also be able to officially ratify the appointment of a charity trustee where it is not clear whether they were properly appointed in the first place. There will also be reforms to smooth out technical wrinkles in the current rules dealing with legacies to a charity that has merged with another institution where details of the merger have been entered in the Commission’s register of mergers.

Ex gratia payments

The government has deferred implementation of proposed reforms to the rules on ex gratia payments. An ex gratia payment involves charity trustees paying out charity funds to fulfil a moral obligation which may not fit with the precise interests of the charity. An example might be where a charity is left a property by will and the charity trustees decide to make a payment to the deceased’s carer or allow the carer to stay on in the property. The reforms will enable charity trustees to make small ex gratia payments without having to seek Charity Commission consent. An unforeseen consequence of this is that national institutions like the British Museum may find it easier to give back items from their collections based on moral grounds. This possible consequence was neither considered nor agreed when the legislation was being debated in Parliament. These changes were originally due to be implemented in autumn 2022 but have been delayed until the impact on national museums and other charities is fully understood.

Despite taking some time to come into force, the changes in this legislation will undoubtedly make the processes surrounding charity land disposals, charity mergers and changes to a charity’s objects much clearer and easier to use for all those concerned.

If you have questions about what the reforms mean for your charity, please contact Robert Meakin.