Reform of charity law in the UK has been on the agenda recently for legislators both north and south of the border. Those operating charities cross-border will know that the rules governing charities in Scotland are not entirely consistent with those that apply in England and Wales. While the new Charities Act 2022 for England and Wales received Royal Assent on 24 February this year, the Scottish Government began a consultation process in January 2019 to reform charity law, but have yet to introduce a Bill. In this article we consider some of the key changes brought in under the Charities Act 2022 and what this might mean for the ongoing Scottish reform process and your charity.
The changes introduced by the Charities Act 2022 have been designed to reduce bureaucracy and make the regulation of charities more straightforward, as well as aligning the rules that apply to different legal forms of charity.
Under the new legislation, trustees of unincorporated charities will be given a general power to amend certain parts of the charity’s governing documents without the need for prior consent from the Charity Commission. This replaces an array of different rules that were in place depending on the charity’s structure and powers granted in its governing document, and aligns the position of unincorporated charities (including trusts) with those of Charitable Incorporated Organisations (CIOs).
As is the case with CIOs currently, when the new rules come into force in Autumn 2023, more significant changes to a charity’s constitution, including those relating to its objects, dissolution and rules on paying trustees and members, will still require consent.
In Scotland, prior approval from Office of the Scottish Charity Regulator (OSCR) is required before changing your charity’s name or purposes (for any legal form of charity) – other changes to the constitution need to be notified to OSCR but do not need prior consent.
Until now, the Charity Commission would approve changes to a charity’s objects if they were satisfied that it would be in the charity’s best interests. A more robust test has been introduced which involves consideration of, for example, the purposes of the charity when it was established and the wider social and economic situation at the time of the proposed changes. Small changes to the wording of your objects clause which don’t change its substance will no longer need to be approved first by the Charity Commission.
While these changes are not due to come into force until later next year, when they are implemented this could make it more difficult for charities to make changes to their stated purposes. It may be worth thinking about any changes you wish to make to your charity’s constitution now in case it could be beneficial to do this before autumn 2023.
In Scotland, OSCR will consent to changes of objects where they are happy that you have the power to change your purposes in your constitution and that the proposed new purposes are charitable. Minor changes to the wording still require prior consent.
From autumn 2022, the administrative workload in dealing with failed fundraising appeals should be lessened. By allowing charities to reuse donations from those who have given up to £120 in a financial year for similar charitable purposes when the appeal doesn’t raise enough money, this will remove the need to find and contact donors of smaller amounts to return money to them, and will allow for your charity to benefit from more of the donations given.
New powers are coming to allow the Charity Commission to ratify trustee appointments where there has been a mistake during the appointment process which has made it invalid. This should help you to avoid issues with the legitimacy of actions taken by trustees whose appointments may have been unintentionally defective.
Charities are also being given a statutory authority to pay trustees for goods as well as services. Under existing rules, trustees can be paid for services they provide to the charity in limited circumstances e.g. being subject to a written agreement and being in the charity’s best interests. They could not be paid for goods provided to the charity, including those used to provide the service. From late 2022, trustees can also be paid for goods, subject to the conditions for remuneration, which will remain.
In Scotland, there are restrictions relating to the remuneration of charity trustees, including that at any given time, fewer than half of the trustees can be in receipt of remuneration (in addition, the maximum amount of any such remuneration should be reasonable and specified in an agreement and the board should have decided that entering into such agreement is in the interests of the charity, and trustee remuneration must not be prohibited in the charity’s constitution).
The initial consultation on updates to charity law in Scotland focused mainly on improving transparency and broadening OSCR’s enforcement powers. A further consultation process was carried out in late 2020 and early 2021 with the hope of providing a more wholesale modernisation of the rules that apply to charities operating in Scotland. Many of the changes brought in south of the border have not been expressly considered as part of the ongoing legislative process in Scotland, so it remains to be seen whether these new rules might encourage consideration of more changes with a more practical effect to make day-to-day administration easier.
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