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Key benefits of the Charities Act 2022

The Charities Act is now law and will create greater flexibility for charities, as Mark Lewis explains.

The Charities Act 2022 aims to reduce unnecessary administrative pressures on trustees which will, in turn, help to maximise the benefits that charities deliver.

Read our most up to date guide on the implementation of the Charities Act 2022 here.

The Act became law in February 2022; however, this was only the beginning of the story as the new Act is taking effect on a staggered basis. This implementation process commenced on 31 October 2022 and is ongoing, with completion expected in Autumn 2023.

Mark Lewis, Lodders Solicitors, Company Commercial, Partner, Stratford upon Avon

Lodders’ charity law expert Mark Lewis (pictured) sets out the various key features in the Charities Act that will be helpful and create greater flexibility for charities:

Permanent endowment and trust corporation status

Put simply, permanent endowment is money or property that may not be expended. Under the Charities Act 2011, corporate charities may not hold permanent endowment property or assets, as these may only be held for the original purpose for which they were given and kept separate from the corporate assets of a corporate charity.

The Charities Act 2022 has amended some wording in the 2011 Act, with corporate charities no longer excluded from the powers to hold permanent endowment. A corporate trustee may have trust corporation status which permits this.

The change, which came into force on 31 October 2022, gives corporate charities greater flexibility to deal with permanent endowment funds and in particular simplifying the power to spend permanent endowment capital and creating a statutory power to borrow against permanent endowment.

Learn more about permanent endowment here.

Remuneration of charity trustees

The Charities Act 2011 contains a provision which means that trustees can be paid for services (and goods in conjunction with those services) that they provide to or on behalf of a charity, which are over and above their normal trustee duties.

For example, if a charity trustee were a carpenter by trade and built some shelves for the charity’s offices, they would be paid for providing that service and for the materials used to build the shelves to the charity. However, if a charity trustee owned a wholesale stationer and wanted to provide pens and paper to the charity, they would not be able to be remunerated.

Practically speaking, this means that many charities might include an express power in their governing documents which allows them to remunerate trustees for the supply of goods without supplying services in conjunction.

The new Charities Act 2022 changes the provisions of the Charities Act 2011 to now allow for trustees to be paid for services or goods. These changes came into effect on 31 October 2022 and mean that charities will not need to include express powers in their governing documents to allow for the remuneration of charity trustees for goods supplied to the charity. The new wording allows for flexibility as charities can remunerate trustees for just services or just goods (or both).

However, these new provisions will not mean that the express powers are overwritten and obsolete. The express powers contained within charities’ governing documents will be supplemented by these new statutory powers, enabling charities to pay specific trustees for the supply of goods (subject to any conflicts of interest and/or any other controls).

The changes provide easier access to remuneration for charity trustees and will help to alleviate some of the administrative burden of the charity. They also allow access to these powers for charities who do not have these provisions in their governing documents, and they provide clarity to the sector as a whole on whether provisions concerning remuneration for goods are appropriate.

Equitable allowance

The Charity Commission will be granted the power to remunerate a charity trustee where they have done work for the charity, and it would be unfair for the trustee to not be remunerated for that work. This remuneration is known as an equitable allowance. However, it should be noted that this change is not scheduled to come into force until Autumn 2023.

Currently, trustees must apply to court to authorise a payment of an equitable allowance, meaning additional administration and a potentially considerable waiting time for the trustee(s) to be remunerated. This change will provide yet another part of administrative relief and hopefully have the effect of a quicker provision of the equitable allowance.

Charities Act 2022 – further changes

  1. Greater flexibility with regard to the disposal and mortgaging of land, subject to various safeguards.
  2. The ability to change governing documents which will be aligned as between unincorporated charities and corporate charities – whether companies or charitable incorporated. This should make it more straightforward for unincorporated charities to change their objects.
  3. It will be easier for small ex gratia payments to be made. We await updates on the proposed reform to ex-gratia payments, and the timing for implementation.

Mark will be issuing further clarification with regard to these and other aspects, with further articles in relation to the particular matters when they come into force.  As well as highlighting the relevant revised Charity Commission guidance where this is appropriate. To receive these articles directly into your inbox, please click here to subscribe.

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